Abercrombie & Fitch Co. 2027 Q2 Earnings Call

Good morning, and welcome to our second quarter 2026 earnings call. Joining me today on the call are Fran Horowitz, Chief Executive Officer, Scott Lipesky, Chief Operating Officer, and Robert Ball, Chief Financial Officer. Earlier this morning, we issued our second quarter earnings release, which is available on our website at corporate.abercrombie.com under the investor section. Also available on our website is an investor presentation. Please keep in mind that we will make certain forward-looking statements on the call. These statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mention today. These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission.

In addition, we will be referring to certain non-GAAP financial measures during the call. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are included in the release and the investor presentation issued earlier this morning. With that, I will turn the call over to Fran.

Thanks, Mo, and thanks everyone for joining. I'm excited to report we delivered our 15th consecutive quarter of top-line growth on record second quarter net sales. Sales growth was above the expectation we set in May and was balanced across regions and brands, with both Abercrombie and Hollister brands achieving record second quarter net sales. While we benefited from tariff refunds in the quarter, we beat our outlook by more than the refund on both operating margin and earnings per share. Year to date, we've repurchased approximately 7% of shares outstanding at the beginning of the year. With the first half complete and a strong start to August, we're updating our full-year net sales outlook to the high end of our prior range and increasing our expectations on the bottom line, setting us up for another year of consistent, profitable growth in 2026.

Importantly, we're making meaningful progress across key strategic priorities, which we believe will further strengthen our foundation and set us up for long-term success. Diving into the results. For the second quarter, we delivered record net sales of $1.27 billion, growing 5% from last year, a nice acceleration from the first quarter. While we benefited from $100 million in tariff refunds, we beat our outlook by more than that on the bottom line, delivering an operating margin of 19.9% and net income per diluted share of $4.17 for the quarter. We continued to leverage our strong cash flow and balance sheet, returning $177 million to shareholders in the quarter through our tenth consecutive quarter of share repurchases. We grew in the second quarter across our regions. The Americas grew 5% in the quarter, with growth across our direct channels. EMEA saw a return to net sales growth of 2%.

The U.K. remains a strong growth market for us, and we saw good sequential improvement in Germany as well as in the Middle East, as the team has managed inventory and receipts well across the region. Our APAC business remains strong, growing 19% on comparable sales growth of 13%. Both our brands achieved record second quarter net sales, led by Abercrombie brands' growth of 8%, an acceleration from 3% in Q1. The brand also returned to comparable sales growth of 4% on improvements in conversion and AUR and full price selling, particularly in the Americas. Growth was balanced by gender and category, with knits and wovens contributing, along with a solid bottoms business across pants and shorts. Outside the strong financial results, it was an exciting quarter for the Abercrombie & Fitch brand.

The brand is rooted in 130 years of New York City heritage, and we're so excited to bring that authenticity to life in our new SoHo store. The new location represents the modern expression of the brand and has been very well received by customers. We're continuing to lean into our New York roots, with the city serving as a backdrop for our recent fall denim campaign, featuring the variety of styles and fits we're known for. We also continue to build on our connection to sport. We're entering our second year as the NFL's official fashion partner with an expanded collection across several categories, serving fans of all 32 teams with styles for men, women, kids, babies, and toddlers. We're bringing the partnership to life through both players and fans, reflecting the personal style at the center of Abercrombie today.

We featured Jaxson Dart and Malik Nabers of the New York Giants in our recent denim campaign, along with several other players we'll continue to highlight throughout the season. We're just getting started on back to fall for Abercrombie, with more to come as we build toward holiday. Turning to the record second quarter for Hollister. The brand grew 2% on top of a 19% increase in the second quarter last year, and also sequentially accelerated from a flat first quarter. We grew across regions and genders, led by strength in knits, shorts, and non-denim bottoms. Hollister's collaboration with Target, the brand's first meaningful wholesale and category expansion in the U.S., has performed very well against expectations and added nicely to top-line growth this quarter.

Having our product in over 1,500 Target locations has also given us access to new Hollister customers across the country while providing our existing customers new categories available on our owned digital app and web experiences to outfit their dorms. We are very encouraged by this partnership and underlies the potential for our brands to expand their reach through new distribution channels and categories. Hollister's back-to-school season continued to build as we exited the second quarter, and we have seen growth accelerate off of Q2 levels so far in August. We started the season with our Lollapalooza Festival launch, which included an exclusive collection with Y2K nostalgic styles expressed through a modern lens for the young adult customer, as well as on-the-ground activations at the festival. Additionally, we teamed up with rising star Freya Skye on our fall denim launch, featuring limited edition product and a broad range of denim styles.

We are excited by back to school, keeping Hollister on track to make 2026 the best ever sales result in the history of the brand. Halfway into 2026, we are diligently executing to the ambitious goals we set across the business. As a reminder, our four priorities for the year are, first, to grow sales across brands with continued investment in owned and operated stores and digital businesses while adding growth from partnerships and new product categories. Second, to stabilize gross margins by mitigating external cost pressures. Third, to continue to invest in tools and technologies, including AI, to improve speed and efficiency across the product and customer journeys. Finally, to maintain our strong profitability and fuel excess cash return to shareholders. We have made meaningful progress across all four of these objectives in the first half of 2026.

One area to highlight is the work we are doing to expand our reach through new distribution channels and product categories. We continue to be pleased with our Abercrombie Kids licensing performance, as well as the Target partnership I mentioned earlier, and we are very excited to build in a couple of areas this fall. First, we have seen good initial reads in our footwear and accessories business across brands as we bring new categories to support head-to-toe dressing. Second, we look forward to expanding the distribution of our NFL products, which will now be sold on NFLShop.com, in NFL Stadium stores, and an official team e-commerce sites in fanatics.com. I am so proud of this team as we continue to set sales records, improve gross margin, and control expenses while making important long-term investments.

We remain on offense, and our updated full-year outlook reflects increasing confidence that we can deliver balanced growth across brands and regions. We are also on the path to deliver industry-leading margins again this year, demonstrating the sustainability and overall quality of our business, powered by a culture of financial discipline. We see the quality in our cash flow as well. Coupled with a strong balance sheet, we now expect to return at least $500 million to shareholders through share repurchases for the year. While we have made meaningful progress so far in 2026, I am most excited about how much opportunity is ahead, and the proof points we are seeing show how uniquely positioned we are to capitalize on it. We remain on track to deliver strong results this year while staying focused on what will be the next great chapter of our journey.

Thank you to the entire team, the best in retail, for making it all happen. With that, I'll hand it over to Robert.

Thanks, Fran. Good morning, everyone. We delivered record second quarter net sales of $1.27 billion, up 5% and above the 2%-4% growth range we provided in May. Comparable sales were flat and AUR increased mid-single digits for the quarter, with lower promotions driving better-than-expected results to our outlook. By region, net sales increased 5% in the Americas, 19% in APAC, and 2% in EMEA. Comparable sales increased 1% in the Americas, 13% in APAC, and declined 4% in EMEA. In EMEA, the U.K. remained strong and Germany returned to growth. By brand, Abercrombie brands net sales increased 8%, with comparable sales up 4%. Hollister net sales increased 2% against last year's record, with comparable sales down 3%. Both brands grew net sales in the Americas. Abercrombie led to growth in EMEA, and Hollister led to growth in APAC.