Dana Telsey (Telsey) asked what markers give confidence in an Abercrombie brand acceleration through the year and into next, and how the credit card interchange settlement is being treated in guidance.
Fran said Abercrombie is in great shape with strong traffic, exciting partners (NFL), 17 stores opened in the first half and 20 more coming, carryover inventory worked through, and good reads on Boho and Western plus a strong denim event, with a return to growth expected by year end. Robert said guidance is on a GAAP basis and the $39M net interchange benefit is included in the 13%-13.5% margin guide; the guide moved as the ~$40M interchange benefit offset ~$40M of incremental tariffs (full-year tariff assumption raised from $50M to $90M), plus a little Q2 outperformance.
Dana Telsey (Telsey) followed up on the Abercrombie Kids entry into department stores and whether other brands might follow.
Fran said the global kids licensing launch is going well with positive feedback from partners like Macy's and Nordstrom, reaching new customers, and more operating-model expansion is coming. Scott added that kids has few stores so department stores put more eyes on the brand, whereas Hollister and Abercrombie already have great U.S. scale, so this is primarily a kids opportunity for now.
Corey Tarlowe (Jefferies) asked what stood out in Hollister's 19% momentum in Q2, what has been strong early in Q3, and what developments could sustain the momentum.
Fran said essentially everything is working across categories and both genders; the Y2K heritage reissue and a homecoming shop both saw tremendous sell-through, the Collegiate Collection is off to a good start, and the brand has momentum into the back half by staying dialed into the teen customer.
Corey Tarlowe (Jefferies) followed up on the state of carryover inventory, its shape for the rest of the year, and the split of tariff/inflation versus units.
Scott said big progress was made and inventory ended clean and current with the supply chain stable, up 10% at cost and 7% in units; tariffs added about a point to ending cost (per Robert) which will affect ending inventory values through the back half, and units will be managed tightly to support growth plans.
Matthew Boss (JPMorgan) asked about traffic cadence in Q2 and early back-to-school, what specifically missed plan at Abercrombie, and the progression of comps in Q3 and Q4 versus the down-11% in Q2.
Robert said traffic has been awesome and consistent across the globe, brands and channels, with growing customer files carrying into back-to-school, though they would not break out month-by-month cadence. Fran said the Abercrombie miss was the AUR pressure from carryover inventory, but the model lets them chase product with good reads on Boho, Western and denim.
Matthew Boss (JPMorgan) followed up on how to think about Q3 gross margin relative to the operating margin forecast implying over 300 bps of decline.
Robert said Q3 will see year-over-year margin pressure from ~$25M of tariffs (about a couple hundred basis points), only partly offset by a slight freight tailwind; AUR is assumed roughly flat. Off the 14.8% Q3 2024 operating margin, ~200 bps of tariff plus a little over 100 bps of marketing investment walks down to the 11%-12% guide.
Paul Lejuez (Citi) asked for more detail on the $90 million net tariff impact and mitigation offsets, and about the Europe business by country including intra-quarter trends and the second-half outlook.
Robert said the rate environment is still fluid so they are avoiding knee-jerk reactions, staying on offense with a diversified 16-country sourcing base, active vendor negotiations, opex efficiencies and pricing as a lever, though no broad-based ticket increases and most mitigation lands in 2026. Fran said the heavily-invested U.K. continues to succeed and that playbook is being exported across Europe starting with Germany, which stepped back this quarter but remains a long-term opportunity.
Marni Shapiro (The Retail Tracker) asked whether the ~100 bps of Q3 marketing increase is mainly the NFL/NCAA partnership launch and what to expect for holiday.
Robert said the team is funding full-funnel marketing across all three regions to build the brands long term, with increases to support the NFL fashion partnership and fall campaigns driving a little over 100 bps of Q3 deleverage, and marketing running a bit north of 5% of sales in the back half to support holiday.
Marni Shapiro (The Retail Tracker) followed up on whether marketing is balanced between social media content and events.
Robert said it is a fairly balanced approach driven by the marketing teams' strategies, citing the Lollapalooza event as an example of events they are leaning into while continuing to push social selling.
Alex Straton (Morgan Stanley) asked why store growth is the right path for the A&F banner, how many stores are envisioned by year end and over time, and for color on Hollister store growth.
Scott said stores are essential to the brand experience with new stores and remodels showing higher productivity and nice paybacks, and A&F, while more digitally distorted, is an omnichannel play needing both channels, with room to build out the fleet. Robert quantified ~60 store openings and ~20 closures (net 40) for the year, with 17 A&F stores opened so far and ~20 more on the docket (about 37 of the 60 tilted to A&F, the balance to Hollister).
Mauricio Serna (UBS) asked what the Abercrombie third-party channel headwinds meant, what gives confidence in a return to growth by year end, and how to break down the ~230 bps gross margin decline (40 bps tariffs) between carryover and freight.
Fran cited the first half being the second-best spring in brand history, strong traffic, exciting partners, fall campaigns, a successful denim event and good Boho/Western reads as confidence for a return to growth. Robert said the third-party headwind was just timing of partner orders that should normalize, and the gross margin pressure came from selling through higher-cost carryover inventory driving AUR down (Hollister up, Abercrombie down) plus about $5M of tariffs.
Mauricio Serna (UBS) followed up on whether freight affected Q2 gross margin and whether Abercrombie units were up despite AUR pressure.
Robert said nothing new on freight, which normalized as expected after working through about $10M of excess freight, and declined to give brand-level unit color, noting inventory units are nicely aligned with the outlook and will be managed tightly.
Adrienne Yih (Barclays) asked about tariff timing (August 7 wave and new India information) and how to think about potential price increases or further mitigation in the spring season.
Robert said guidance reflects information known as of August 25 with $90M of net tariff impact split $5M Q2 / $25M Q3 / $60M Q4, and they want the India situation to solidify before reacting; pricing is a lever but the customer does not come to A&F for price, so they will protect the value proposition, and mitigation across their four levers will take time with more color on 2026 to come.
Adrienne Yih (Barclays) followed up on the denim category, the spread of price points and whether this is a more premium denim cycle.
Fran said the exciting part is that it is not just one fit but a wearing-occasion-driven cycle spanning boot cut, low-rise baggy and wide-leg, with pricing driven by customer demand; Hollister denim (including the reissued rainbow-pocket heritage) is also very strong, and the denim cycle is driving Boho and Western tops with more to come for fall.
Janet Kloppenburg (JJK Research) asked whether Abercrombie & Fitch comps should gain momentum as it laps easier compares while Hollister laps tougher ones, implying a possible Hollister cooldown.
Fran said she owns and drives the total, with the outlook carrying first-half momentum into the back half on top of a record 2024, seeing continued Hollister excitement and improvement at Abercrombie. Robert called the 5%-7% growth outlook on top of a plus-14% Q3 last year reasonable, expecting Hollister to keep outperforming Abercrombie in Q3 without giving brand-level guidance.
Janet Kloppenburg (JJK Research) followed up on whether Abercrombie & Fitch AUR should improve as excess inventory levels moderate.
Robert declined to give brand-level guidance but said the goal each quarter is to hold the double-digit multi-year AUR gains across both brands through great product, controlled inventory and stepping away from a promotional day here and there for strong flow-through.