• Net Sales Growth (Q4 2024): 9% increase to $1.58 billion.
• Comparable Sales Growth (Q4 2024): 14% increase.
• Operating Margin (Q4 2024): 16.2%, up from 15.3% last year.
• Gross Margin (Q4 2024): 61.5%, compared to 62.9% last year.
• Earnings Per Share (Q4 2024): $3.57, a 20% increase from last year.
• Net Sales Growth (Full Year 2024): 16% to $4.95 billion.
• Operating Income (Full Year 2024): $741 million, a 53% increase.
• Operating Margin (Full Year 2024): 15%.
• Gross Margin (Full Year 2024): 64.2%, up from 62.9% last year.
• Earnings Per Share (Full Year 2024): $10.69, a 72% increase from last year.
• Free Cash Flow (Full Year 2024): $527 million.
• Store Openings (2024): 65 new stores, 12 rightsizes, and 48 remodels.
• Total Stores (End of 2024): 789 stores.
• Digital Sales (2024): 46% of total sales.

• Warning! GuruFocus has detected 3 Warning Sign with KPTSF.

Release Date: March 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Abercrombie & Fitch Co (NYSE:ANF) reported a strong fourth quarter, with net sales growth of 9% and a 14% increase in comparable sales.
• The company achieved a record operating income of $741 million for the year, reflecting a 53% increase from the previous year.
• Both Abercrombie and Hollister brands delivered double-digit sales growth, with Hollister's net sales up 15% and Abercrombie's up 16%.
• Abercrombie & Fitch Co (NYSE:ANF) successfully expanded its global presence, with significant growth in the Americas, EMEA, and APAC regions.
• The company generated over $500 million in free cash flow, enabling it to eliminate funded debt and repurchase 3% of its shares.

Negative Points

• The company faced a 550 basis point headwind from the 53rd week in 2023, impacting net sales growth.
• Higher freight costs and air usage to support delivery times negatively affected gross margins.
• Abercrombie brand experienced a more normalized transition into spring, resulting in a slight negative performance compared to Hollister.
• The company anticipates continued cost pressures from higher freight and more normalized carryover inventory selling in the first half of 2025.
• Marketing expenses increased, leading to a slight deleverage in operating margins for the first quarter of 2025.

Q & A Highlights

Q: How are you seeing current business trends given the macro environment, and what are the opportunities for the core Abercrombie and Hollister divisions in terms of pricing and category enhancements? A: Fran Horowitz, CEO, noted that 2024 was an outstanding year with balanced growth across brands and regions. For 2025, they are seeing positive trends in February, with Hollister performing strongly and Abercrombie showing some green shoots. The company remains agile, focusing on controlling what they can and chasing successful products. Scott Lipesky, COO, highlighted the global growth opportunity, particularly in international markets like the UK, Germany, and China. Robert Ball, CFO, emphasized a disciplined approach to pricing, maintaining healthy gross margins without significant price increases.

Q: Could you discuss the cadence of the year and how you're thinking about bridging the first quarter operating margins with the full year? Also, can you comment on inventory levels? A: Robert Ball, CFO, explained that inventory is up 22%, with units up 6% to support expected sales growth. The remaining increase is due to higher freight costs and a more normalized seasonal carryover inventory. Freight costs are expected to normalize in the second half of the year, flipping to a tailwind. The company is happy with its pricing architecture and expects to maintain healthy gross margins.

Q: Can you elaborate on the 4% to 6% first-quarter revenue growth guide and how each brand will contribute to comp growth? A: Fran Horowitz, CEO, stated that Hollister has greater momentum entering 2025, but both brands are expected to grow. They are seeing positive trends in categories like dresses, skirts, and swimwear. Robert Ball, CFO, added that the operating margin is expected to face some cost pressures in the first half, but these should abate as the year progresses.

Q: Could you quantify the freight drag in the first quarter versus the tailwind in the second half, and discuss inventory expectations for the year? A: Robert Ball, CFO, noted that freight contributes about 5 points to the inventory increase, with costs expected to normalize in the second half. Air usage was higher in Q4 to mitigate shipping disruptions, but is expected to decrease. Inventory levels are expected to align with sales growth, with units in line with sales by year-end.

Q: Can you discuss the promotional activity in Q4 and provide a bridge for the gross margin changes? A: Robert Ball, CFO, explained that freight was a significant pressure on gross margins, despite AUR growth. Promotions were up slightly in January to clear carryover inventory. The company expects promotional activity to normalize as the year progresses, with a focus on maintaining healthy AURs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.