Abercrombie & Fitch Company (ANF)

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Abercrombie & Fitch (ANF)

Q2 2014 Earnings Conference Call

August 28, 2014 08:30 A.M. ET

Executives

Brian Logan - VP, IR and Controller

Michael S. Jeffries - CEO

Jonathan E. Ramsden – COO

Joanne C. Crevoiserat - CFO and EVP of Finance

Analysts

Randy Konik - Jefferies & Company

Unidentified Analyst - J.P. Morgan

Kimberly Greenberger - Morgan Stanley

Paul Lejuez - Wells Fargo Securities

Janet Kloppenburg - JJK Research

Stephanie Wissink - Piper Jaffray

Dana Telsey - Telsey Advisory Group

Matthew McClintock - Barclays Capital

Janine Stichter - BMO Capital Markets

Anna Andreeva - Oppenheimer

Jennifer Black - Jennifer Black & Associates

Thomas Filandro - SIG

Betty Chen - Mizuho Securities

Barbara Wyckoff - CLSA

Gene Vladimirov - Nomura Securities

Jennifer Davis - Buckingham Research Group

Susan Anderson - FBR Capital Markets

Richard Jaffe - Stifel Nicolaus & Company

Liz Dunn - Macquarie Research

John Kernan - Cowen & Company

Presentation

Operator

Please standby we are about to begin. Good day everyone and welcome to the Abercrombie & Fitch Second Quarter 2014 Earnings Results Conference Call. As a reminder today's call is being recorded. (Operator Instructions). At this time, I would like to turn the conference over to Brian Logan. Mr. Logan, please go ahead sir.

Brian Logan

Good morning and welcome to our second quarter earnings call. Earlier this morning, we released our second quarter sales and earnings, income statement, balance sheet, store opening and closing summary, and an updated financial history. Please feel free to reference these materials which are available on our website. Also available on our website is an investor presentation, which we will be referring to in our comments during this call.

Today's earnings call is being recorded, and the replay may be accessed through the internet at abercrombie.com under the Investors section. The call is scheduled for one hour. Joining me today are Mike Jeffries, Chief Executive Officer; Jonathan Ramsden, Chief Operating Officer; and Joanne Crevoiserat, Chief Financial Officer.

Before we begin, I remind you that any forward-looking statements we may make today are subject to the Safe Harbor statement found in our SEC filings. After our prepared comments this morning, we will be available to take your questions for as long as time permits.

With that, I hand the call over to Mike for some opening remarks.

Michael S. Jeffries

Thank you Brian and good morning everyone. I will comment on the numbers in a moment. But I want to start by saying the most significant development over the past quarter has been the great progress we believe we have made in evolving the fashion component of our assortment. Many of you have seen and commented on this with regard to our back-to-school floorset and we could not be more excited about it within the company.

Sales for the second quarter were somewhere below our plan but we have seen modest improvement since we set back-to-school in mid-July. Importantly we have been able to achieve this improvement despite adverse likes in our logo business as we work to strategically reduce that element of our assortment. We are confident that the evolution of our assortment will drive further improvements in sales as we go forward.

While we continue to operate in a challenging environment, we are please that we were able to exceed both our earnings expectations coming into the quarter, and prior year’s earnings, as we continued to manage expenses tightly and exceeded expectations on our profit improvement initiative.

We are also pleased that for the second quarter in a row our A&F brand comp close to flat, and we continue to see sequential comp sales improvements in our U.S. stores overall. From a merchandize standpoint we performed well during the quarter in Jeans, dresses and skirts.

Chase represented approximately 20% of the female assortment in the quarter and we expect to roughly double that figure for spring 2015. And while Chase currently represents a much smaller percentage of the male assortment we will be looking to significantly expand its use there as well.

Meanwhile we continue to make good progress on AUC with like to like AUCs expected to be down for the balance of the year and through 2015. To compliment our evolving assortment we continue to focus on increasing brand engagement through enhanced marketing initiatives and campaigns, and are making great progress that many of you have also noticed. For back-to-school our marketing initiatives have been focused on developing digital editorial content around our newest product and key trends.

Being on track with our core merchandizing and marketing initiatives is critical to our efforts to stabilize and improve productivity levels in both our U.S. and international stores and while some of these initiatives will take time to fully pay off, we remain confident we are on the right track.

Turning to our international performance we continue to be pleased by our expansion efforts in Asia. During the quarter we opened our 8th Hollister store in China and on Saturday we will open our first mall based A&F store in Chengdu. In Japan we opened our 3rd Hollister store during the quarter at LaLaport Tokyo Bay and we remained very pleased with the volumes and profitability of our Hollister stores in both China and Japan.

We look forward to accelerating our store openings in both markets in 2015. We also continue to be excited about the Middle East where we plan additional openings in Dubai and Abu Dhabi this year.

In Europe comps remain challenged. The general economic situation in Europe remains difficult, and at any time weakens during the quarter. But we believe that our company-wide merchandizing initiatives as well as pricing, marketing and other initiatives within key markets in Europe and they help us stabilize productivity.

Read the rest of this transcript for free on seekingalpha.com