A&F(US:ANF)2020-11-24 18:16Financial Data and Key Metrics Changes - Total company revenues declined by 5%, which was better than the forecasted decline of 15% to 20% [7][24] - Digital revenues rose by 43% to a record $382 million for the third quarter, with significant improvements in traffic and conversion rates [8][24] - The total company gross margin rate expanded by 390 basis points, benefiting from reduced promotions and better foreign exchange rates [9][28] - Operating income was $65 million compared to $25 million last year, marking the best Q3 operating income since 2012 [30] Business Line Data and Key Metrics Changes - At Hollister, sales declined by 7%, which exceeded internal expectations, with strong performance in girls' dresses and guys' shorts [10][24] - Gilly Hicks experienced double-digit sales growth, including over 100% digital growth from last year [11] - Abercrombie's combined sales declined by 2%, with women's experiencing double-digit sales growth [14] Market Data and Key Metrics Changes - By region, net sales declined by 4% in the U.S., 1% in EMEA, and 22% in APAC, which is the smallest region [24] - Reopened store productivity was approximately 75% of prior year levels across regions, with improvements noted in store traffic [25][26] Company Strategy and Development Direction - The company is focused on optimizing its global store network, with plans to close additional flagship locations to reduce costs and improve profitability [18][19] - There is a commitment to enhancing digital and omni-channel capabilities, with digital sales expected to account for a larger portion of revenues moving forward [21][58] - The company aims to balance its store presence with digital growth, emphasizing the importance of both channels in the omni-channel retail strategy [58] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the holiday season, acknowledging uncertainties related to COVID-19 and potential store closures [22][34] - The company is focused on controlling inventory and maximizing digital throughput while preparing for potential challenges in the upcoming quarter [22][33] - Management remains confident in the long-term profitability and margin targets, despite the challenges posed by the pandemic [42] Other Important Information - The company ended the quarter with cash and cash equivalents of $813 million and total liquidity of approximately $1.2 billion [31] - Capital expenditures for the year are expected to be around $110 million, with a focus on both store and digital technology investments [31] Q&A Session Summary Question: Insights on remaining flagships and Gilly Hicks growth - Management confirmed plans to close seven more flagship stores, focusing on repositioning to smaller, more local locations [38] - Gilly Hicks is experiencing strong digital growth, and the company is taking a cautious approach to its expansion until store operations normalize [39] Question: Long-term operating margin opportunities - Management remains confident in achieving long-term operating margin targets, emphasizing a shift towards variable costs and reduced fixed costs [41][42] Question: Denim trends and markdown impacts - The company has seen positive trends in denim, particularly in women's categories, and lower markdowns contributed significantly to gross profit improvements [45][46] Question: Working capital performance - The company has successfully managed working capital, benefiting from extended vendor terms, and aims to maintain lean inventory levels [49][50] Question: Flagship strategy and supply chain costs - Management reiterated that large flagships are not part of the future strategy, focusing instead on intimate brand experiences [53] - Increased shipping and handling costs are anticipated due to higher digital sales volumes and carrier rate increases [54] Question: Digital business growth and profitability - The digital channel has significantly contributed to operating margin expansion, and the company plans to continue leveraging this growth [68]