A&F(US:ANF)2020-05-28 19:20Financial Data and Key Metrics Changes - Net sales for Q1 2020 were $485 million, down 34% year-over-year, primarily due to store closures in the U.S. and EMEA [29] - Digital sales grew by 25% year-over-year, contributing positively to offset the decline in store sales [12][29] - Gross profit rate decreased by 610 basis points to 54.4%, impacted by inventory adjustments and strategic promotions [30] - Adjusted net loss per diluted share was $3.29 compared to a loss of $0.29 in the previous year [32] Business Line Data and Key Metrics Changes - Hollister's net sales were down 36%, while Abercrombie's net sales decreased by 30%, reflecting the higher digital penetration of Abercrombie [29] - Digital sales accounted for a significant portion of revenue, with over $1 billion in digital sales in 2019, representing about one-third of total revenue [10] - Performance varied by brand, with strong digital growth in Gilly Hicks and loungewear categories across brands [17][18] Market Data and Key Metrics Changes - U.S. net sales were down 31%, EMEA down 35%, and APAC down 51% [29] - As of the call, 409 locations were operational globally, representing 48% of the store base, with varying performance across regions [24] - Store traffic was building week-over-week, with some stores experiencing sales trends above last year's levels [25] Company Strategy and Development Direction - The company is focused on optimizing its global store network and enhancing digital and omni-channel capabilities [9] - A cautious approach is being taken regarding inventory management and expense reduction to maintain liquidity [26] - The company aims to emerge from the crisis stronger, with a focus on customer engagement and adapting to new consumer behaviors [28] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the unprecedented challenges posed by COVID-19 but expressed confidence in the company's ability to adapt and thrive [27] - The company is closely monitoring consumer behavior and adjusting strategies accordingly, particularly in digital marketing and inventory management [26][66] - There is optimism regarding the gradual reopening of stores and the potential for improved sales performance as customers return [25] Other Important Information - The company ended the quarter with $704 million in cash and cash equivalents, maintaining a strong liquidity position [34] - Share repurchases and dividends were suspended as a precautionary measure, but management views this as temporary [35] - The company is actively engaging in ESG initiatives, including partnerships to reduce waste and support sustainability [23] Q&A Session Summary Question: Inquiry about Asia's performance and online business - Management noted that while stores in China reopened, other parts of APAC faced closures, impacting overall performance [39] - Positive trends in fashion items were observed, indicating a return to shopping for post-quarantine opportunities [38] Question: Inventory and promotional environment expectations - Management indicated that inventory was managed effectively, with a focus on reducing orders and SKU counts [43] - The promotional environment was initially very promotional, but management is optimistic about managing inventory effectively going forward [44] Question: Store staffing and cost reduction opportunities - Management acknowledged the need to reassess store staffing levels in light of reduced foot traffic and increased safety protocols [47] - Cost reductions of approximately $200 million were achieved, with a focus on non-customer facing expenses [64] Question: Update on store closures and flagship discussions - Management confirmed ongoing negotiations regarding leases, emphasizing the importance of having the right size and location for stores [61] - No specific updates on flagship stores were provided, but discussions with landlords are ongoing [62] Question: Digital business and customer engagement - Management expressed confidence in the digital business's growth and its role in engaging customers during store closures [54] - The company is prepared to adjust its physical footprint based on the long-term digital penetration trends [74]