Good day, and thank you for standing by. Welcome to the Abercrombie & Fitch second quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised today's conference is being recorded. I would now like to turn the conference over to your speaker today, Mo Gupta. Please go ahead. Thank you. Good morning, and welcome to our second quarter twenty twenty-four earnings call. Joining me today on the call are Fran Horowitz, Chief Executive Officer, and Scott Lipesky, Chief Financial Officer and Chief Operating Officer. Earlier this morning, we issued our second quarter earnings release, which is available on our website at corporate.abercrombie.com under the Investors section. Also available on our website is an investor presentation. Please keep in mind that we will make certain forward-looking statements on the call. These statements are subject to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of nineteen ninety-five and are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mention today. These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission. In addition, we'll be referring to certain non-GAAP financial measures during the call. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are included in the release and the investor presentation issued earlier this morning. Finally, references to Abercrombie brands include our Abercrombie and Fitch and Abercrombie Kids brands, and references to Hollister brands include our Hollister and Gilly Hicks brands. With that, I will turn the call over to Fran. Thanks, Mo, and thank you all for joining us this morning. I am incredibly proud to report our financial results exceeded the expectations we provided in May and set second quarter company records for both net sales and operating profit. We delivered strong second quarter net sales growth of 21%, reaching $1.1 billion with an operating margin of 15.5%. We achieved these outstanding results while also funding long-term growth priorities across regions and brands. After a historic success in the first half, our teams are energized, and we've entered the second half ready to deliver for our global customers. I am thrilled with our start to August, and we are raising our full-year sales growth and profitability expectations. For more context, in 2024, we've set out to demonstrate sustainable, profitable growth on top of a defining fiscal year result in 2023. I'm so proud of how we're showing up for our customer, and we are clearly seeing them respond. In addition to record second quarter sales, this was our seventh consecutive quarter of net sales growth in a dynamic, often uncertain consumer environment, which underlies the strength of our brands, our team, and our playbook. We work every day to satisfy new and returning customers' needs across product, voice, and experience. I believe our global brand portfolio is as strong as it's ever been. Combined with an agile, modern supply chain and a culture of financial discipline, we believe we have all the pieces in place to deliver on our goals across a variety of macro environments. Sharing a bit more detail on Q2, I wanna call out a consistent theme we've demonstrated over the last five quarters. We are delivering strong top-line results while also maintaining balance in how we're growing. Our second quarter sales growth was broad-based, fueled by expansion across regions, brands, and genders. We also saw growth in both units and AUR, consistent with the past five quarters. There's balance in our product, too, with growth across key categories as our teams are delivering lifestyle assortments with increasing relevance to our local customers. On the gross profit line, we saw two hundred and forty basis points of rate expansion compared to last year. This was driven by higher AUR and improved product costs, partially offset by higher freight costs. We also delivered operating leverage in the quarter while funding important marketing, digital, technology, and people investments to support our long-term aspirations. All this great work led to operating income of $176 million for the quarter, nearly double the second quarter results from the prior year. Continuing the theme of balance, we delivered growth across regions in the second quarter. The Americas continued to lead the way with 23% net sales growth, consistent with the first quarter. The Americas grew across markets with nice increases in traffic across direct selling channels. In EMEA, putting aside a pandemic-related sales rebound in early 2022, we demonstrated growth on growth for the first time in over ten years, delivering 16% growth on top of 4% in the second quarter of 2023. Customers in both the U.K. and Germany continued to respond to the localized assortments, and we're engaging with them through increased marketing and brand presence. Finally, APAC grew 3% in the quarter on comparable sales growth of 21%, where we continue to be led by our focus markets of China and Japan as we engage that customer in new and different ways. We are energized to see the progress we've made to localize our playbook across regions this quarter, but we know there's more runway ahead of us. On to the brands. Abercrombie brands had another outstanding quarter, with net sales growth of 26% on top of 26% growth in the second quarter of 2023. Balanced growth continued in men's and women's and across categories, with seasonal shorts, swim, skirts, and dresses performing well. We also saw balanced growth in both AUR and units, as well as new and existing customers. As a follow-up to our highlights in the first quarter, the Wedding Shop continued to contribute nicely and has proven to be a great assortment extension. The reaction from customers has exceeded our expectations, and we have now entered the men's side with some suiting options to complement our dresses. We continue to prioritize customer acquisition in Abercrombie, funding effective marketing campaigns across digital and social channels. We're excited to enter the back half with more customer activations planned. In the U.S., we released our latest NFL collection, further expanding on what has been a great partnership. Related to the collection, we have a number of exciting social and digital campaigns planned throughout the season to drive engagement. It's just one example of how Abercrombie Brands is working to win with both new and current customers in the second half of the year. Moving on to Hollister Brands, we continue to build momentum. Net sales growth of 17% exceeded our expectations and accelerated sequentially from 12% growth in Q1. Importantly, the balance continues from first quarter, with both men's and women's growing, as well as expansion in both unit sales and AUR, the latter driven by lower promotions. On the product side, women saw balanced growth across categories, with particular strength in skirts and dresses. In men's, we saw shorts and graphic tees contribute to the growth. With the additional week of back-to-school selling in the second quarter, we were pleased to see consistent growth trends, and I'm very happy with how back-to-school is going for us so far. With great product, our goal now is to amplify the brand. On top of new store locations and refreshed store experiences, we're investing in incremental marketing to increase engagement and reintroduce Hollister Brands to our target audience. This increased marketing investment spans across digital and social channels, as well as through authentic real-life experiences and activations. One example is our Feel Good Fest, which is a concert and festival put on in partnership with high schools across the country. More recently, as back-to-school and fall school sports have kicked off, we launched the Hollister Collegiate Graphic Shop. The collection of quality basics, including crew neck sweatshirts, hoodies, and tees, touting vintage-inspired university logos and graphics, represents more than thirty universities across the United States. Hollister Brands is building nice momentum, and we believe product collections like this can help bring new customers into the brand. As we reflect on our team's success and strong second quarter results, I am as confident as ever in our global growth potential and our ability to make continued progress on growth and profitability in twenty twenty-four, as reflected in our increased expectation for sales and operating margin. As we enter the back half, our team remains on offense while looking forward to the holiday season, and I'm thrilled with what we've seen in the third quarter so far. Looking further out, with a strong family of brands, a proven playbook, and an evolving regional operating model, I believe our relationship with the customer continues to improve, and we all see tremendous opportunity ahead. We continue to further strengthen all aspects of the customer journey, developing a consistent, enduring business that can grow and succeed even in these dynamic and often uncertain times. A huge thank you to our associates around the world, whose hard work, dedication, and support of our customer have put us well on our way to sustainable, profitable growth in 2024. And with that, I'll hand it over to Scott. Great, thank you. To echo Fran, we were very pleased with the first half of the year. Our teams continued to execute at a high level across the business, managing the day-to-day while continuing to make progress in our long-term investment plan. Getting into the results for the second quarter, we delivered record net sales of $1.13 billion, up 21% compared to last year, with growth across regions and brands. Similar to the first quarter, this is the first time in the history of the company we delivered over $1 billion in net sales in a fiscal second quarter. On a reported basis, we saw a 320 basis point benefit from the calendar shift from the fifty-third week in 2023, consistent with our expectation. Comparable sales grew 18%, representing the fifth consecutive quarter of double-digit comp sales growth in both the stores and digital direct selling channels. On a regional basis, we again delivered growth across regions. Net sales grew 23% in the Americas, 16% in EMEA, and 3% in APAC. On a comp basis, sales grew 18% in the Americas, 17% in EMEA, and 21% in APAC. In the Americas, similar to last quarter, we saw balanced growth across markets. In EMEA, the U.K. and Germany continued to lead the way, and we've now delivered year-over-year growth for five consecutive quarters in the region. In APAC, we saw a large spread from comp to net sales growth, which was primarily driven by foreign currency and net store closures. From a brand perspective, Abercrombie Brands delivered strong growth with net sales up 26% to last year, while Hollister Brands' growth accelerated to 17% as our customers responded favorably to our assortments and our marketing. On a comp basis, Abercrombie grew 21% and Hollister grew 15%. For gross profit, we delivered a rate of 64.9% for the quarter, up 240 basis points compared to the 62.5% rate in 2023. We saw year-over-year benefits from lower cotton costs, as well as a benefit from lower promotions across brands on well-controlled inventories and strong product acceptance. These benefits were partially offset by higher freight costs. We ended the quarter with inventory up 9% to last year, with all brands in a clean position entering the fall season. Moving on to expenses. Operating expense, excluding other operating income, was $561 million for the quarter, compared to operating expense of $497 million last year. We continued to drive operating expense leverage with operating expenses as a percent of sales of 49.4%, an improvement of 380 basis points compared to last year. We saw similar themes to the first quarter in terms of year-over-year OpEx growth, with higher variable expenses on sales growth, as well as inflation and increased investments in marketing, digital and technology, and people.... For marketing, second quarter expense was in line with expectations, finishing at around 4.5% of sales. Operating income was a record $176 million, or 15.5% of sales, compared to operating income of $90 million or 9.6% of sales last year. Net income per diluted share was $2.50, up from $1.10 last year. EBITDA totaled $215 million or 19% of sales, compared to EBITDA of $126 million or 14% of sales last year. On the balance sheet, we ended the quarter with cash and equivalents of $738 million and liquidity of approximately $1.2 billion. We delivered operating cash flow of roughly $165 million and had $43 million of capital expenditures. We repurchased $15 million worth of shares, ending the quarter with $202 million remaining on our current share repurchase authorization. During the quarter, we fully redeemed the Senior Secured Notes at par value with cash on hand, ending the quarter with no funded debt. We also amended and extended our Asset-Based Credit Facility. The maximum size of the credit facility was increased from $400 million to $500 million, inclusive of a new $100 million European sub-facility. Moving forward, with the redemption of the Senior Secured Notes behind us, we expect to prioritize share repurchases to put excess cash to work in the back half, subject to business performance, share price, and market conditions. At a minimum, we expect to buy back shares to offset net dilution from stock compensation. On the store fleet, we ended the quarter with 757 stores. For the first half of the year, we opened 18 new stores, remodeled or right-sized 30 stores, and closed 26 stores. New and remodeled store performance has exceeded our expectations, and we are excited to deliver many new store experiences in the weeks and months to come. For the full year, we expect to deliver approximately 60 new stores, 60 remodels and right sizes, and 40 closures. Shifting to our expectations for the rest of fiscal 2024. We've had a strong start to the year, delivering record net sales in the first half, and the momentum has continued in the first few weeks of the third quarter. For the third quarter, we expect net sales to be up low double digits compared to the third quarter 2023 level of $1.06 billion, including a year-over-year headwind of around $10 million or 90 basis points due to the calendar shift in the 53rd week in 2023. We expect growth across regions and brands and minimal impact from foreign currency. We expect operating margin to be in the range of 13%-14%, compared to 13.1% in 2023. We expect the gross profit rate to be consistent with 2023, now that we are through the majority of the cotton benefit, and we expect to see year-over-year freight pressure in the quarter. We also plan to continue investing in our brands and infrastructure, which we expect will moderate potential OpEx leverage, keeping expected operating margins around 2023 levels. We expect an effective tax rate in the mid-20s%. For the full year, we now expect net sales growth in the range of 12%-13%, up from the 2023 level of approximately $4.3 billion, an increase in the previous outlook of up around 10%. This outlook continues to include an adverse impact of around $50 million from the loss of the 53rd week in 2023. We've included a table in the press release to provide more detail on expected sales and comparative growth impacts by quarter and for the full year. For operating margin, we expect to be in the range of 14%-15%, increasing the high ends compared to our prior outlook. We continue to expect the year-over-year improvement to be driven by gross profit rate expansion from the combination of lower cotton costs and higher AURs on lower promotions and clearance selling, slightly offset by higher freight costs. We also continue to expect full-year expense leverage while executing our agile funding process to find ways to accelerate investments in the business in the months to come. We expect an effective tax rate in the mid-20s% and capital expenditures of approximately $170 million. To finish up, we are very happy with how our teams are executing across the business. We delivered record financial results in the first half, improved our balance sheet with the elimination of funded debt, and continued to invest in our brands and infrastructure. We look forward to executing our plans in the back half to deliver sustainable, profitable growth this year. Operator, we are now ready for questions. Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered, and you wish to remove yourself from the queue, please press star one one again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Dana Telsey with Telsey Advisory Group. Your line is open. Hi, good morning, everyone, and congratulations on the very nice results. Fran, as you think about the back-to-school selling season and the AUR growth, what have you seen in each brand? How does it differ by category? And then, Scott, unpacking the operating margin guide for the third quarter of 13%-14%, I think the consensus had been a little bit higher. Is it the gross margin with the freight expenses or the reduction of the lower cotton costs? If you could just expand on that, on impact that a little bit more. Thank you. Hey, Dana. Good morning. Yes, super excited about our quarter and certainly for the first half of the year. I mean, outstanding to have a second quarter of $1 billion in sales and a balanced performance across brands, regions, and genders. Thrilled with back-to-school, both as we came out of the second quarter and how we started the third quarter. What we're seeing in back to school is a nice reaction. You know, the team got to work. It was actually two years ago this quarter when we took a step back a bit and had to really inspect what was going on with our back to school and our Hollister brand, which we spent a lot of time rebuilding and rebranding. ... What we're seeing is continued AUR growth. You know, since twenty nineteen, we've had double-digit growth in actually both brands, and excited to see what that's driven by, which, as you know, it comes down to product acceptance and financial control of our inventory. So we're seeing a balanced growth across brands and categories. Hey, Dana, it's Scott. I'll pick up the Q3. So yeah, coming off a great first half, you know, so nice to see us set records for sales there in first quarter, second quarter, also record operating margin, or I'm sorry, operating income there in Q2. As we think about Q3, you know, very excited to come again with an up low double digits outlook, you know, on the top line versus strong growth last year. Like Fran said, you know, good start to the quarter here. Happy with back to school and what we're seeing out of Hollister and Abercrombie, obviously. You know, breaking apart the rest of the P&L for Q3, you know, on the gross profit rate line, what we're thinking is, you know, we have a little bit of freight hurt. You know, we'll probably get a little bit of AUR here in the quarter for all those reasons Fran just mentioned, and keep it pretty stable. And then on the operating expense line, hey, we're gonna continue to aggressively invest in the business. We're investing in the short term, you know, some of those marketing efforts, but we're also making big, significant long-term investments in the business. Just make this infrastructure stronger, make our brand stronger. So the way we see that is maybe you know, moderating that OpEx leverage a little bit versus what we've seen in the last couple of quarters. So super excited about the guide for Q3, excited about the full year, taking up those sales outlook, as well as expanding that operating margin outlook to 14%-15%. You know, really exciting times for the company. Thank you. One moment for our next question. Our next question comes from Corey Tarlowe with Jefferies. Your line is open. Great. Thanks, and good morning, everybody. Morning, Corey. On the growth at Abercrombie, one of the really impressive aspects of the momentum that you've seen is your permission to go into other categories. So you highlighted the wedding shop, you've expanded the NFL partnership, and I've seen the new merchandise in stores, and it looks awesome. And you even highlighted growth in swim, which is a category that I think has been pressured across, many other retailers in the sector. So could you maybe just talk about how you think about the various growth vectors for the Abercrombie brand, and which of those growth vectors do you think could be most sizable over time? And the other reason I ask that is because, like, the YPB brand, which you didn't mention in your prepared remarks, but I see that it seems to be doing fairly well in stores. I'm curious how you think about ranking the various drivers of growth for Abercrombie as we look ahead. Hey, Corey. Okay, so let's break that down a little bit. Incredibly excited about the performance for ANF. I mean, to your point, twenty-six on twenty-six, growth on growth was super exciting to see, and that is being driven, as I say all the time, by staying close to the customer. I mean, the team really spends a lot of time on customer insights and really understanding what matters to this consumer. Wedding shop, great example, beat our expectations again. We'll continue back into the fall seasons. You know, as we've talked about, weddings are now, you know, two, three, four-day occasions, and they're all year round. The wedding season has really expanded well into the fall season. I'm glad you had a chance to go see that NFL collection. That's another great example. You know, we started with the NFL, that partnership about two or three years ago, started small, started to build. Now proud to carry all 32 teams and have added categories, so last year, you know, mostly focused on fleece and T-shirts, but now you'll see sweaters and outerwear and hats, et cetera, so again, that's how we do it. We test, we learn, we continue to add categories and build on momentum, so as far as prioritizing, you know, there's just lots of exciting things happening out there. I guess you actually mentioned YPB as well. You know, we're into our third year of growth in that category. Again, that was specifically asked for by our consumer, knowing that we could give them the right quality, the right product, and the right fashion for them, and they've responded. So lots of exciting things happening and continuing into the back half. Great. And then could you just highlight what you're seeing from a digital perspective? I do believe that channel is also margin accretive, so would just be curious to hear about the momentum that you're seeing there, because it seems like that channel is doing quite well based on what we're seeing in our alternative data. Hi, Corey. Yeah, Scott, I'll grab this one. So digital has been doing well. Again, double digit comps we're seeing across channels. And really, I, I kind of take it back a couple of years ago, you know, between the strength of the brands, the strength of the assortment, and really the teams we put in place on the digital side to improve that experience. You know, day in, day out, we're making investments in that experience, you know, across apps, across mobile web, and we're seeing that come through. You know, so with great products, you know, we're managing the inventory, and we have a great experience. You know, it's really setting up our digital business to grow. So we're excited about the growth we've seen. We expect more growth in the future, and we're investing there and just excited, excited about what we're seeing. Great. Thank you very much. One moment for our next question. Our next question comes from Matthew Boss. Matthew Boss with JPMorgan. Your line is open. Thanks, and congrats on another nice quarter. Thanks, Matt. So, so Fran, could you elaborate on the clear excitement across brands? I think you said three times on the call how thrilled you were about August, and just category trends that you're seeing into early fall and back to school. I think then, Scott, it would be helpful, just relative to the 14%-15% operating margins this year, just how best to think about incremental margin expansion opportunities multi-year? ... Hey, Matt. So I'll kick off. So yes, to reiterate, an outstanding second and first quarter, great first half to the year. What we are most excited about is the fact that our growth is coming very balanced. So it's coming across brands, it's coming across regions, it's coming across genders. That's obviously what's enabled us to raise our full year outlook on sales growth and op margin for the year. We're seeing a lot of consistency in categories. Tops are working, bottoms are working. We continue to have this incredibly growing dress business that's happening both in Abercrombie as well as in Hollister Girls. We're also seeing new categories working, and we just added some suiting to complement the Wedding Shop for him, so when he goes with her on all these elongated wedding weekends, he can also dress in Abercrombie Best-Dressed Guest outfitting. So lots happening. You know, back to school time, we're seeing, you know, nice excitement about denim, this low-rise baggy that we all called out here at Abercrombie, you know, a couple of months ago and got after is working. So again, very balanced what we're seeing across brands, genders, regions, as well as categories. Hey, Matt, I'll grab the other part. Yeah, so thinking about 14%-15% operating margins this year, you know, first off, very excited to be talking about those for the company. We've done a lot of work, you know, on every line on the P&L, and excited to see that coming through in the numbers. As we look out into the future, not a lot to talk about today, but, you know, we believe we have opportunities across the P&L. You know, number one, on the top line, we feel like we have a lot of growth left across our brands and regions. You know, we talk a lot about the Americas. It's by far our biggest region, growing at strong double digits, and that's with, you know, a whole lot of real estate opportunity left across brands and just a lot more customer growth available here in the U.S. You know, you put that on multiples as we think about the international business. We are under-penetrated in both Europe and APAC, so we are very focused on growing our customer base across those regions, building brand awareness, and growing the top line, and we believe we can do that. As we think about the gross margin line, we talked a little bit earlier, we've made good strides on AUR. You know, we're continuing to execute good product acceptance, good inventory management. Is there more on gross profit rate? Yeah, we can get more to continue to sell less clearance. You know, we—you know us, you know, we go into every quarter, we wanna keep that AUR flat. If we can get more, we can get more. And then on the OpEx line, you know, it's about investing in the business for the long term, and if we can do that in the right way with good returns, we should see that operating leverage into the future. So that's really... It's how we've gotten here, you know, over the past, and it's how we're thinking about the future. It's great color. Best of luck. One moment before our next question. Our next question comes from Paul Lejuez with Citi. Your line is open. Hey, thanks, guys. Curious if you could maybe talk about the progression of sales throughout the quarter, and also what you saw from a promotional perspective relative to what you thought you were gonna see, what you're seeing for back to school on promotions, and what you have built in for the fourth quarter as well, and then just, Scott, any sense of the year-end cash balance and just what you want to keep on the balance sheet in terms of minimum cash? Thanks. Yeah, let me kick off, Paul, and Fran. You can add any color, obviously. The progression of sales throughout the quarter, you know, nice Q2, double-digit growth in each month of the quarter, which is exciting. And again, talking about double-digit growth as we get here, into Q3, you know, as we mentioned it, Fran, you know, we're excited about the start of Q3. You know, our business actually improved pretty dramatically, you know, nicely in the past. We really ramped up last year, in 2023, back to school as Hollister started to get back into a groove. So we're excited to be talking about growth on growth again here in the third quarter. Promotional, you know, nothing is jumping off the page to us. I think you're seeing the brands that are performing well, you know, being promotional, but promotional in their own way. That's the same way. You know, we're executing against our plans, and happy with that. You know, we always talk about being a promotional business, and we continue to do that, and we like the promos we're delivering. The customer is responding well. Yeah, within that, too, I would say, Scott, I mean, we, as we've said, Paul, many times, you know, our promotions are based on our business. We work with the team literally every Monday to see, you know, what's working, what's not working in our business, and we drive our promotions based off of that. They've come down, as you well know, considerably, you know, over the years. So yes, we'll always have some promotions in our business. We're not seeing anything extraordinary at this point. And then the last piece, year-end cash balance. You know, no target sitting here today. We are really excited to get the Senior Secured Notes, those 8.75% notes behind us, paid those in full in Q2, and came out of the quarter with a nice cash balance, $700 million, and nice liquidity at $1.2 billion. You know, looking out in the back half, I talked about, you know, we'll focus more on share repurchases with excess cash and just really like the fact that we have a strong balance sheet. It's continuing to enable us to invest in any environment. We're opening, you know, 120 new store experiences this year. I talked a minute ago about investing in digital. We're investing in our teams outside of the U.S. and inside the U.S., and really setting up the company for long-term, sustainable growth. So we're gonna use that strong balance sheet in that way. Thanks, guys. Good luck. Thanks. One moment before our next question. Our next question comes from Marni Shapiro with the Retail Tracker. Your line is open. Hey, guys. Congratulations on an amazing quarter and first half. And best of luck with back to school, in case I forget. Can you talk to us about two things? One, your loyalty efforts in each of the brands. I'm just curious, you know, is your consumer engaged? Are you using loyalty programs? Are they meaningful? Are they growing? And then if you could also, Fran, just talk about your decision to partner with an external company to grow Abercrombie Kids and what that could mean for some of your other brands or sub-brands. ... Hey, Marni, good. Hey, good morning. Are you still there? Morning. I'm here, I'm here. Okay. Yeah, so exciting, the partnership that we just signed with Haddad. So we've talked for a while about, you know, the majority of our business being owned and operated, and that we're continuing to look for opportunities to grow our business around the world. Our brands are stronger than ever, as you know, and an opportunity to partnership to grow kids, particularly outside of North America, where the majority of our businesses today, just speaks to long-term opportunities ahead for us. Yeah, on the loyalty efforts, Marni, you know, happy with the programs. They continue to grow. It's a great way for us to engage with consumers, but it's just like every other piece of the consumer engagement, we're always looking at them. How do we evolve? What is the next level for loyalty? So that's something that we continue to think about, just like every other piece of that customer engagement. So we're thinking about that today, and we'll continue to think about it into the future. But to date, the loyalty programs have been a great asset for us. And just, is there a percentage of your customer base that comes through the loyalty programs? Is it, you know, 50% are signed up? Is it higher than that? I'm just curious. Yeah, it's higher than that. We haven't given an exact number, but it's a good piece of our sales come through that loyalty base. Excellent. Thanks. I'll let somebody else take the next. Thanks, guys. Thanks, Marni. One moment for our next question. Our next question comes from Alex Straton with Morgan Stanley. Your line is open. Perfect. Thanks for taking the question. Congrats on a great quarter. I just have two for you here. One is just on the growth margin, freight being higher. I feel like a lot of peers are actually speaking to it still being a tailwind, so I'm just curious, you know, what's happening there and then your outlook for the rest of the year. And then for inventories, I saw up 9%. I think it's the first time we've seen an inventory build like that, in a bit. So I'm just curious, you know, how you feel about levels, composition, and how should we think about where that goes for the rest of the year? Thanks a lot. Yeah, yeah. For us, I'd say on the gross margin side, freight has turned to a bit of a headwind as we've got here in the back half. I think you've seen the ocean rates spiking up. That's been well documented out in the market. And then we're also seeing the air rates, you know, spiking up a bit, too. As there's some freight coming in here to the U.S., it's been a little busier than normal here in the summer season. So for us, it's a little bit of a friction that's baked into our outlook. So, you know, nothing much more to say there. We're managing through, you know, whatever's happening, you know, continues to happen in the Red Sea, as well as other lanes coming from Asia. On the inventory side, yeah, up 9%, you know, really feel great about inventory at this point. Units are up, you know, units are less than that. We have a little, you know, extra freight in there because of those higher costs, as well as tilting more into Abercrombie, and that brings a higher cost versus product versus Hollister. So year over year, you get a little bit of a mix hit on that up 9%, but units have been tightly controlled. Each brand continues to be in that read and react chase mode, and we're excited how that sets us up for the holiday season. Great. Good luck. One moment for our next question. Our next question comes from Mauricio Serna with UBS. Your line is open. It looks like they disconnected from the queue. I'll move on to our next question. Our next question comes from Janet Kloppenburg with the JJK Research. Your line is open. Jan, your line is open. Hello? You can ask your question. Yes. Hi, I'm sorry. I was on mute. I apologize. Congratulations to you all. That was one heck of a quarter. Thanks. I wondered about... You know, you've had many, many quarters now of positive comps on top of really healthy, positive comps. I'm wondering about clearance inventory levels, Fran, and, you know, are they starting to normalize, or do you continue to be lower year over year? And how you think about your promotional cadence in the back half versus, you know, lean promotions last year. And then just for Scott, on the freight, do you expect that freight-- in your guidance, do you expect that freight continues to be elevated, or do you see it retreating sometime in the fourth quarter? Just wondering about the pace there. Thank you. Thanks, Janet. Let me just make sure I have the question right here. I mean, regarding our clearance levels, they are certainly lower than they have been in the past. You know, at some point, they certainly will normalize. But the way that we are running the business, as you well know, you know, keeping this lean inventory, keeping it very fresh, as just Scott mentioned a few minutes ago, very pleased with where the levels are, and making sure that the team stays in this read and react mode, and delivering our inventory just in time, and knowing a bit about our inventory before we really go after it aggressively, is what's been driving this reduction in clearance, and our expectations continue to run the business as we are. Yeah, on the freight, I'd say not sure at this point. No one really can predict where the freight rates are gonna go. They've been bouncing around a lot this summer. So for us, what we're doing is we're baking in elevated freight. We assume that continues into the, you know, into and through the fourth quarter. We'll talk about twenty twenty-five. We'll obviously learn a lot more as we get through kind of the holiday peak of deliveries here in that September-October timeframe and see what twenty twenty-five looks like. But at this point, we're baking in higher rates for Q3 and Q4. But that would offset the AUC tailwinds? Y ou know, diminished AUC tailwinds, like, does the freight increase totally compensate for that, Scott? And just for Fran, if you could talk about what you think about promotional levels for the second half of the year, year-over-year, I think that would help. Thank you. Yeah, let me grab the AUC piece. So when you break apart AUC, and a lot of the things we've been talking about over the years here is freight and cotton. You know, and cotton, looking at that, the commodity, we've gotten through the biggest part of that tailwind here in Q2. You know, really nice to see the cotton market has been pretty stable. It's been kind of settling in around this 70 cent range. So we'd like to see that, you know, kind of around pre-pandemic levels. So that, that could be a nice little tailwind as we go in the future. Not material like we've seen over the past couple quarters, coming off those really high rates over the past couple years. But when you think about that, you know, freight versus cotton, you know, maybe they net out, maybe one wins one quarter, one loses the other quarter. So we'll see. But, you know, as we're thinking about it, it kind of nets, and then we're gonna focus on, you know, delivering that lean inventory, seeing what we can do on promotions and seeing if we can get a little bit more AUR and just continue these strong gross profit rates. Yeah, I mean, the promotional level to the back half, yeah, certainly the fourth quarter is always the most promotional quarter of the year. But as we think about heading into the back half and with the success that we're having right now, you know, with back to school and momentum we have in August, our expectation, as it always is, is go into each quarter with the expectation that our promotions will be the same or lower than they were the season... Sorry, the quarter prior. But we do it weekly. You know, we do it weekly with the team to see what's working, what's not working, heads down on our business, not worrying about what's happening in the rest of the mall, but focused really on our business. Thanks so much. Lots of luck for a good second half. Thank you. One moment for our next question. Our next question comes from Mauricio Serna with UBS. Your line is open. Great. Good morning. Thanks for taking my question. Sorry about dropping off a few minutes before. Congrats on the results, first of all. I guess, first, a couple of questions on sales. Could you talk about what kind of growth you saw in U.K. and Germany? I know you've done a lot of work to, you know, improve the brand's positioning on those markets. So we'd be interested to hear more about that. And then on the guidance, updated guidance for the year, I think, like, if you're backing out to Q4, the sales outlook implies like roughly 6.5%-7.5% growth, you know, when excluding the impact from the calendar shift. So why are you seeing that, you know, makes you a little bit more conservative about Q4 relative to Q3? Thank you. Hey, Mauricio. All right, so let's start with U.K. and Germany. Yeah, the great thing is those are our two largest countries in Europe, and they were two of our fastest-growing countries in Europe. And as we talk about this localization effort that we've been making over the past, call it year or so, you know, we're really focused on the U.K. and Germany coming out of the gates. So we've increased our marketing spend, we've increased our product assortments in these countries and really focused there. Obviously, you start at the top on your biggest countries, and then we'll continue from there. So great to see those efforts working. You know, the strength in these two countries is really carrying the day in EMEA, because, again, they are the largest two countries. So really happy with what our teams are doing in those regions. As we think about guidance for Q4, yeah, I mean, Q4 is way out in the distance. You know, we're focused here on Q3. Excited to be talking about low double-digit growth in Q3 on top of a plus twenty last year. You know, really exciting to talk about the strength of the brands and the continued growth. Q4, obviously, we'll talk a lot more as we get there. You know, at this point, yeah, when you take away that five and a half, you know, basis points or percentage points from the fifty-third week, it's still, again, growth on top of growth of a very strong Q4 last year. So really happy where the brands are positioned, where the company is positioned, and where the inventory is positioned as we get into the back half. Got it. And then just a quick follow-up on gross margin. I think if I understand the message from, you know, when you were talking about Q3 guidance, it kind of says that you expect gross margin to be relatively flat. Is that the same expectation for Q4? And, you know, like I remember, like you used to provide a little bit of more details on contribution from, you know, cotton and AUR to Q2 gross margin gain. Could you provide any more details behind that? Thank you. Yeah, we provided some detail in the past. Obviously, there were some big, big moving parts. Those things have stabilized, so there's less detail in there. You know, as we talk about Q2, you know, nice AUR growth, saw some, you know, that last bit of that cotton come through and then offset with some higher freight. So that's kind of, you know, what we're seeing, you know, across the company as we go into Q3. Yeah, we're a little more stable as we've gotten through some of these big changes. And, you know, getting back to those levers that we talked about on the last question, you know, we'll look to drive a little bit of AUR growth, we'll see a little bit of hurt from freight, and then, you know, we'll see where the cotton costs come in for the quarter. So that's how we're thinking about gross margin for Q3. Nothing to talk about for Q4 yet. We'll grab that on the next call. Got it. Thank you, and congratulations on the results. Thanks. One moment for our next question. Our next question comes from Dylan Carden with William Blair. Your line is open. Thanks a lot. Curious, sort of in the interest of scaling the opportunity presented by aging up the Abercrombie brand, is there any detail, even anecdotally, about kind of customer mix shift that you're seeing, if you look at kind of who's buying the brand versus particularly sort of pre-pandemic? And sort of repeat purchases on top of that would be sort of helpful. Thanks. Yeah, yeah, Dylan, let me kick that one off. So yeah, we have definitely seen in our data the customer at A&F aging up versus pre-pandemic. We talked a lot about, you know, our goal was to separate that Hollister and Abercrombie brands. They were fighting in that teen space and aging up that Abercrombie consumer because we felt there was white space in kind of that post-collegiate, you know, early mid-twenties customer. And we've seen, you know, great results there, and we're seeing that age get up to that kind of mid-twenties, which is awesome. And, you know, back to the, you know, the next point of the question is, you know, retention versus new customers. We are out there grabbing new customers. Our marketing efforts have been very well done. They've been effective. So we're driving new customers, and we're also driving retention. You know, getting back to that first question around A&F when Fran talked about these different categories. So bringing in things like Best Dressed Guests, something small, making it big, bringing in NFL, bringing in YPB, these are all ways to retain our customers and give them something new each time they come back to us. So that's what we're working on as a, as a company and as a brand. We're really focused on new customer growth and retaining those customers for Abercrombie, because we have this new opportunity to keep them for a very long time in this, this part of life, and, and we're really excited about that, and we're seeing it come through in the numbers. Okay. Thank you. I'm not showing any further questions at this time. I'd like to turn the call back over to Fran for any closing remarks. Thanks, everyone, for joining the call today, and we look forward to providing more updates to you all soon. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.