Good day, and welcome to the Abercrombie & Fitch Co. Fourth Quarter Fiscal Year 2025 Earnings Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star-11 again. I would now like to turn the conference over to Mohit Gupta, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to our fourth quarter 2025 earnings call. Joining me today on the call are Fran Horowitz, Chief Executive Officer; Scott D. Lipesky, Chief Operating Officer; and Robert J. Ball, Chief Financial Officer. Earlier this morning, we issued our fourth 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 1995 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 will 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. With that, I will turn the call over to Fran Horowitz.

Thanks, Mohit. Good morning, and thanks for joining us today. Before we begin, I do want to acknowledge the situation in the Middle East, with associates and stores in the region. Our focus continues to be on their safety and well-being. Returning to our results, I am happy to report the fourth quarter finished on the higher end of the ranges provided in our early January update. Once again, we accomplished exactly what we set out to do. Holiday product acceptance drove record fourth quarter net sales with balanced growth across regions, brands, and channels, along with growth in earnings per share. As a company, our goal is to set clear commitments and then deliver on them, leveraging our strong foundation and operating model. We achieved another year of consistent results for 2025, with record sales, growth across regions and channels, and leading double-digit operating margins. Substantial operating cash flows also enabled strong returns of cash to shareholders via share repurchases. Looking forward to 2026, we expect to continue on a path of global growth and add to our track record of consistent strong profitability. For the fourth quarter, we delivered net sales growth of 5%, which was balanced across regions, brands, and channels. It was particularly great to see both brands deliver record fourth quarter net sales. At Abercrombie Brands, we achieved our goal of returning the brand to growth with 4% net sales growth on top of a record last year. Hollister Brand continues to deliver for the teen customer, producing an eleventh consecutive quarter of net sales growth at up 6%. With balanced top-line growth and continued financial discipline, we delivered an operating margin of 14.1%, including 360 basis points of tariff pressure. I have to recognize the team's incredible efforts here to meaningfully reduce the impact…

Thanks, Fran, and good morning, everyone. I would like to add my thanks to our associates around the world for staying agile and executing consistently throughout 2025. We are really proud of what we have achieved, and we have so much further to go. Starting with Q4 results, we delivered net sales of $1.67 billion, up 5% to last year on a reported basis. Comparable sales for the quarter were up 1%, with approximately 100 basis points of benefit from foreign currency. By region, fourth quarter net sales increased 5% in the Americas, 8% in EMEA, and 9% in APAC. On a comparable sales basis, the Americas was up 2%, EMEA was down 3%, and APAC was approximately flat. Within the brands, both Abercrombie and Hollister delivered record fourth quarter net sales. Abercrombie Brands returned to net sales growth, up 4% over last year on a comparable sales decline of 1%. Hollister Brands net sales grew 6% on comparable sales growth of 3%. Across the business, we saw mid-single-digit AUR growth and low-single-digit unit growth on increased traffic. Across regions and brands, the spread from net sales to comparable sales was driven by net new store openings, third-party channel performance, and favorable foreign currency. Operating margin was 14.1% of sales, coming in at the high end of the outlook we provided in early January, delivering operating income of $236 million, compared to $256 million last year. Adjusted EBITDA margin for the quarter was 16.6% of sales, on adjusted EBITDA of $276 million compared to $293 million last year. The 210 basis point year-over-year decline in operating margin was driven primarily by 360 basis points of tariff expense, which was partially offset in gross margin by 140 basis points of freight cost favorability, both included in cost of sales. Total operating…

To ask a question, please press star-11 on your telephone and wait for your line to be announced. Press star-11 again to withdraw your question. We ask that you please limit to one question and one follow-up. The first question comes from Dana Lauren Telsey with Telsey Advisory Group. Your line is open.

Hi. Good morning, everyone, and certainly nice to see the progress. Fran, after the building blocks that you put in place for 2024, for 2025, the collaborations that you did with the businesses, and frankly, returning to growth in the Abercrombie brand, and certainly saw what you saw with the Super Bowl and being the fashion partner. How do you think of the merchandising drivers of 2026 and what you are most excited about to drive growth? And then, Rob, as you think about the building blocks for margins in 2026, how do you think of AUR growth relative to price increases from tariffs and the impact of tariffs on margins going forward?

Dana, good morning. So excited about what we just delivered for both the fourth quarter as well as the year. Most excited that that was delivered with balance across regions, brands, and channels. What is driving our confidence as we head into 2026 is that it is the first time the company has ever done more than $5.0 billion in revenue. It is proof that our model is working. We delivered all of that, to your point, the last three years, double-digit margins, operating margins. Our playbook is working. Our model of chasing—we did not start the year with an expectation of Hollister to drive 15%. But with that model, we were able to chase millions of units to hit another 15% for Hollister. So I am excited about the opportunities ahead, and I am really looking forward to 2026.

Yeah, Dana. So on tariff impact here, our outlook does reflect that 15% being kind of held all the way throughout the balance of the year. Obviously, Section 122 here in the front half of the year, and then we are making the assumption of something pretty substantially similar to that carries us through the back half of the year. How that kind of cadences out: Q1, we talked about this 290 basis point impact on operating margins. That will be fully incremental year over year. We will start to lap small amounts of tariffs in Q2, early towards the back end of Q2. We talked about $5 million of tariff impact in Q2 of 2025, before kind of neutralizing in Q3 and then flipping to a bit of a tailwind for us for Q4. So that is kind of the cadence throughout the year. Total impact—incremental impact of about $40 million here for tariffs on a year-over-year basis. So that is roughly 70 basis points. We feel good about the mitigation strategies that we put in place here as it relates to country-of-origin changes, supplier negotiations, product costing, and then to your last point around pricing, we did take that pricing on spring products starting kind of late Q4. That will ramp as we move through Q1, so really only expecting some slight AUR improvement here in Q1, and then that will build throughout the balance of the year, so give us some modest AUR growth on the full year. We feel good about the mitigation strategies we put in place. We are tracking to another year of double-digit profitability, so excited to take that into 2026.

Thank you.

And the next question is going to come from Corey Tarlowe with Jefferies. Your line is open.

Great, thanks, and good morning, everybody. Wanted to ask first on Hollister, how you think about the sort of the right growth algorithm, if you will, for that segment—areas of success from Q4 and then areas of opportunity in 2026? And then I have a follow-up.

Hey, Corey. Good morning. So, yeah, super excited. Big shout out to the Hollister team. I mean, congrats to them on the best year ever, eleventh consecutive quarter of growth. And what is driving that is really being dialed into that teen consumer. For holiday specifically, we saw winners in categories like fleece and graphics and outerwear. We have invested nicely into that business. We opened lots of new stores this year. We refurbished a bunch of stores, spent money on marketing. Our Taco Bell collaboration on Cyber Monday was a terrific success. So I am excited about the team staying dialed into that customer, staying close to that customer. Spring, we are already seeing some nice response from the consumer. So we are excited to see another year of growth.

That is great. And then just more for Scott and Robert. There have been periods throughout, I guess, the last five-plus years where Abercrombie has invested in ERP systems, and you have not called out impacts. What is different about this implementation specifically? What does it allow you to do going forward? And then how should we be thinking about, again, that impact? Is it acute, or will there be any longer-lasting impacts from it? Thanks so much.

Yeah, great question, Corey. As you noted, this has been a multiyear undertaking for us, and it is great to have go-live in sight here. The system that we are replacing was originally built and released about fifteen years ago, and it was really architected for a very different business than what we are running today. This new ERP system allows us to support both the owned and operated omni business that we have, as well as the expectations of growth that we have across channels and categories, in a more efficient way. In terms of what you are seeing here in Q1 and the reason we have not called out any sales impact in the past is really it has been building. This has been building the system, getting ready for this go-live. What you are seeing here in Q1—we have been running parallel with this nonproduction instance for quite a while now. We have completed all the testing, final development, and now we are ready to go live, and that is what is coming up here in the next days and weeks. We feel like we have done the right work to ensure that we have got the units in the stores to support the sales during this transition. But the risk that we are calling out here in the outlook is primarily related to temporary interruptions in third party, some product interruptions in Chase over the next couple of weeks. In the end, it is all about making us faster as we think about new growth opportunities. So we are really excited to get this new system in place, and we feel like any sort of disruptions are contained to this couple-of-week period here in Q1, and we will be in good shape as we head into Q2.

Okay. Great. Thanks so much, best of luck.

Thank you. And our next question will come from Matthew Robert Boss with JPMorgan. Your line is open.

Great, thanks. So Fran, on your target for sales growth at both brands this year, how are you managing the intersection between Abercrombie's return to growth and the moderation at Hollister relative to last year? What do you see as normalized growth for the two concepts?

Hey, Matt. Good morning. I mean, our goal is obviously to grow both brands each year. Mid-single digits would be a definition of success for us. We are excited to see our model working. Coming out of fourth quarter where we grew the business again on top of a record and actually having another record year on top of 2024 is certainly proof that our operating model is working. I am excited that you are already seeing confidence in the consumer about some of our—you know, the increases in prices that Robert talked about a little while ago. Those are ramping up in our assortment, but the acceptance of spring has been good so far. So excited. I think Q4, what it defines, honestly, Matt, is a balanced performance, which is growth across brands, regions, and channels, and that is definitely our objective in 2026.

Great. And then maybe a follow-up for Robert. Could you just break apart the drivers by brand that support the embedded revenue improvement in the back half of the year?

In the back half of the year—in terms of sales, Matt, is that what you are looking at? Yeah.

Yeah, top-line improvement. About first quarter relative to the for the year.

Yeah, so again, if you think about where we came out of Q4, around that plus five and, again to Fran's point, balanced across brands, regions, channels—that is kind of what we are carrying into 2026. The big difference in what you are seeing in that step down from Q4 into Q1 with that one to three guide is really just that ERP impact that we are talking about. It is a couple of points here. But otherwise, it is a pretty consistent build as we think about the full year 2026. And that is how we are running this business. We are setting these clear expectations. We are going to control what we can control, and we have got the operating model that allows us to chase into revenue as we see those trends develop. So we feel like we are in a really good place, growth on growth, and excited to continue that trend here into 2026 in Q1.

Yeah, Matt. Hey, Scott. Just want to add towards the end there. As we think about store growth, as Robert noted, we are net store growers here for the fourth year in a row. We will do that again in 2026. And that store growth really ramps up towards the middle half. That is nice fuel to the fire there as we get into the back half of the year.

Great color. Best of luck. Thank you.

Thank you. And the next question will come from Paul Lawrence Lejuez with Citi. Your line is open.

Hey, thanks, guys. Robert, just a clarification on the ERP system impact. Is that something that we are going to see throughout the entire quarter, or is that still in front of us? And maybe if you can talk about what you are running quarter to date versus what you expect the next two months to be? Just want to understand the cadence of that impact. That is just the first question.

Yeah, I would say cadence is relatively consistent. Again, you know, we ended fiscal 2025 with Q4 and are carrying that into Q1. The ERP timing is really kind of a two-week period. We are right at the start of it here with the go-live, so it is really contained to that couple of weeks. We have gotten the inventory to our stores to support the Easter peak and the spring break timelines, so we feel good about providing and supporting our stores through there. It is really just a function of this third-party impact here over the course of the next two weeks.

So is the right way to think about it that you are running up, let us say, 3% to 5% outside of that two-week period, and that two-week period has got to be down significantly to have a 100 to 200 basis point impact on the whole quarter? Is that the right way to think about it?

Yeah, I do not know if it is down significantly. It actually is more of a—because of the way the third party flows through, it is really more of a comp-to-non-comp compression that you will see here over the course of the next couple of weeks.

Got it. And then can you just give us an update on your sourcing base, how you have made changes as we look out to fiscal 2026, just so we can monitor if there are any changes in tariffs by country that we might be able to keep tabs on that?

Yeah, so obviously we have talked a lot about our sourcing footprint over the course of the last year or so. Really proud of that diversified network that we have in place, and it has taken us years to build. We currently source from over 16 different countries. That has been a core enabler for us and our Read and React model. The approach is not changing, Paul. We are always evolving this network to make sure that we can service our brands, help with speed, and optimize costs. To your point, the tariffs have clearly introduced some complexity to the supply chain, but our position here has been pretty consistent, and changes here take time, and you obviously want to get them right and maintain quality levels. So we are focused on building the right partnerships for the longer term. I think as it relates to some of the more near-term news in the Middle East, we do have some sourcing operations there in the region. We have not experienced any disruptions that would have any sort of meaningful impact to the receipt plans that underpin our outlook, so we will keep monitoring that and keep agile with our sourcing base in total.

Got it. And then last one, just on the APAC strategic review. What just prompted that? And when should we expect to hear something from you on the outcome of that review?

I will jump in on this one. We have just finished our third year of growth in that region, and we really do believe in a long-term opportunity there. I will tell you, it is just a matter of assessing our go-to-market strategy within that region. We currently go to market several different ways there, and it is our responsibility to make sure that we are doing that in the most proper way for our shareholders. And so that is what the announcement was about.

Any timing on that front?

Early days, I would say. The process is just getting started, so we will provide updates as we go forward here as appropriate.

Thank you.

And the next question will come from Marni Shapiro with The Retail Tracker. Your line is open.

Hey, guys. I am curious if you could give us a little bit of an update on some of your licensing efforts, particularly in kids, and what that looked like. And then also just on international, you have had some wholesale efforts. I know I think you are on ASOS, for example. I am curious if your go to market in EMEA and APAC would include more wholesale opportunities like that to sort of build your brand regionally alongside your own efforts.

Hey, Marni. Good morning. I will pick that one off. So yes, to your point, we have launched a global licensing opportunity this year with our kids brand, and we were very pleased with the results. In fact, we think it has actually created a halo for many people who did not even know—many consumers that did not know—we carry a kids brand. We saw some nice growth in both our owned and operated as well as for our licensed partner. We recently launched baby and toddler, which is also very exciting, so we can now capture that customer from age zero and carry them all the way through for lifetime value. Regarding your second question, I would say we are entertaining all concepts—licensing, wholesaling, franchising—as we keep talking about diversifying our operating model. So all of those are opportunities.

Yeah, Marni, as you know, the Europe retail business is very different than here in the United States. So all of those different opportunities are available to us. We have done a few of them in the past, mainly the digital players that you called out. But there are opportunities in the future in each country to be in department stores, run wholesale businesses, potential concessions way down the line. So we are looking at all of that as we think about how we go to market in Europe.

Yeah, if you think about it, it is actually a very exciting time for us. We are getting lots of reach-outs with the health and strength of both of our brands. There is a lot of interest out there. So more to come on that.

Fantastic. And could I just ask you one follow-up on the tariffs? Once we get to sort of the back half of the year and we anniversary all the noise from 2025, and I guess we are more in a steady state as you think forward into, say, 2027, even after 2028. Should you be able to rebuild product margins, or is this kind of the new normal for you guys and for the world?

Yeah, I mean, we will see. We have a fantastic sourcing network. We have got a great sourcing team. We have been able to maintain these double-digit operating margins despite all of these different headwinds that we have faced, whether that be supply chain disruptions, input cost inflation, inflation across all of operating expenses, and now tariffs. So we are working hard. We feel like as long as we put great product out there, connect with our customers, continue to give them a great experience, we have got an opportunity to grow AURs and continue to grow this business and provide a really strong operating margin. The goal would be to try and offset as much of it as possible longer term, but that is a process, and that is what we are working towards here in 2026 with some of the modest AUR growth, and we will see how all that goes.

Great. Thanks, you guys. Thank you.

And the next question will come from Mauricio Serna with UBS. Your line is open.

Great. Good morning. Thanks for taking my question. First, I just wanted to ask, what have you seen so far in terms of consumer reaction to your ticket increases? And just wanted also to make sure I understood—just by quarter to date, it sounds that the growth has continued to be consistent versus what you were seeing in Q4. Just wanted to get that clarification. Thank you.

Hey, good morning, Mauricio. So first on the ticket prices: we mentioned during our last call that our strategy was to start to see some of these ticket price increases for our spring product. As a reminder, we deliver spring around December week four, January week one. And it was going to be very judicious in things and categories like fashion, for example, and we are holding our commitment to our consumer. We did not raise prices in key categories like denim and opening price point T-shirts. So we are ramping up. It is a portion of our inventory today. The initial response has been good. And we are going to continue with this strategy, and we are going to continue to test and learn as we head through 2026.

Yeah, and on your quarter-to-date trends here, Mauricio, obviously very encouraged here coming off the record fourth quarter with balanced performance across brands and regions. Off to a good start here across both brands and regions for the first quarter. January and then February was a little bit choppy with the winter storms that we saw in the US, but as we have seen things pick up here once we have gotten out of that disruption period, most of the volume for the quarter is still ahead of us, and we are expecting growth in Q1 across brands. The only other piece of disruption would be this ERP implementation that we have got live here in the next couple of weeks, so that will provide a little bit of a one-time headwind for us. But by and large, happy with where we are and excited about how the quarter started.

Got it. And just a couple of follow-ups on the Q1 guide. On the freight, you called out a tailwind for the quarter. Is that based on contracted rate, and does that remain a tailwind for the year, or is that like Q1 peak? And then the other point on SG&A, excluding the marketing deleverage, should it be in line with last year in terms of dollars or percentage of sales? Just trying to get that point of clarification.

Yeah, so I will give you some of the building blocks here for Q1. You called it out. We have got this 290 basis points of tariff headwind—that is all incremental to last year. We do have offsetting tailwinds here. We have got freight—that is about a 160 basis points of tailwind. That has to do with how we have shipped product and our contract rates are in place, so that is a yes on that answer. We do have some slight AUR improvements as well that will help offset some of that tariff headwind. And then we have got this 100 basis points of headwind from the ERP go-live this month. On the expense, really flowing through on the expense side, you called out marketing—it is about a 50 basis point headwind for us in Q1. That is really just timing. On the year, marketing will be around flattish to last year as a percentage of sales. And then the rest of the expense base should be largely in line with last year's Q1 as a percentage of sales.

Thank you.

And the next question comes from John Kippur with Goldman Sachs. Your line is open.

Hi, everybody. Good morning. Thanks for the question. Just one more thing on the Q1 gross margin. Last year, you guys were lapping carryover inventory drag. It sounds like there will not be any benefit from lapping that. Just wondering how that factors in. And then as a follow-on, what does that sort of imply about your promotional levels going into Q1? And I guess if you could give a forward-looking statement about where you think promo may or may not be going the rest of the year. Thank you.

Yeah, John. You are right—we have talked about this lapping of carryover. That is really a 2024 Q1 dynamic. 2025 was kind of normal. That is the more normal base. So as you think about where we are coming into 2026, nothing that is a major mover up or down related to carryover levels or anything like that. In terms of promos for Q1, we feel great about where our inventory sits coming into the quarter. Again, once you pull out the kind of front-loading of the inventory that we had to execute here for the ERP, we are up 2% on units. That is a great place to be for us. Both brands are really in chase position now, and that obviously gives us the best opportunity to grow the AURs here. So from a promo standpoint, we feel good about it. All baked into that slight AUR improvement that we are expecting here for the first quarter. We are in a good position to get units flowing and inch that AUR up as we move through the quarter.

Great. And then just one more follow-up if I can. Can you guys bracket out what the difference in your expectations between, for the full year, the low end and the high end of the guide? So what has to happen to hit the low end? What are you guys baking into to hit the high end?

I mean, at the end of the day, John, it is all going to be about product execution. We have to put the right product out there, which—we are off to a great start. Feel good about our assortments here in the first quarter. We have to keep doing it and keep executing as we move throughout the balance of the year. We have to make sure that our marketing is resonating. We have consistently driven positive traffic to these brands. We have got millions of customers coming into these brands, and we have to keep that going here. And we will do that with consistent marketing spend. And then we have to provide a great experience in our stores and all of those things. That three to five range—it is all just ranges of outcomes in terms of how we are executing here as we move throughout the year.

The exciting thing, John, is that the operating model that we have created and our ability to chase and stay very agile is key to winning for us. And the example with Hollister last year—we certainly did not set out expecting to pick up 15%, but our ability to chase millions of units and respond to the customer in real time has enabled us to do that. So we are approaching this year the same way, with the expectation from both brands, obviously, to grow in 2026.

Thanks very much. Good luck.

And the next question comes from Rick Patel with Raymond James. Your line is open.

Thanks. Good morning. Looking for more color on the building blocks of growth at A&F. Nice to see the expectation for growth. Do you anticipate growth in every quarter, and how do we think about the timeline for a return to positive comps?

Rick, good morning. So yes, excited. The team was hard at work last year. I am excited to see that the commitment that we made to returning to growth for the fourth quarter came to be. As a reminder, being down 1% on the full-year top line was up against our best year ever in 2024. It is just proof that the brand is healthy. We are going to continue to invest in stores and in marketing. Some of the strength that we saw in the fourth quarter were key categories: fleece, outerwear, YPB, and we are seeing nice acceptance already for spring. So our expectation is to continue to grow throughout 2026.

And just a follow-up on inventory. I appreciate that you are in chase mode, but how do we think about how you are planning units, as we think about the price changes that are happening and the potential for demand elasticity?

Yep. So thanks, Rick. Units in control. Nice, clean, up 5% on the print. Again, up 2% once you exclude that ERP. You know how we operate here. We will keep units tight and aligned with our forward growth for the brands. We are in good shape here, leaving 2025 and heading into 2026. We will continue to flex that muscle and make sure that we are ready to chase across both of the brands.

Thanks very much.

Thank you. And the next question will come from Janine Hoffman Stichter with BTIG. Your line is open.

Hi. Good morning. So on the product execution, can you speak to what you have been seeing on conversion, particularly at the Abercrombie brand? I think it was down a bit in 2025, but you did see some improvement as the year went on. What did you see in Q4 into Q1? And maybe some comments on Hollister conversion as well. Thank you.

Yeah, I would say it is more of the same, Janine. We were making progress. The teams leaned in on the A&S side, stayed focused on that consumer, executed against key learnings all the way throughout the year, and at the same time, going back to Rick's point here, we kept units in control all the way through, and that allowed us to chase through. That drove improvements in conversion as we moved throughout the year, and we saw more of the same headed into Q4. And similar story there with Hollister. Conversion has been a nice—it has been something that has built as we moved throughout the year. So it reflects the confidence that we have in the assortments that we are putting out there for our consumers, and we are looking to do more of the same here as we move into 2026.

Okay, great. And maybe just a follow-up to Marni's question. It has been a while since you issued a long-range margin target. A lot has changed—12% to 12.5% this year. Is that kind of the right level for the business? And if we were to see upside to that, excluding changes to tariffs, where would that come from?

Yeah, great question. Not going to provide guidance beyond 2026 today, but I think we can talk through some of the underpinnings of the margin constructs that we are talking about, which I think addresses both yours and Marni's questions. I think it is important for us to anchor ourselves that over the past few years, this operating model has delivered double-digit operating margins across all different kinds of environments. So last three years, we have gone through freight changes. We have had inflation. Input costs from a product standpoint fluctuated all over the board, and obviously tariffs here for the last bit. As you think about what underpins this business, it is highly cash generative. We have got highly profitable stores and digital businesses, and we are building capabilities in third party to really accelerate that growth in more of a capital-light way. Our balance sheet is in great shape and allows us to fund into all of these things and invest in these brands and still return hundreds of millions of dollars to our shareholders through share repurchases, which I think is in our track record. We have returned over $1.2 billion back to shareholders through cash since 2021 through share repurchases, and we are looking to do more of the same here. So all of that really gives us a lot of confidence as it relates to the durability of this model. While I am not going to extend any sort of guidance beyond 2026 today, we do think that the fundamentals of this business are incredibly strong, and they position us well to maintain these healthy earnings growth as we continue to build here in the long term.

Perfect. Thanks for the color.

I show no further questions in the queue at this time. I would now like to turn the call back over to Fran for closing remarks.

I just want to thank everyone for joining the call today, and we look forward to updating you all on our progress soon.

This concludes today's conference call. Thank you for participating, and you may now disconnect.