Christopher Nardone

Chris Nardone asked for an update on the store fleet plans for both American Eagle and Aerie heading into next year, and whether recent business results have altered these plans compared to 90 days prior. He also sought further details on Aerie's comp drivers, specifically channels and categories, given its strong performance.

Answer

CFO Mike Mathias stated that AE store closures are expected to slow down next year after closing about 35 this year. For Aerie and OFFLINE, a similar 40-50 new store count is planned for 2025, with potential acceleration. He noted that both brands are running ahead of expectations, with digital outpacing stores, driven by significant traffic from marketing campaigns. President and Executive Creative Director Jen Foyle added that all Aerie categories are performing well, and the brand has significant runway for growth with only 55%-60% brand awareness.

Chris Nardone from Bank of America sought clarification on how both the American Eagle and Aerie brands were trending relative to the Q2 comp guide of down 3%. He also asked for elaboration on product costs becoming a tailwind and how to think about the phasing of the tariff impact through the rest of the year.

Answer

Executive VP & CFO Mike Mathias confirmed that both brands were trending very similar to their Q1 performance, in line with the total Q2 guidance. He clarified that while underlying product costs are favorable, the full-year tariff impact is estimated at around $40 million, with only a couple of million hitting in Q2 and the rest spread across Q3 and Q4.

Christopher Nardone questioned the confidence behind accelerating Aerie's store opening pace and whether the new sleep business could offset potential pressure from the swim category.

Answer

President Jen Foyle clarified that growth in the entire soft dressing category, not just sleep, provides a buffer against any potential swim category softness. She expressed high confidence in store expansion, citing the strong performance of new OFFLINE stores, untapped markets for Aerie, and the high profitability of new, efficient store designs.

Christopher Nardone questioned the updated full-year sales guidance, seeking to understand why the high end was lowered despite strong current trends. He also asked for a reconfirmation of the net store opening plans for the year.

Answer

Mike Mathias, CFO, clarified that the narrowed full-year revenue guidance was not due to weakness in the core AE or Aerie brands but rather a tightening of forecasts for 'other revenue components' like licensing. He reaffirmed store plans for the year, which include 25-30 Aerie/OFFLINE openings and 20-25 AE closings, resulting in a net neutral total store count, alongside 70-80 remodels.

Chris Nardone questioned Carter's confidence in achieving sales growth (AUR and units) next year, comparing it to past inflation periods, and sought updates on competitive pricing and holiday promotional plans. He also inquired about the expected tariff impact on gross margins in the first half of next year, asking if mitigation would improve the situation or if new rates would exert more pressure, and requested insights into other directional gross margin factors like labor, cotton, and freight costs for 2026.

Answer

Doug Palladini (CEO and President, Carter's Inc) cited growth in higher-AUR categories, increased new customer acquisition (especially Gen Z), and brand-wide growth as reasons for confidence. Richard Westenberger (Senior Executive VP, CFO and COO, Carter's Inc) affirmed market leadership in pricing, expecting industry-wide increases, and noted thoughtful inventory management to offset potential unit velocity loss. For margins, Westenberger mentioned stable/down cotton costs and stated the company's intent to cover the vast majority of incremental tariff impact in 2026 through pricing and supply chain strategies, moving beyond H2 2025's promotional intensity.

Chris Nardone of Bank of America asked for perspective on why the children's apparel category has been relatively weak and how the competitive landscape has evolved. He also inquired about the potential to expand shelf space for Carter's premium brands like Little Planet and Purely Soft within the wholesale channel.

Answer

CEO Douglas Palladini stated the market is down approximately 2%, with the primary competitive shift being the growth of private label brands at key accounts. However, he stressed that these same wholesale partners expect Carter's, as the leading national brand, to grow with them. CFO Richard Westenberger confirmed there is a significant opportunity to broaden the availability of their brand portfolio, including Little Planet and the new Otter Avenue brand, in the wholesale channel. CEO Palladini added that they are actively remapping their wholesale strategy to place more brands in more doors.

Chris Nardone asked for CEO Doug Palladini's perspective on the recent weakness in the children's apparel category and the changing competitive landscape, particularly from private labels. He also inquired about the health of the wholesale channel and the potential to expand shelf space for emerging brands like Little Planet.

Answer

CEO Douglas Palladini acknowledged the market is down slightly and that private label competition has grown, but stressed that key accounts still expect Carter's, as the national brand leader, to drive growth. CFO Richard Westenberger noted that wholesale sell-throughs have been good and demand for Fall/Winter has held up well. Both executives see a clear opportunity to expand the brand portfolio within the wholesale channel.

Christopher Nardone asked about the drivers of the recent retail comp improvement, seeking to separate the impact of the Easter shift from pricing strategies. He also inquired about changes to back-half retail strategies and the outlook for non-tariff costs like cotton, freight, and labor.

Answer

Executive Kendra Krugman attributed the improvement to successful product strategies, including fashion and competitive pricing, which are driving conversion and units per transaction (UPTs). She confirmed back-half strategy is consistent, with increased inventory investment in the kid category. CFO Richard Westenberger reported a favorable outlook for cotton, manageable labor inflation, and a modest impact from renegotiated ocean freight contracts, noting the absence of last year's extraordinary transportation costs.

Christopher Nardone of Bank of America asked for the basis of management's confidence that pricing actions will stabilize in the second half of the year and questioned the level of price decline embedded in the wholesale outlook. He also followed up on the opportunity for shelf space expansion with exclusive brand partners.

Answer

Executive Richard Westenberger stated that stabilizing prices in the second half is a planning assumption, contingent on the competitive environment, and noted that wholesale pricing is assumed to be down modestly. Executive Kendra Krugman confirmed that opportunities for shelf space expansion persist, particularly in the toddler segment at partners like Walmart and Target. Richard Westenberger added that wholesale growth will be driven by these exclusive brands, while the department store channel is planned down and off-price is expected to be comparable to 2024.

Christopher Nardone inquired about the continuation of the $60 million pricing and marketing investment into next year, the risk of increased competition, and the performance outlook for exclusive versus non-exclusive wholesale partners.

Answer

CFO Richard Westenberger explained that a significant portion of the pricing was to clear prior-season inventory, which is now at a healthy level, potentially reducing the need for similar promotions. He also stated that the company continues to expect better performance from its exclusive wholesale brands, as that is where consumer traffic is strongest.

Chris Nardone asked about the factors that drove the business inflection last August and whether management is comfortable with the current category mix, particularly the balance between fashion and core products. He also inquired about the size and composition of the denim business.

Answer

CFO Jim Watkins recalled that the business strengthened in August of last year after some July softness and has maintained mid-to-high single-digit growth since. CEO John Hazen added that he is comfortable with the mix, as the growth in women's apparel is driven by the core denim business, which he considers a destination category. He noted denim is roughly half of the men's apparel business and a smaller portion of women's.

Christopher Nardone from Bank of America asked about any strategic changes under the new CEO and his key focus areas. He also questioned if SG&A could leverage further if sales outperform the high-end of guidance.

Answer

CEO John Hazen affirmed the four core strategic initiatives remain unchanged but highlighted his focus on improving the margin structure of exclusive brands through sourcing, putting more marketing muscle behind key exclusive brands like Cody James, and reinvigorating the work boot business with new marketing campaigns. He also confirmed that if sales exceed the high end of guidance, the company would expect to see SG&A leverage beyond the guided 50 basis points.

Chris Nardone of Bank of America asked about the evolution of the DTC business's margin profile and whether any structural factors would prevent the SG&A rate from falling below 50% as the company targets a 15% operating margin.

Answer

EVP & CFO Harmit Singh clarified that the DTC business is no longer a drag on EBIT margins, with its margin up 400 basis points year-to-date to the high teens. Key drivers are higher revenue per square foot, better cost management, and a now-profitable e-commerce business. He stated they are in the "early innings" of this pivot and that the improved profitability of the DTC channel will support overall margin expansion.

Christopher Nardone followed up on U.S. wholesale, asking if guidance implies growth for the rest of the year and about the medium-term opportunity in new wholesale distribution points.

Answer

CFO Harmit Singh stated that while the first half was strong, the company remains prudent and is modeling U.S. wholesale to be flat for the full year. He confirmed there are distribution opportunities, particularly in growing categories like women's and tops, and highlighted the effort to grow the Levi's brand at Target as an example of expanding within the channel to support the lifestyle pivot.

Christopher Nardone inquired about the company's confidence in driving operating margins higher beyond fiscal 2026 and asked which geographies still offer potential for further AUR gains.

Answer

CFO Justin Picicci affirmed that the 15% operating margin target is not a ceiling and that future expansion will be driven by a mix of gross margin gains and SG&A leverage. President and CEO Patrice Louvet added that meaningful AUR growth opportunities remain across all regions, fueled by the ongoing brand elevation strategy, which includes product mix, channel shifts, promotional pullback, and targeted pricing.

Christopher Nardone asked for the implementation timeline of the company's next-generation transformation (NGT) project and the specific capabilities it will add.

Answer

Executive Justin Picicci stated the company is in the preliminary planning phase for the NGT project, which includes a single global ERP, predictive buying and allocation tools, and upgraded warehouse management systems. He indicated that more details on costs would be provided next quarter, with a broad timeframe for a staged implementation likely beginning in the fiscal 2027 range.

Christopher Nardone inquired about the outlook for China for the remainder of the fiscal year, whether expectations have been altered, and how the company is balancing long-term store expansion with the current macro climate.

Answer

President and CEO Patrice Louvet expressed strong confidence in China, noting 17 consecutive quarters of growth and unchanged ambitions. He stated that growth is driven by new customers, comps, and new platforms. While monitoring volatility, the company continues its disciplined, long-term store expansion strategy, with China still representing only 8% of total sales.

Christopher Nardone of Bank of America asked for the outlook on the China business, specifically if improvement is expected through the year and if Skechers is taking market share. He also inquired about the timeline for making a final decision on potential price increases.

Answer

Executive John Vandemore stated that expectations for China remain modest, though the Q1 decline was exacerbated by a tough comparison to the prior year's growth. He sees signs of stability and noted the company is focused on reinvigorating demand with its Comfort technology products. Regarding pricing, Vandemore described it as an 'in-process motion' rather than a single decision, with the most acute impacts from a stable tariff structure expected in Q2 and Q3.

Christopher Nardone from Bank of America asked for more detail on the drivers of the 31% U.S. wholesale growth and whether there were concerns about inventory levels in that channel.

Answer

John Vandemore (executive) stated that the strong U.S. wholesale growth was driven by the same factors seen all year: strong performance with key accounts and continued adoption of comfort technologies by partners. He expressed no concern about inventory levels in the wholesale channel, citing strong sell-throughs and successful recent marketing events like brand takeovers. David Weinberg (executive) added that shipping demand from wholesale customers remained strong into the new year.

Christopher Nardone requested an update on the U.S. wholesale channel, specifically asking about the health of the spring order book and the current state of inventory within the channel.

Answer

CFO John Vandemore described early-stage bookings and customer conversations for spring as 'very healthy and encouraging,' though it was too early for specifics. He assessed channel inventory as 'fairly balanced' with no significant issues. Executive David Weinberg added that partners are readily accepting shipments, indicating strong demand and no inventory backups at their distribution centers.

Christopher Nardone asked if expectations for U.S. DTC in the back half have changed and sought more detail on which product categories are outperforming, particularly regarding the trade-up to comfort technology products.

Answer

Executive David Weinberg clarified that their view on domestic DTC for the back half remains conservative and has not markedly changed, meaning the guidance increase is almost entirely from wholesale strength. He noted that growth is broad-based across divisions and genders, driven by the continued success of comfort technologies like Skechers Hands-Free Slip-ins, ArchFit, and Max Cushioning, which are successfully encouraging consumers to trade up within the portfolio.

Christopher Nardone inquired about Crocs' North American wholesale sell-through trends, confidence in the order book, and the company's appetite for share repurchases versus debt paydown.

Answer

CEO Andrew Rees stated the company is happy with its wholesale order books through Q3 and has clean channel inventories, but declined to comment on in-quarter sell-through. CFO Susan Healy noted the Easter timing shift impacts Q1 comparisons. Regarding capital allocation, Healy confirmed commitment to the 1x-1.5x leverage target but stressed a dual approach of debt repayment and opportunistic share buybacks, pointing to the recent $1B authorization increase as a sign of confidence in the stock's value.

Christopher Nardone from Bank of America asked for more detail on the confidence in Crocs' North America DTC growth for Q4, the rationale behind the Amazon 3P model switch, and the reasoning for balancing heavy investment spend against maintaining a mid-20% operating margin.

Answer

CEO Andrew Rees expressed confidence in the Q4 DTC plan, citing strong product, holiday planning, and logistics. He explained the Amazon 3P shift provides better brand control on a crucial marketplace. CFO Susan Healy and CEO Andrew Rees addressed margins, stating that while 2024 and 2025 are investment years that will pressure the EBIT rate below recent highs, the company remains disciplined and balances this with maintaining industry-leading profitability.

Chris Nardone from Bank of America inquired about the Crocs brand's international business outlook for the second half and whether the Q3 guidance for the direct-to-consumer channel assumes a continued sequential decline. He also asked about pricing strategies for both Crocs and Heydude to mitigate tariff impacts.

Answer

CEO Andrew Rees stated that the long-term, mid-teens growth outlook for the international business remains intact despite quarterly timing shifts. He clarified the Q3 guidance embeds caution but does not assume a sequential worsening from current trends. Regarding tariffs, Rees outlined a multi-faceted mitigation strategy involving selective price increases, supply chain efficiencies, and SG&A reductions, rather than broad price hikes.

Christopher Nardone asked for more details on the Clifton 10 launch, including the timing of the initial sell-in and any changes to product segmentation. He also inquired about the sales and margin impact from sunsetting the Clifton 9.

Answer

CFO Steve Fasching clarified that the Clifton 10 product will flow into the market during both Q4 and Q1 of the next fiscal year, with the initial wholesale sell-in accounted for in current guidance. He confirmed that the margin impact from closing out the Clifton 9 is included within the guided ~100 basis point headwind from promotions for Q4.

Christopher Nardone asked for the drivers behind the implied sequential improvement in the Q4 guidance versus Q3, and for clarification on the guidance for increased promotions.

Answer

CFO Zac Coughlin explained that the Q4 outlook assumes a continuation of current DTC trends, with the main driver of margin improvement being incremental SG&A efficiencies that will be more impactful in Q4. He clarified that the guidance for a 'modestly more promotional environment' reflects the tougher macro backdrop, not a change in PVH's strategy of prioritizing full-price selling.