Janet Kloppenburg

Janet Kloppenburg asked about the company's earlier challenges in chasing product, particularly if that situation is now resolved given healthy comparable sales. She also inquired if buying and occupancy costs were leveraged on a 4% comparable sales growth, the target point for this leverage, and whether all planned price increases have already been implemented or if more are anticipated.

Answer

President and Executive Creative Director Jen Foyle confirmed that product chasing, primarily in women's denim, has been ongoing since Q1 due to high demand, with teams working swiftly to improve in-stocks. She noted that while better, the company will manage denim inventory differently going forward. CFO Mike Mathias confirmed that buying, occupancy, and warehousing (BOW) leveraged by 20 basis points in Q3 on a 4% comp, which is a good target. He reiterated that AUR is expected to remain relatively flat, as the company is not purposely passing tariff impacts to consumers but optimizing price moves within its value equation.

Janet Kloppenburg asked if the product chase situation from earlier in the year, particularly in women's denim, has been resolved given the healthy comps. She also inquired if buying and occupancy (BOW) leveraged on a 4% comp, what the target point is, and if all price increases have already been implemented.

Answer

President and Executive Creative Director Jen Foyle confirmed that the primary chase was in women's denim since Q1, with out-of-stocks exacerbated by strong demand from campaigns like Sydney Sweeney, but inventory levels improved in the back half of Q3. CFO Mike Mathias confirmed BOW leveraged by 20 basis points in Q3 on a 4% comp, which is a good target, and expects significant BOW and SG&A leverage in Q4. He reiterated that AUR is flat for Q3/Q4, with no purposeful passing of tariffs to consumers, but strategic price adjustments are made.

Janet Kloppenburg of JJK Research sought clarification on the performance of Aerie's leggings and swim categories, the specific drivers of the slowdown in American Eagle's women's business beyond weather, and requested a more precise gross margin outlook for the first half of the year.

Answer

President Jen Foyle confirmed leggings are a significant strength, with Aerie growing to the #2 market share position. She noted Aerie's softness was due to being under-inventoried in fleece after a strong Q4. CFO Mike Mathias provided specific guidance, projecting gross margin to be down approximately 240 basis points in Q1, driven by deleverage, and down about 150 basis points in Q2 as currency headwinds ease.

Janet Kloppenburg sought more detail on the demand choppiness, asking if it was related to inventory, and questioned the reasons for the digital business slowdown and the interplay between Q3 and Q4 SG&A.

Answer

President Jen Foyle attributed choppiness to external factors but emphasized record-breaking store performance during peak periods. She noted the digital channel is facing tough comparisons to last year. CFO Mike Mathias stressed that the SG&A discipline is ongoing and that Q3's strong results do not detract from Q4, where SG&A dollars are also expected to decline.

Janet Kloppenburg posed a multi-part question, asking Jay Schottenstein for his consumer outlook, Jen Foyle about Aerie's growth potential post-swim season and the AE men's denim business, and Mike Mathias about merchandise margin drivers and future inventory improvements.

Answer

Jay Schottenstein, CEO, expressed extreme optimism, calling it the 'greatest opportunity in the history of the company' and outlining a path to becoming a $10B business. Jen Foyle, President, noted Aerie's profit growth is outpacing revenue and sees strong momentum in OFFLINE and new categories. Mike Mathias, CFO, confirmed a positive outlook for initial margins and stated that inventory levels are healthy and well-managed for the remainder of the year.

Janet Kloppenburg asked Shea Jensen about Urban Outfitters' strategy to broaden its assortment and target customer, any changes in its pricing strategy, and similarities between the European and North American strategies.

Answer

Shea Jensen, President of Urban Outfitters, explained that the brand broadened its assortment after customer research revealed it had become too niche, focusing on expanding popular categories like denim and lounge and strengthening own brands BDG and Out From Under. Sheila Harrington, CEO of Urban Outfitters and Free People, noted strong similarities in consumer focus between Shea (North America) and Emma (Europe), with both concentrating on their respective consumers and collaborating on product, highlighting Emma's growth beyond the U.K. into multiple European countries.

Janet Kloppenburg asked Shea Jensen about Urban Outfitters' strategy to broaden its assortment and target customer, any changes in its pricing strategy, and whether the European strategy mirrors North America's approach.

Answer

Shea Jensen, President of Urban Outfitters, explained that customer research revealed an unintentionally narrow assortment, leading to a focus on broadening offerings, particularly in denim and lounge, and expanding own brands like BDG and Out From Under. Richard Hayne, CEO, and Sheila Harrington, CEO of Urban Outfitters and Free People, added that while the consumer focus is strong in both regions, product preferences differ, and there's strong collaboration and sharing of products between North America and Europe.

Janet Kloppenburg of JJK Research Associates asked about the execution and elasticity of recent price increases, the drivers behind the acceleration at Free People and FP Movement, and whether marketing as a percentage of sales could continue to increase.

Answer

Sheila Harrington, Global CEO of Urban Outfitters & Free People Groups, confirmed thoughtful price increases on select items have been well-received and credited FP Movement's success to delivering on both performance and fashion. CEO & Chairman Richard Hayne noted marketing spend will rise in Q3 for specific campaigns but will defer guidance on future years until the next call.

Janet Kloppenburg asked about the potential for gross margins to exceed historical highs and whether new occasion-wear businesses at Anthropologie, like Celandine, could be spun out into standalone stores similar to FP Movement.

Answer

Co-President and COO Francis Conforti suggested that historical gross margin levels are no longer the right benchmark, as a new, higher standard is being set now that the Urban Outfitters brand is improving. Executive Tricia Smith stated that while new businesses like Celandine are outperforming, there are no current plans for standalone stores, though they continue to assess the opportunity and have found success with pop-up locations.

Janet Kloppenburg sought clarification on the Urban Outfitters 'flattish' comp guidance, asking if it implied continued strength in Europe offset by improving trends in North America. She also asked about the brand's profitability outlook.

Answer

CEO Richard Hayne confirmed her interpretation of the comp guidance was correct, stating the brand is 'on the cusp' of positive comps. Co-President and COO Francis Conforti clarified that while the Urban Outfitters brand can drive meaningful profit improvement this year through margin recapture, it is not expected to reach breakeven. Achieving profitability will require a return to positive top-line comps to leverage expenses.

Janet Kloppenburg asked for elaboration on the target Urban Outfitters customer and inquired if the current mid-single-digit growth in marketing spend would be maintained going forward.

Answer

Executive Shea Jensen defined the UO customer as young people aged 16-28, segmented into pre-college, college, and post-college, with an aspiration to be a more welcoming brand to youth in both urban and suburban areas. CFO Melanie Marein-Efron confirmed that Q4 SG&A is planned to grow in line with sales, at a mid-single-digit rate.

Janet Kloppenburg asked what customer research indicates for Urban Outfitters' future pricing, whether inventories will align with sales by the end of Q3, and how a slowing AOV might impact the company's overall marketing budget.

Answer

CEO Richard Hayne confirmed that marketing spend levels are under discussion. Shea Jensen, President of Urban Outfitters North America, said research showed a customer perception of the brand being expensive, leading to a strategy of offering better price-value and more accessible price points. CFO Melanie Marein-Efron affirmed the goal is to have Q3 inventory levels in line with sales.

Janet Kloppenburg from JJK Research Associates inquired about the comparative tariff impact between Q1 and Q4, the timing and cadence of planned price increases, consumer response to improved Abercrombie assortments from mid-October, and promotional levels experienced in Q3 versus year-over-year, along with expectations for Q4.

Answer

CFO Robert Ball clarified that mitigation tactics are expected to provide relief from Q4 tariff headwinds in Q1 2026, with targeted price increases beginning in late December/January and flowing through with new assortments. He also stated confidence in Q4 promotional plans, aiming to hold AURs flat while maintaining flexibility. CEO Fran Horowitz confirmed sequential improvement in Abercrombie's assortments across categories, noting clean inventories and positive customer response to newer products, positioning the brand well for Q4 with a goal of being approximately flat against a record prior year.

Janet Kloppenburg asked about the expected tariff impact cadence for Q1 2026 versus Q4 2025, the timing and completion of price increases, consumer response to Abercrombie's improved assortments from mid-October, and promo levels in Q3 versus prior year, along with Q4 expectations.

Answer

CFO Robert Ball clarified that tariff mitigation tactics, including pricing adjustments for spring deliveries (late December/January) and vendor negotiations, are expected to provide some relief from Q4's 360 basis points headwind in Q1 2026. He noted a track record of reducing promotions and improving AURs, with confidence in Q4 promotional plans to hold AURs flat. CEO Fran Horowitz confirmed sequential improvement in Abercrombie, clean inventories, and positive customer response to newer products, driving improved AURs.

Janet Kloppenburg of JJK Research Associates asked about the expected comp performance for Hollister and A&F in the back half, given their differing year-over-year comparisons, and whether A&F's AUR is poised for improvement as inventory normalizes.

Answer

CEO & Director Fran Horowitz emphasized the focus on driving total company results to build on a record 2024. SVP & CFO Robert Ball added that the Q3 outlook of 5-7% growth is on top of a strong +14% comp from the prior year. He expects Hollister to continue outperforming A&F in Q3 but did not provide specific brand-level AUR guidance, stating the goal is to hold multi-year gains through product and inventory management.

Janet Kloppenburg questioned if the expected second-half improvement at Abercrombie is due to filling a product void and asked about confidence levels. She also theorized that the current carryover inventory might just be a normalization of markdown levels after years of high growth and questioned if the company is feeling increased competitive pressure.

Answer

CFO Robert Ball agreed with the assessment that carryover levels are a normalization compared to the unusually clean inventory of 2024. CEO Fran Horowitz clarified that the second-half opportunity is less about filling voids and more about reacting to emerging trends like 'BOHO' and new bottom shapes, which the company's agile model allows it to chase. Regarding competition, she acknowledged it's a compliment that others are watching their successful playbook and stated their job is to stay ahead.

Janet Kloppenburg of JJK Research Associates inquired about the Hollister brand's contribution margin given its top-line acceleration and whether inventory growth would return to single-digit levels in the coming year.

Answer

CEO Fran Horowitz-Bonadies stated that the company is very pleased with Hollister's strong margins, which are benefiting from terrific productivity and strong traffic in both digital and store channels. COO Scott Lipesky addressed inventory, stating that the company wants inventory to be up next year to support further business growth and that it's too early to specify a growth rate, which will depend on holiday sell-through and freight levels.

Janet Kloppenburg asked about the contribution margin of the Hollister brand given its significant top-line acceleration. She also questioned if inventory growth could remain at double-digit levels into the next year.

Answer

CEO Fran Horowitz-Bonadies expressed that the company is very pleased with Hollister's strong margins and increased store productivity, driven by robust traffic. COO Scott Lipesky indicated that the goal is for inventory to grow next year to support continued business expansion, but it was too early to specify the growth rate.

Janet Kloppenburg of JJK Research inquired about clearance inventory levels and whether they are normalizing or remaining low. She also asked about the promotional outlook for the second half of the year compared to last year's lean levels and whether freight costs are expected to remain elevated through Q4.

Answer

CEO Fran Horowitz-Bonadies stated that clearance levels remain low due to lean inventory management and a 'read and react' approach, and the goal is to keep promotions at or below prior-year levels, managed weekly. CFO & COO Scott Lipesky confirmed that the guidance assumes elevated freight costs will persist through Q3 and Q4, and that while the major cotton tailwind is over, the focus remains on AUR to drive gross margin.

Janet Kloppenburg questioned if the expected second-half improvement at Abercrombie is due to filling a product void and whether the current carryover situation is simply a normalization of markdown levels. She also asked about competitive pressures.

Answer

SVP & CFO Robert Ball agreed that the carryover situation is a normalization compared to the 'basically zero carryover' in Q1 2024. CEO Fran Horowitz clarified the opportunity is in chasing emerging trends like 'Boho and Western,' not filling voids. Regarding competition, she acknowledged it as a compliment and stated their focus is on executing their playbook to stay ahead.

Janet Kloppenburg inquired about the influence of incremental markdowns carried into the second quarter on the excellent comparable sales performance, any consumer pushback observed on incremental pricing (citing Levi's as an example), and the potential wrap-around effect of tariffs into the first and second quarters of next year.

Answer

Tony Spring, Chairman and CEO, stated that markdowns were a minor contributor to Q2 comp improvement, noting strong growth in non-markdown areas and positive early August reads on newness. He highlighted Levi's continued strong performance, emphasizing that customers prioritize value over price point for certain categories. Tom Edwards, COO and CFO, reiterated that it's too early to discuss Q1/Q2 2026 tariffs but emphasized the company's strong navigation capabilities and observed consumer resiliency.

Janet Kloppenburg asked about Q2 merchandise margin performance versus expectations, the outlook for it in H2, and whether improvements in handbags and men's at 'First 50' stores are due to service or brand matrix. She also inquired about the strategy for the current denim cycle.

Answer

CEO Tony Spring attributed the strong merchandise margin to the collective work of the team, including compelling value offerings, pricing science, and healthy inventory quality. He confirmed the outperformance in handbags and shoes is a combination of enhanced staffing and strong inventory from brands like COACH and Lauren. Regarding denim, he stated the company is capitalizing on the new wide-leg silhouette cycle with strong assortments from premium and national brands at both Macy's and Bloomingdale's.

Janet Kloppenburg asked if assortment mix was driving down average price points and whether the company saw customer resistance to tariff-related price increases in July.

Answer

Co-Founder & Co-CEO Mike Karanikolas stated that early data showed no significant customer resistance to price increases. He explained that Q2's average price point was affected by both a mix shift in assortment and weaker consumer sentiment early in the quarter, but he expects this trend to moderate in the second half.

Janet Kloppenburg of JJK Research Associates inquired about demographic trends, particularly the re-engagement of younger customers, and any changes to pricing architecture. She also asked about the inventory-to-sales spread and the timeline for alignment.

Answer

Co-CEO Michael Karanikolas stated there were no pricing architecture changes but believes recent site merchandising improvements have helped the assortment resonate better with all customers, including Gen Z. He characterized the inventory issue as moderate and expects levels to decrease in Q4. CFO Jesse Timmermans added that the sales-to-inventory growth differential improved from Q2 to Q3.

Janet Kloppenburg of JJK Research Associates questioned the company's pricing structure relative to competitors and asked if the increased use of 'gift with purchase' (GWP) promotions is a permanent part of the marketing mix despite potential margin pressure.

Answer

CEO Hillary Super acknowledged pricing pressure in the market but asserted that VSCO's strategy is to better communicate value and differentiate through brand storytelling rather than compete on price alone. She confirmed that GWPs are preferred over traditional discounts as they drive traffic and higher basket sizes. While a margin headwind, this is offset by reducing other promotions and is seen as a positive step in evolving the promotional strategy.