Mauricio Serna Vega • UBS

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Executive Dennis Nelson stated that the company is managing tariff impacts by working with vendors, some of whom are sourcing from other countries, resulting in either no cost increases or low-to-mid-single-digit hikes. Executive Thomas Heacock attributed the merchandise margin improvement to a higher mix of private label sales and strong regular-price selling. He explained the rise in lease assets was due to new stores and remodels. Heacock also detailed that the SG&A increase was driven by variable store payroll tied to sales performance, higher incentive and equity compensation, and increased health insurance costs.

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An executive, Dennis Nelson, attributed the merchandise margin strength to an increased mix of private label products and improved regular-price selling, which reduced end-of-season markdowns. He also expressed confidence in managing potential tariff impacts through strong vendor relationships. Executive Thomas Heacock added that for the quarter, the 40 basis point merchandise margin gain was the primary driver, partially offset by a 10 basis point deleverage in buying, distribution, and occupancy costs.

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Executive Thomas Heacock confirmed the gross margin figures, attributing the 55 basis point merchandise margin improvement to growth in private label denim and a favorable mix shift away from lower-margin footwear. He noted the comparison to the prior year's quarters was a factor in any perceived deceleration. Regarding store growth, executive Dennis Nelson projected a net addition of 2 to 3 stores in 2025, resulting from 7-8 new openings and some closures, alongside plans for numerous remodels and relocations.

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Executive Dennis Nelson attributed the merchandise margin growth to strong sell-through in denim, solid demand for private brands, and improved kids' apparel margins. Executive Thomas Heacock addressed the online channel, stating that third-party engagements have improved site shoppability and conversion, with a recent strategic shift toward driving traffic. Regarding operating expenses, Heacock explained that G&A increases were from home office payroll investments, while higher selling costs were driven by store payroll inflation and e-commerce consulting fees.

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CEO Carlos Alberini detailed the strong potential for rag & bone, citing its brand strength, leadership under Andrew Rosen, robust e-commerce performance, healthy margins, and significant international expansion plans in Europe and Asia. For the Americas retail business, Alberini outlined a comprehensive turnaround strategy focused on developing exclusive product collections, implementing a speed-to-market model, refining store assortments through granular clustering, optimizing entry-level price points, and enhancing visual merchandising and customer experience, with impacts expected in the second half of the year.

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CEO Carlos Alberini and Interim CFO Dennis Secor addressed the outlook. Carlos Alberini explained that a $10 million European wholesale shipment was pulled forward from Q4 into Q3, which is accounted for in the revised guidance. He affirmed that a double-digit operating margin is a long-term goal, viewing the dilutive effect of the rag & bone acquisition as temporary. Dennis Secor detailed the Q4 revenue bridge, citing headwinds from last year's extra week and currency, offset by contributions from rag & bone and growth in European wholesale. He noted that normalizing for these factors, the Q4 operating profit outlook is roughly flat year-over-year.

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CEO Carlos Alberini declined to provide specific margin figures for Rag & Bone but stated its margins are healthy due to higher price points and disciplined promotions. He attributed some European consumer softness to extended summer weather and Red Sea-related logistics delays impacting product availability. Regarding Americas Retail expenses, he explained the focus is on controlling variable costs like store payroll and optimizing organizational structures, while noting that lower variable compensation also impacts the outlook. However, he stressed that the marketing budget is being protected to support long-term growth.

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CFO Taryn Miller stated that the Q2 tariff impact is expected to be minimal and that the $30 million estimate already reflects the planned reduction in China sourcing. CEO Christopher Hufnagel attributed the DTC decline to a strategic shift away from promotions, which lifted DTC gross margins by 550 bps. Taryn Miller reiterated that deleveraging remains a capital allocation priority.

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CEO Chris Hufnagel explained the DTC decline was a result of a deliberate strategy to reduce promotions, which improved full-price penetration by 500 bps, despite weaker-than-expected Black Friday sales. CFO Taryn Miller clarified the guidance implies operating margin leverage, not deleverage, as cost savings are funding strategic investments. She reiterated that quarterly guidance is now provided by segment, not by brand.

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CEO Christopher Hufnagel stated that DTC for both Merrell and Saucony grew in the mid-single digits during the quarter. He attributed Merrell's accelerating market share gains, which approached 300 basis points, to its successful strategy of 'modernizing the trail' with more lightweight and versatile products like the Moab Speed 2, which is resonating strongly with consumers.

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CFO Jim Swanson confirmed that the Q1 beat was partly due to earlier wholesale shipments and favorable weather, and that gross margin was generally in line with expectations. He explained that an EPS guide was withheld due to numerous variables beyond tariffs, such as potential bad debt risk. CEO Tim Boyle stressed that the extreme uncertainty regarding future tariff policies makes any projection for 2026 speculative at this time.

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EVP & CFO Jim Swanson explained the fall order book reflects a more cautious season following lighter sell-through in fall '24, though it still shows modest growth. He confirmed no demand pull-forward into Q4 but noted a $60M shift from Q3 due to supply chain issues. The lower cash flow guidance is due to inventory reductions having a less amplified benefit than in the past two years. Swanson attributed lower product costs to factory negotiations on input costs.

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CFO Jim Swanson clarified that a shipment timing shift of $15 million to $20 million moved from Q3 to Q4 due to supply chain disruptions, contributing to the Q3 revenue miss. CEO Tim Boyle stated that the market for outdoor apparel remains strong as consumers continue to prefer comfortable, casual wear, and Columbia needs to capture a larger share. Swanson concluded that there have been no meaningful order cancellations for Q4 at this point.

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CEO Tom Chubb indicated that March performance, while still negative, felt better than February, with the Easter shift into April expected to result in a positive comp for that month. CFO/COO Scott Grassmyer clarified the sales cadence, projecting larger negative comps in the first half of the year and comps closer to flat in the second half, with new store openings providing a positive contribution. Regarding SG&A, Grassmyer stated the company is focused on marketing efficiency, personnel costs, and vendor negotiations, but acknowledged that new store costs are the primary driver of SG&A growth.

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CFO Scott Grassmyer clarified that the promotional impact was less about new types of events and more about selling a higher volume of inventory during clearance periods due to lower full-price sell-through. CEO Tom Chubb attributed the restaurant slowdown to a normalization of post-pandemic demand, particularly in the key Florida market. Grassmyer confirmed that the prior year's Q3 and Q4 comps were in the negative 3% to 5% range.

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COO & CFO Joan Hilson stated that quarter-to-date comps were near the high end of the flat to +2% guidance range, helped by a strong Valentine's period. CEO James Symancyk said their guidance assumes a flattish industry, plus or minus low single digits. Hilson added that they expect moderate gross merchandise margin expansion to continue, and the sales guidance range accounts for variability in bridal and fashion unit performance.

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Executive Joan Hilson stated that quarter-to-date performance, including a high single-digit comp over the Black Friday weekend, is reflected in the Q4 guidance. She deferred a detailed fiscal 2026 (calendar 2025) outlook but noted digital banner issues stemmed from late replatforming. Executive Robert Ballew explained the share count complexity was due to the timing of preferred share redemptions throughout the year.

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CFO Joan Hilson explained that the low-end guidance scenario could involve engagement units being down 5% and fashion sales down low single-digits, noting that current positive trends are not required to hit the range. For the strong Q4 margin outlook, she cited operating leverage from positive comps, continued strength in high-margin fashion and services, and the flexibility provided by increased cost savings targets.

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CEO Morris Goldfarb confirmed there were no unique shipment shifts in Q4; in fact, results were negatively impacted by the Hudson's Bay bankruptcy filing. Executive Neal Nackman stated the PVH revenue fall-off was largely in line with their expectations. While declining to provide a specific sales figure for Donna Karan, Morris Goldfarb described it as the company's 'best launch ever,' with margins that are the 'best in the company' and growth approaching 40% expected. Neal Nackman attributed the strong Q4 gross margin to the higher profitability of owned brands and a stronger outerwear season compared to the prior year.

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Chairman and CEO Morris Goldfarb described the Donna Karan launch as 'perfectly executed,' with strong product-market fit at an elevated but accessible price point, driving retailer enthusiasm and door count expansion. He also noted that the Nautica brand successfully replaced the sales volume from the exited Tommy Jeans business. Executive Neal Nackman confirmed that improving gross margins for the year are a result of the brand mix shift, and it is possible for this trend to continue, depending on the future mix of owned versus licensed brands.

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CEO Morris Goldfarb described Donna Karan as the company's 'best launch ever' with a conservative $1 billion global sales potential over time. Executive Neal Nackman confirmed the EPS guidance increase was due to the Q2 earnings beat, interest expense savings, and share repurchases of 1.1 million shares. Goldfarb estimated the Converse business could reach $200 million in sales in a 'reasonable time' given its global distribution rights.

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Executive Kevin Wynk confirmed the company largely completed its $250 million savings goal in two years instead of the planned three, having realized nearly $200 million in 2024. CEO Hillary Super added that VS marketing will focus on 'consideration' to drive acquisition, while PINK marketing will focus on 'awareness' once its new identity is solidified. She highlighted the successful relaunch of the VSX sport line and the knockout bra as key recent launches.

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CEO Hillary Super stated that the recent sports bra launch was successful and that the company intends to reclaim significant market share in the category. She acknowledged the overall intimates market is soft but believes compelling product can win. CFO Tim Johnson noted that the China JV saw growth in Q3, driven by digital and the timing of Singles Day, with encouraging recent trends in stores. He remains confident in the strategy despite a challenging market.

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CFO and Interim CEO, Timothy Johnson, noted that the Q3 guidance for low-single-digit growth includes a roughly two-point benefit from a retail calendar shift. The underlying improvement is driven by new product acceptance, a major VSX Sport launch, and the commercialization of the Fashion Show. Regarding transportation, Johnson stated that after being a tailwind, freight rates have recently spiked and are now expected to be a headwind in the second half, which is factored into the margin outlook.

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An executive, likely CEO Scott Baxter, described the consumer as 'confused' and 'conservative' due to macro uncertainty. COO Thomas Waldron confirmed they expect Wrangler to continue gaining market share, while 2025 will be a 'reset year' for Lee, with performance expected to strengthen as the year progresses. CFO Joe Alkire reiterated the balanced full-year outlook, which accounts for this dynamic.

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CFO Joseph Alkire explained the $0.08 EPS impact was from proactive measures like expedited freight and inventory clearance, taken from a position of strength. He clarified that excluding this impact, the EPS outlook would have been raised by approximately $0.11. Regarding Project Jeanius, he reiterated a gradual build, with SG&A benefits in H1 2025 and gross margin benefits scaling in H2 2025, reaching a full run-rate in 2026.

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COO Scott Lipesky stated that new store growth is tilted towards Abercrombie & Fitch and the U.S. market, while Hollister is focused on remodels and rightsizes. CEO Fran Horowitz-Bonadies attributed Hollister's acceleration to broad-based, balanced growth across genders and categories, highlighting the successful launch of the collegiate collection. Scott Lipesky added that year-end inventory will be up year-over-year to support expected Q1 2025 growth, with the final level depending on holiday sell-through.

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COO Scott Lipesky noted that new store openings are tilted towards Abercrombie & Fitch and the U.S. market. CEO Fran Horowitz-Bonadies attributed Hollister's growth to balanced performance across genders and categories, particularly sweaters, knit bottoms, and the new collegiate collection. Scott Lipesky projected year-end inventory would be up year-over-year to support growth into 2025 but did not provide a specific figure.

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CFO & COO Scott Lipesky highlighted that the U.K. and Germany are two of the fastest-growing countries in Europe, validating the company's localization strategy. Regarding guidance, he noted that Q4 is distant and the focus is on delivering strong Q3 growth on top of a tough comparison from last year. For gross margin, he reiterated that Q3 is expected to be relatively flat year-over-year, balancing AUR opportunities with freight headwinds, but declined to provide a specific Q4 outlook.

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