Abercrombie & Fitch Co. (NYSE:ANF) Q1 2018 Earnings Conference Call Transcript

Please standby, we're about to begin. Good day, everyone. Welcome to the Abercrombie & Fitch First Quarter Fiscal Year 2018 Earnings Call. Today's conference is being recorded. (Operator Instructions)

Now, at this time, I'd like to turn the conference over to Brian Logan. Mr. Logan, please go ahead.

Thank you. Good morning and welcome to our first quarter 2018 earnings call. Joining me today are Fran Horowitz, Chief Executive Officer; Joanne Crevoiserat, Chief Operating Officer; and Scott Lipesky, Chief Financial Officer. Earlier this morning, we issued our first 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, which we will be referring to in our comments during this call.

Before we begin, I remind you that any forward-looking statements we make today are subject to our safe harbor statement found in our SEC filings. In addition, we will be referring to certain adjusted non-GAAP financial measures during the call. Additional details and the reconciliation of GAAP to non-GAAP financial measures are included in the release issued earlier this morning. Also, due to the calendar shift resulting from the 53rd week in fiscal 2017, first quarter comp sales are compared to the 13-week period ended, May 6, 2017.

With that, I will turn it over to Fran.

Thanks, Brian. Good morning, everyone. And thank you for joining us today. We are off to a strong start in 2018, with our first quarter's performance, supported by our brands, improving health, effective marketing and growing consumer confidence. We are pleased with our performance across all brands. The consistent execution of our playbooks delivered a solid quarter of sales growth and bottom line improvement, with a 5% increase in comp sales, gross margin expansion, and significant expense leverage, all while continuing to make progress transforming our business.

We were pleased with the gross margin improvement, which exceeded our expectations for the quarter and remains a focus, as we improve the health of our brands, work to reduce our promotional intensity and tightly manage inventory. Hollister continues to drive sales growth across all channels and geographies, and Abercrombie built momentum with another quarter of positive comp sales. Direct-to-consumer net sales increased 14% compared to last year with another quarter of growth across both brands and geographies. More than two-thirds of our digital traffic is from mobile, with 17% of that coming from our highly-rated app, which is our fastest-growing digital platform. Digital sales are important driver of our business, as customers increasingly start their shopping journey online. We are well positioned to capitalize on its trend, and continue to invest to enhance our omni capabilities we roll them out globally.

We are very happy with our marketing execution this quarter. Our marketing is increasingly integrated and driving engagement with our customers, and we are fueling these efforts with higher spend. We're moving the needle on engagement, consideration and traffic, with traffic to our stores in North America across brands ahead of