Abercrombie & Fitch (ANF) shares flew sky-high on Wednesday after reporting a massive second-quarter earnings beat. The retailer, whose brand portfolio also includes Hollister, outpaced earnings estimates by nearly 543 percent after posting $1.10 per share.

Abercrombie & Fitch CEO Fran Horowitz sits down with Yahoo Finance Executive Editor Brian Sozzi to discuss the narrative behind Abercrombie & Fitch's success after ten consecutive quarters of growth.

"In any economic cycle, there are winners and there are losers, and we are winning because we are getting our product, our voice, and our experience aligned and [customers] are responding to it," Horowitz says.

Horowitz attributes the decision to "age up" the brand as a cornerstone of its ability to broaden its categories: "Perhaps [customers] start shopping with us in their 20s. They're still here and in their 30s and in their 40s."

Horowitz also comments on trends in casual wear and office attire seen in customer purchases, holiday shopping forecasts, and key sales drivers.

This post was written by Luke Carberry Mogan.

Video Transcript

BRIAN SOZZI: Big quarter at Abercrombie & Fitch.

I want to get right to really, I would say, the story of the day.

That is with Fran Horowitz, the CEO of Abercrombie & Fitch.

Fran, always great to get some time with you.

I got this question from the Yahoo Finance community this morning.

How did Abercrombie & Fitch put up this quarter?

I'll put that question to you.

How did you do it?

FRAN HOROWITZ: Hey, Brian.

Thanks.

Great to be here.

So it's interesting if you just take a step back a little bit.

We have been seeing some nice progress in our business, particularly in the Abercrombie adult brands.

It's our 10th consecutive quarter of growth.

What we were excited to share too is that we saw now an inflection in Hollister and saw that coming back to growth.

So the story behind the story is years of hard work, lots of transformation in the company.

We've really top-down and bottom-up gone through every single function.

We have something that we refer to as our playbook, and that's getting our product and our voice and our experience aligned for the consumer by listening to them, talking to them, going through customer insights.

And that is really what we were very excited for the team to do extremely well this quarter and continue to do so.

The other piece, which I know we've talked about a bit is Chase.

So the fact that we have Chase back in our business and the supply chain has eased up a bit is a big, big win for us.

That's a big tool in our toolbox.

BRIAN SOZZI: I'm not going to ask you to critique your competitors in the mall.

I'm not going to do that.

But look, Foot Locker, tough quarter, Dick's Sporting Goods, tough quarter.

These companies in some way are attached to the mall where you are.

What is it about your customer base?

Why are they opting for what you're selling in a very challenged consumer spending backdrop?

FRAN HOROWITZ: Yeah.

My answer to that, Brian, honestly, is that in any economic cycle, there are winners and there are losers.

And we are winning because we are getting our product, our voice, and our experience aligned and they're responding to it.

So the opportunity is to continue to stay close to that customer and make sure you're providing for them what they're looking for.

Last Q2 in Hollister, we had a tougher time.

And we stepped back and we said, how much is macro, and how much do we own?

And we worked on the part that we owned.

And that was about our assortments and evolving them, being more than denim for back to school.

What else were they looking for?

Dresses.

What were the wearing occasions for these kids?

And that's the piece where you really just have to spend a lot of time, whether it's on social platforms, whether it's in your stores talking to your consumers and getting those insights.

BRIAN SOZZI: Who is coming into these stores?

And let's start with the Abercrombie & Fitch brand, Fran.

Because it doesn't look like they're walking into Dick's Sporting Goods to buy athletic apparel.

It doesn't look like they're going out necessarily and buying sneakers at Foot Locker.

Macy's challenged quarter, what is that?

Who is coming into Abercrombie?

Is it 20 to 30-year-olds with maybe a little more money in their pocket than people think?

FRAN HOROWITZ: Yeah.

I mean, the transformation of the brand, which you've been on that journey with me for quite some time, is that we've really aged up the brand.

So I would say that the target-- when we target a consumer from our marketing and our design perspective and our merchants is a young millennial, so mid to late 20s.

But the exciting thing about the brand is now it's such a broader range of people that are responding to it.

So perhaps they start shopping with us in their 20s.

They're still here in their 30s and in their 40s.

So we're seeing both a broadening of categories as well as a broadening of age visiting the brand.

BRIAN SOZZI: How are they shopping once in Abercrombie & Fitch store, Fran?

Is it more casual back-to-college?

Is it wear to office, wear to work?

Where are you seeing some disparities?

FRAN HOROWITZ: We're actually seeing a little bit of both.

So yes, to your point, when people talk about back-to-school, for the Abercrombie brand, it is back-to-college because that's really when they start to shop with us.

But we're also seeing all of the return to office.

We're seeing the consumer needing a very balanced wardrobe today, Brian.

They need clothes for when they are working from home, and they need clothes when they're going to the office.

The exciting thing about the Abercrombie adult brand, though, is that even if they buy something from us to go to the office, they can transition that.

And they can go from work to weekend and to their getaways.

They buy our Sloan pant in women's, which is one of our biggest franchises today.

She can wear that one way to go to the office, and then she changes whether it's her top or her shoes and she goes out right after work or she packs it up for the weekend.

So it's very, very versatile.

BRIAN SOZZI: I promise I will get to Hollister.

But still on Abercrombie & Fitch, what is the cadence of this business look like for the rest of back-to-school?

Are you seeing a good start here in August into September?

And then what are some of your big bets for the holidays for Abercrombie & Fitch?

FRAN HOROWITZ: Yes.

So specifically, as you mentioned, not a back-to-school brand, so we see a much more consistent business with Abercrombie than we do with Hollister Hollister, you'll see some bigger spikes in the business with the actual back-to-school timing.

Our expectation for holiday is that we're going in with momentum, we're going to continue to read and react to our business as you saw today.

We raised our outlook for the back half, and we're excited to have the momentum heading into the back half.

BRIAN SOZZI: What about Hollister?

So this is a more, I would say, economically challenged sector.

We heard, I think, some cautious comments from Urban Outfitters when they reported.

In many cases, you're operating close by in the same mall.

What is the Hollister consumer doing?

FRAN HOROWITZ: Yeah.

So I would say the teen consumer is definitely more pressured.

That's what we started to see last year and still seeing it today.

But the consumer is shopping, and they're going to continue to shop.

They're just making choices on who they're shopping with.

And they're choosing our brand because we really worked hard on evolving our assortments, staying close, understanding what those trends are for back-to-school.

I visit stores quite often.

I was in Texas for back-to-school a couple of weeks ago.

And the energy and the excitement in the mall and in our stores was really, really exciting.

BRIAN SOZZI: Has Hollister fully turned the corner?

FRAN HOROWITZ: You know, I don't think there's ever a finish line.

What I would tell you about this teen consumer, Brian, is they keep you on your toes.

They are ever evolving.

You've got to stay very close because with TikTok and all the other things that are showing them fashion and all these trends so quickly, there really is no finish line.

You've really got to continue to evolve.

BRIAN SOZZI: Is it fair to say that in Abercrombie and Hollister, those sales are being driven by the female business?

FRAN HOROWITZ: No.

In fact, what you'll see happening-- so in Abercrombie women's, the turn did start in women's because women do shop more frequently and we had an opportunity to speak to them and get them interested.

And now our men's business is really strong.

We saw double digit increases.

I think it's our third or fourth quarter of sales growth for Abercrombie men's.

We're seeing a lot of exciting things happening in that business.

In Hollister, our girls business was better than our guys business.

But our playbook will show you that it turns first in girls.

And our expectation is that guys will follow.

BRIAN SOZZI: How concerned are you about student loan repayments?

We have a piece on the Yahoo Finance home page today.

A lot of retailers are calling out that is a risk to their business for the third quarter and maybe the holiday season.

How do you see it within Abercrombie & Fitch.

FRAN HOROWITZ: If you've sat in this seat for the past few years, we're ready to manage anything that comes our way.

I think the fact that our inventories are so lean and we're controlling what we can control.

You know, if things do happen and their consumer becomes more pressured, the best way to be is very lean in your inventories.

BRIAN SOZZI: But you didn't factor that in into your guidance?

To your point, you raised guidance.

You're still looking for maybe your consumer to overcome any student loan repayments.

Is that right?

FRAN HOROWITZ: 100%.

That's exactly goes back to what I said earlier, which is that the consumer has a choice of where they're shopping.

They will continue to shop.

And they are choosing us because we're putting out the right brand voice and experience.

BRIAN SOZZI: Do you have enough inventory?

Your inventory was down 30%.

Is it down in Hollister and Abercrombie & Fitch?

Those are big declines.

If you're seeing sales up over 20 plus percent in Abercrombie.

Do you have enough stuff on the floor?

FRAN HOROWITZ: We do.

And yes, specifically, our inventory is down more significantly in Hollister than it is in Abercrombie because obviously, that trend was going a lot sooner than the Hollister trend was going.

We have an incredible sourcing and supply chain, Brian.

And now that the woes of '22 are behind us and all of those logistical issues are behind us, we are back to chasing.

The team comes in on Monday morning and they're able to react to their business.

And we're able to turn it very, very quickly.

So for us, that was a big hurt for last year, and it's a big win for us this year.

BRIAN SOZZI: Has inflation stopped being a major problem for your business?

And how do you see that playing out?

FRAN HOROWITZ: No.

We're definitely still seeing inflation in the business.

It's obviously subsiding a bit.

Where we're really benefiting is, again, with the supply chain and the cost of the freight going back to much more normalized rates has also been very, very helpful.

BRIAN SOZZI: I was scrolling through your investor presentation.

My old analyst self stumbled upon this.

So your targets for 2025, , 8% to 10% operating margin right?

This year, you might be close to 10.

Do you have to take those targets up?

FRAN HOROWITZ: Yeah.

So that comes from our investor day that we had last June.

And when we had that data, it was pretty gutsy to do it when there was a lot of turmoil happening all around us.

But it was important for us to get out there.

We're not really talking about '24 and '25 yet.

But certainly, if the year comes in as we have projected in our outlook, we would expect to revisit those.

BRIAN SOZZI: Lastly, Fran, 60 days ago, did you think you'd be reporting a quarter like this and actually raising guidance?

To my knowledge, over the past two weeks, you are really the only retailer that has come out here and raised guidance.

FRAN HOROWITZ: Yes.

I mean, I think that the years of this hard work and the transformation is certainly paying off.

And staying close to this customer is a big win.

Today on campus, honestly, Brian, it's such an amazing day for the teams to see all their hard work coming to fruition.

BRIAN SOZZI: Fran Horowitz, I know how you do it, but you did it this quarter.

And I look forward to continuing to following your journey over at Abercrombie & Fitch.

Always good to see you.

Appreciate it.

FRAN HOROWITZ: Yes, you as well.

Thanks, Brian.

Appreciate it.