Aug 26, 2015
Executives
Brian P. Logan - Vice President-Investor Relations & Controller Arthur C.
Martinez - Executive Chairman Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President Joanne C.
Crevoiserat - Chief Financial Officer & Executive Vice President Fran Horowitz-Bonadies - Brand President, Hollister Co. California LLC Christos Emilios Angelides - President-Abercrombie & Fitch Brands
Analysts
Matthew Robert Boss - JPMorgan Securities LLC Brian Jay Tunick - RBC Capital Markets LLC Neely J. N.
Tamminga - Piper Jaffray & Co (Broker) Gene Vladimirov - Nomura Securities International, Inc. Oliver Chen - Cowen & Co.
LLC Paul Stephen Alexander - BB&T Capital Markets Thomas A. Filandro - Susquehanna Financial Group LLLP Marni Shapiro - The Retail Tracker Janet J.
Kloppenburg - JJK Research Anna Andreeva - Oppenheimer & Co., Inc. (Broker) Kimberly Conroy Greenberger - Morgan Stanley & Co.
LLC Andrew G. Schmidt - FBR Capital Markets & Co.
Rick B. Patel - Stephens, Inc.
Omar Saad - Evercore ISI Lorraine Maikis Hutchinson - Merrill Lynch, Pierce, Fenner & Smith, Inc. Edward J.
McLaughlin - Goldman Sachs & Co. Dorothy Senghas Lakner - Topeka Capital Markets Mark R.
Altschwager - Robert W. Baird & Co., Inc.
(Broker) Dana L. Telsey - Telsey Advisory Group LLC
Operator
Please stand by. Good day and welcome to the Abercrombie & Fitch Second Quarter Fiscal Year 2015 Earnings Call.
Today's conference is being recorded. We will open the call to take your questions at the end of the presentation.
We ask that you limit yourself to one question during the question-and-answer session. At this time, I would like to turn the conference over to Brian Logan.
Mr. Logan, please go ahead.
Brian P. Logan - Vice President-Investor Relations & Controller
Good morning and welcome to our second quarter earnings call. Earlier this morning, we released our second quarter sales and earnings, income statements, balance sheet, store opening and closing summary, and an updated financial history.
Please feel free to reference these materials which are available on our website. Also available on our website is an investor presentation which we will be referring to in our comments during this call.
Today's earnings call is being recorded and the replay may be accessed through the Internet at abercrombie.com under the Investors section. The call is scheduled for one hour.
Joining me today are Arthur Martinez, Executive Chairman; Jonathan Ramsden, Chief Operating Officer; Joanne Crevoiserat, Chief Financial Officer; Fran Horowitz, Brand President of Hollister; and Christos Angelides, Brand President of A&F and abercrombie kids. After our prepared remarks, we will be available to take your questions for as long as time permits.
Before I begin, I remind you that any forward-looking statements we may make today are subject to the Safe Harbor statement found in our SEC filings. With that, I hand the call over to Arthur for some opening remarks.
Arthur C. Martinez - Executive Chairman
Thank you, Brian, and good morning, everyone. And thank you for being with us this morning.
In our last earnings call, we indicated that we expected meaningful sequential improvement in comp sales performance accompanied by stabilized gross margins and continued expense reductions. The results we are announcing this morning exceeded those expectations.
Our comp sales trend improvements reflect an intense focus on the customer experience, driven by a newly-energized and empowered stores organization, as well as investments in direct-to-consumer and omnichannel capabilities. While these results encourage us that we're on the right track, we recognize that we still have much to achieve.
And so we continue to take important steps to improve near-term performance and lay the foundation for long-term growth and profitability. Our brand design and merchandising teams have been reinvigorated by a number of newly-recruited executives with excellent backgrounds relevant to our needs.
You may have seen our recent announcements regarding some of these additions for the A&F brand. We are also maintaining an intense focus on productivity improvements to build on the progress we have made in reducing expenses over the past several quarters.
Both Hollister and abercrombie kids showed very good progress in the most recent quarter and we believe that these improving trends are sustainable. For the Abercrombie & Fitch brand, our initiatives are well underway and we expect improvement in our performance.
Turnarounds, however, are never linear and we are not naïve about the challenges we face, but are determined to return to prosperity and growth. And we are confident that we are taking the right steps to achieve that.
An important part of our longer term planning and thinking is the establishment of very clear brand positioning that will guide all elements of our business. That work is also underway and we will have much more to say about that as we go forward.
In the meantime, we are encouraged by many indicators that we are on the right track in restoring the business to health. Now, let me hand it over to Jonathan to provide a more in-depth update on our strategic initiatives.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Thanks, Arthur, and good morning, everyone. As Arthur said, our results for the quarter were ahead of our expectations coming into the quarter and reflect continued sequential improvement.
While that is the case, many of our strategies are still in their early stages and we see significant upside as we continue to execute against these strategies. As a reminder, our core strategies include, first, putting the customer at the center of everything we do.
Second, defining a clear positioning for our brands rooted in the clear sense of brand and corporate purpose. And, third, delivering a compelling and differentiated assortment.
Fourth, leveraging the global reach of our brands and optimizing our performance in each channel. Fifth, continuing to improve our efficiency and reduce expense.
And, last, ensuring we are organized to succeed. Many of the specific actions against these initiatives are consistent with what we've laid out in prior calls, but I want to mention a few highlights for the quarter.
First, our five fully remodeled Hollister stores, which feature a newly redesigned interior prototype with an open floor plan, new fixtures, lighter paint colors and brighter lighting, are performing well. These five stores are up strongly versus the control group and the customer reaction to the new format has been very positive.
We will convert another eight stores this year and anticipate a more extensive rollout next year. In addition, approximately 100 Hollister stores have now been converted to the new store front and are generating a mid- to high-single-digit lift in sales.
Second, turning to digital, we launched our first A&F Android mobile app during the second quarter and we'll launch a redesigned iOS mobile app in the fourth quarter. For Hollister, we launched redesigned iOS and Android app with Club Cali integration in the third quarter.
Mobile remains a major area of focus for us, now accounting for over 50% of our online traffic and with conversion growing strongly. With regard to omnichannel, we are currently piloting reserve-in-store in six states and expect to roll out order-in-store and click-and-collect to the UK going forward.
In addition, we expect to roll out various enhancements that will enable web-like search capabilities for order-in-store and increase SKU availability and fulfillment efficiencies to ship-from-store. Third, with regard to (06:25), despite the current macroeconomic uncertainty, our performance in China for the quarter was strong, with double-digit comp sales in Hollister for the second consecutive quarter, including positive comps in all eight stores in the comp base and 300% growth in the DTC business.
We opened our second A&F and 10th and 11th Hollister mall-based stores in China during the quarter. We are pleased with our performance in China to-date, but we'll carefully monitor the competitive and the consumer landscape as we plan future growth.
We're also pleased with our performance in the Middle East where we now have two A&F stores in Kuwait and three Hollister stores in the UAE. Turning to outlets, our MFO stores continue to perform well and produce healthy margins and we now expect to have approximately 13 new or converted stores with MFO merchandise by the end of the year, primarily in A&F.
Fourth, this past quarter marked the launch of Fierce fragrant products with Inter Parfums in over 300 Sephora stores in France and online. Initial sales are encouraging and we plan to add selective duty-free and specialty stores in the third quarter.
Fifth, the quarter affected continued strong expense management, marking the eighth successive quarter in which we have reduced year-over-year operating expense on an adjusted non-GAAP basis with cumulative savings to-date significantly exceeding our initial expectations. Finally, we continue to strengthen both brand teams during the quarter with appointments at the VP level and hire across design, planning, merchandising, e-commerce, and marketing.
Our results for the quarter reflect positive progress and we look forward to building on that progress in the coming quarters. With that, I will hand it over to Joanne to review the second quarter results.
Joanne C. Crevoiserat - Chief Financial Officer & Executive Vice President
Thanks, Jonathan, and good morning, everyone. I will start with a brief recap of our second quarter results and then provide an update on our outlook for the rest of 2015.
As Arthur mentioned, meaningful improvements in our comp sales trend, coupled with tight expense management, resulted in operating income exceeding our initial expectations coming into the quarter. For the quarter, net sales were $818 million, down 8% to last year.
Changes in foreign currency exchange rates versus a year ago accounted for approximately 5 percentage points or $45 million of the sales decline. Total comp sales were down 4% for the quarter.
On a sequential basis, comp sales trends improved broadly from the first quarter, particularly in Hollister and internationally. As referenced on pages 5 and 6 of the investor presentation, comp sales were down 7% for Abercrombie and down 1% for Hollister.
By geography, comp sales were down 4% in both the U.S. and international markets.
International markets showed strong sequential improvement with positive comps in Asia and Canada and sequential improvement in Europe, including in the UK, Germany and France. These results were driven by strong conversion as customers responded positively to pricing adjustments and new product deliveries in these markets Across brand, the direct-to-consumer and omnichannel business grew to approximately 21% of total sales versus approximately 19% last year, with growth in both our U.S.
and international businesses. By category, we continued to see strength in jeans and dresses during the quarter and also saw a sequential improvement in the tops business.
While reduced logo contributed to the comp sales decline for the quarter, it was somewhat less than expected. Moving forward, we expect that logo will no longer be a headwind and we will view and manage logo just like any other part of our assortment Excluded from our results for the quarter was a pre-tax net charge of $15 million compared to $2 million last year, which are detailed on page 4 of our investor presentation.
For the quarter, this primarily included $16 million of legal settlement charges. Excluding certain items, the adjusted non-GAAP gross profit rate for the quarter was 62%, 110 basis points higher than last year on a constant currency basis, primarily driven by lower average unit cost.
Average unit retail in our U.S. business continued to stabilize while our international AUR declined due to pricing adjustments and lower foreign currency exchange rates.
On an adjusted non-GAAP basis, stores and distribution expense decreased $37 million from last year as a result of benefits from FX as well as further expense reduction efforts and the realization of expense savings on lower sales. On an adjusted non-GAAP basis, marketing, general and administrative expense for the quarter decreased $6 million primarily due to expense reduction efforts during the quarter.
Excluding certain items, adjusted non-GAAP operating income was above last year on a constant-currency basis. The tax rate remains highly sensitive to earnings mix by jurisdiction, particularly at lower levels of profitability which was the case for the second quarter.
For the quarter, the company reported adjusted non-GAAP net income for diluted share of $0.12 compared to $0.19 last year. Results for the quarter included the adverse effects from FX of approximately $0.18.
Turning to the balance sheet, we ended the quarter with $408 million in cash and cash equivalents and gross borrowings outstanding of $298 million, compared to $311 million in cash and cash equivalents and $188 million in borrowing last year. We also ended the quarter with total inventory down 13% versus last year.
Details of our store openings for the quarter are included on page eight of the investor presentation. At the end of the quarter, we operated 783 stores in the U.S.
and 171 stores in Canada, Europe, Asia and the Middle East. With regard to our outlook for the back half of 2015, we expect continued headwind from foreign currency exchange rates; further comparable sales trend improvements skewed towards the fourth quarter; gross margin rate to be approximately flat compared to last year, but up on a constant currency basis; operating expense dollars to be approximately flat compared to last year after absorbing the effect of restoration of incentive compensation provisions, which will skew towards the third quarter, but excluding effects from changes in comp sales; and a weighted average diluted share count of approximately 70 million shares excluding the effect of potential share buybacks.
In addition, we expect an elevated tax rate on a full-year basis which remains highly sensitive to earnings mix. Over time, we expect the tax rate will return to the mid-to-upper 30%s.
Excluded from our outlook for the rest of the year are potential charges related to impairment and store closings and other potential charges related to our strategic initiatives. We also continue to target capital expenditures for the full year of approximately $150 million.
With regard to real estate plans for the full year, we plan to open 15 full-price stores in the key international growth markets of China, Japan and the Middle East and six full-price stores in North America. We also plan to open 10 new outlet stores in the U.S.
In addition, we continue to expect to close approximately 60 stores in the U.S. during 2015 through natural lease expirations.
Now I'm going to hand it over to Fran and Christos who will provide some more color around the performance and strategic initiatives occurring within their brands. Fran?
Fran Horowitz-Bonadies - Brand President, Hollister Co. California LLC
Thank you, Joanne, and good morning, everyone. Before I get started, I would like to thank the global Hollister team for their hard work over the past quarter.
We continue to make significant, positive changes to our brand and the customer is noticing. As Joanne mentioned, we achieved continued sequential comp improvement in the second quarter, delivering a down 1% comp compared to a down 7% (sic) [6%] (14:53) in the first quarter.
We were able to achieve this performance while continuing to reduce our reliance on promotions across all channels. We continue to drive increased selling of tickets throughout the quarter, driven by improvement in the assortment with each product update.
In the U.S., we comped roughly flat driven by improvement in both the Girls and Guys businesses with tops leading the way for each gender. In Europe, we saw sequential comp improvement in each country.
As we indicated last quarter, we completed the rollout of the updated international pricing architecture as new products set in June and July. The updated pricing along with improved product offering drove strong conversion.
In Asia, our China business continued to comp positively and we are pleased with the new store openings in the quarter. During the quarter, we continue to make meaningful progress on our key strategic initiatives.
As we hone our brand and our customer messaging, we continued to drive strong engagement on Instagram and other social media platforms where our customer expects to be able to engage. We partnered with Instagram on a new carousel advertising unit resulting in our strongest engagement ever and a shift in brand affinity.
On Snapchat, we were the first global retailer to develop a custom filter on Hollister. We continue to be early adopter of new platform.
For example, Hollister is amongst the most followed brands on We Heart It, a social platform targeting teenage girls. With clarity in our message and strong digital engagement, we continue to evolve our customer experience and deliver on-brand, on-trend products.
During the quarter, we also made solid progress improving our in-store experience. We continue to update our store operations model to prioritize the allocation of store payroll towards the customer-facing and selling activities.
We've also taken steps to increase the autonomy that our store managers have to set and present items which our local customers desire most. These efforts will continue to evolve over the next 12 months and are enhancing the shopping experience for our customer.
We remodeled five U.S. stores during the quarter, which included a fully redesigned and refixtured interior.
These test stores are up strongly versus their control stores, and we continue to receive positive customer feedback through exit interviews. Based on the initial positive test reads, we expect to remodel five additional U.S.
and three Europe stores later this year. In the U.S., we reduced our promotional activity and simplified our promotional pricing to improve clarity and quality and value.
We shortened the length and depth of our clearance messaging as we drove inventory to a more appropriate level. As we move to the merchandise assortment, we were excited to see continued traction in our tops assortment while maintaining a strong bottoms business.
On the girls side, we were increasingly excited about our new product. We drove a solid knit top business and complemented the assortment with on-trend pattern and color in dresses, rompers and soft shorts.
On the guys side, we delivered significant sequential comp improvement from the first quarter, driven by the tops category. And in bottoms, we had a challenging quarter in shorts but made up for it in long bottoms.
Stepping back from category performance, I am most excited about the confidence they're gaining as a team to deliver bigger fashion items in the Hollister handwriting. Finally, we continue to make progress around people, structure, and process.
We made several additional senior-level hires in the quarter. We have seen the benefit of the perspective and passion brought by our recent additions who complement the strong teams we already had in place.
We are energized by our improvement and look forward to carrying momentum into the back half of the year. And I will now hand over to Christos.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
Thank you, Fran. As Joanne mentioned, the Abercrombie brand's 7% comparable sales decline reflected sequential improvement from the first quarter, which included strong performance in kids, modest improvement in the women's business, but no notable progress in the men's business as yet.
While we expected more improvement, we did have some wins for the quarter, primarily in jeans and dresses. And, while still down year-over-year, we are encouraged by some of the improvements we're seeing in the women's tops business.
By region, comp trends improved in both North America, despite a less promotional stance and an increase in full-price sale (19:35). Internationally, we've seen improvement in the UK, Germany, and Asia.
To support our progress moving forward, we have also made a number of key senior-level hires. The newfound (19:45) leadership is executing against the strategic initiatives of the brand.
We continue to make changes to improve the customer experience across all channels. As mentioned during last quarter's call, we've improved sightlines throughout the store by removing various props and fixtures.
We've also made changes to the level of scent, volume and music, and the lighting in our stores. We've also improved our digital shopping experience, emphasizing convenience through on-figure product shots, expanded fit information, and lifestyle and editorial content that highlights the product.
Our store associates are critical in ensuring our customers have a positive shopping experience. And on that front, we've rolled out a number of enhancements to our store operating model.
These new programs are designed to increase product knowledge and give our associates the means to drive their business by providing them with greater levels of autonomy to make changes based on the specific needs of their customer base. The programs also increased the frequency of communication and the scope of customer insights compiled by our field associates.
The importance of improving the brand experience is the evolution of our assortment. And we are encouraged by the progress we're seeing in women's tops, particularly in the international markets.
We're particularly pleased with the progress of abercrombie kids, where we created a fun and useful assortment, and we will be extending our size offering in kids brand to ages – from ages three through to seven to supplement the current size range. We've also had a successful kids trial on the adult website, and we'll be expanding kids into an additional 13 adult stores.
There has been a significant amount of change within the brand. While our results fell short of our expectations, we (21:26) making the necessary adjustments to drive improvements in the business.
And we believe we have the team in place to do that. With that, I'll turn the call back over to Arthur.
Arthur C. Martinez - Executive Chairman
Thank you, Christos. As you've heard today, and I and our board believe we have an extraordinary executive team that is making excellent progress, improving near-term performance and establishing more distinct and defined positioning for our brands to help us drive competitive advantage and realize the full potential of our company.
With regard to a CEO decision, the board remains deeply engaged in this process and a new CEO will be appointed in due time. Far better to make the right choice than a hasty choice.
This concludes our prepared comments and we'll now be happy to take your questions. Thank you.
Operator
Thank you very much. Our first question today will come from Matthew Boss of JPMorgan.
Matthew Robert Boss - JPMorgan Securities LLC
Great results. So, on the top line, I guess, are you comfortable with your out-the-door prices today across the concepts?
Any changes still underway globally for us to think about? And what, if any, headwinds do you foresee preventing a return to positive comps overall next year?
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Maybe on the pricing, we will bifurcate that between Hollister and A&F. Fran, do you want to start with Hollister?
Fran Horowitz-Bonadies - Brand President, Hollister Co. California LLC
Sure. We have rolled out the pricing.
I think we're very comfortable with where we currently are, both domestically and internationally, and we don't see any other changes at this point.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
In Abercrombie, Matthew, we continue to make adjustments to the pricing actually both down and up. We see opportunities at both elements of the pricing spectrum.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
On your last part, Matt, obviously we're not being specific about the rate of progress, but we're clearly saying that we do expect to continue to making progress and improving the trend of the business.
Matthew Robert Boss - JPMorgan Securities LLC
Great. And then just a follow up on margin, what's the best way to rank your margin recapture opportunity if we think it by concept over the next, call it, two to three years?
And with that, just the best way to think about operating expense leverage if you are able to stabilize the sales beyond this year.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Well, I said a couple of opening comments on margins. First of all, we've had this significant FX headwind on gross margin rate this year.
It's going to be a little less in the back half of the year if spot rates hold where they are today, although obviously there's a lot of water to go under the bridge on that. But we would hope that that is less of a headwind certainly in 2016 and may potentially turn the other way.
Then I think with regard to AUC, we've made pretty good progress on a full-year basis. We do have to balance as we said on the last call, investing appropriately in the product.
We feel confident that's going to give us a return from an AUR standpoint.
Joanne C. Crevoiserat - Chief Financial Officer & Executive Vice President
As it relates to expense leverage, Matt, I think we continue to see opportunities to take expense out of the business. Certainly, we've had a lot of success over the last 18 months to 2 years.
But we continue to believe that our continuous profit improvement approach and engaging the entire organization in making productivity part of everything we do will continue to yield results for us. We also believe that as we return the stores to higher productivity, continue to optimize the fleet, that will also help deliver margin – I'm sorry, expense leverage.
Matthew Robert Boss - JPMorgan Securities LLC
Great. That's helpful.
Best of luck.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Thank you.
Operator
Next, we'll hear from Brian Tunick, Royal Bank of Canada.
Brian Jay Tunick - RBC Capital Markets LLC
Hi. Thanks.
Good morning. I'll add my congrats on the progress as well.
I guess, Christos, first. On the A&F brand, I guess lots of changes in terms of the product and positioning.
But wondering, it seems like you're trying to age up the customer when we come into the stores and see the marketing. Can you maybe speak to any research you've done addressing maybe the older, young adult customers' perception of the A&F brand in particular and maybe willingness to engage there?
And then maybe the second question on the margin line, can you maybe talk about the profitability by segment? We're just thinking about the AUR decline at Hollister internationally.
How does that impact those segment margins and what should we think about that going forward? Thanks very much.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
Okay, Brian. So in terms of – you referenced aging of the customer.
Actually, that's not a deliberate plan of ours to age up the customer. We're actually thinking less about age and more about style and attitude.
So, any changes you may see in store are really the result of the way that customers are taking us to that direction. So, just to emphasize, we're not deliberately trying to age the customer; that may be a function of those that shop with us.
In terms of margin...
Joanne C. Crevoiserat - Chief Financial Officer & Executive Vice President
In terms of margin profitability by segment, we don't report the profitability by segment. But what we have said and I think our results show the investments we're making in price internationally, we did test and we saw that we had a return in margin dollars and the results were in line with our expectations as we more fully rolled out the pricing adjustments.
So we believe that and we have seen that it has helped stabilize the comp trend and improved gross margin dollars. We also have, as seen by our gross margin, absolute reported performance.
AUC has been an offset to that broadly and we're able to report margin rates roughly in line year-over-year.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
And I'll just add, Brian, I think on the prior call, we gave some stats about the overall profitability of the European store fleet in particular and those stats remain very healthy even with the AUR reductions that we've taken.
Brian Jay Tunick - RBC Capital Markets LLC
Terrific. Thanks very much and good luck.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Thank you.
Operator
Next, we'll hear from Neely Tamminga, Piper Jaffray.
Neely J. N. Tamminga - Piper Jaffray & Co (Broker)
Great. Good morning and congratulations on the progress you guys are making.
I just had a housekeeping question and then a question for Fran. Housekeeping, Joanne, on the Q3 comp indication or the comp indication for more positive momentum in Q4 versus Q3, is that solely because of FX or is there something going on in the current business that's giving you any pause?
Any sort of contextualization there would be helpful. And then secondly for you, Fran, in terms of leadership team, we know that Christos has made it really clear who is leadership team is.
I don't know if I've actually seen a similar announcement fully out of you necessarily. Where are you on your team overall and how do you feel about – you're doing a great job, but I mean are all the holed filled?
Thanks.
Joanne C. Crevoiserat - Chief Financial Officer & Executive Vice President
Neely, on the Q3 comp indication, I mean I think on the first part, in Q2, was slightly better than our expectations and we believe that it's more fourth quarter-weighted really due to the progress we're seeing in our assortments and the incremental improvement we're making in the holiday.
Fran Horowitz-Bonadies - Brand President, Hollister Co. California LLC
Hi, Neely. It's Fran.
Regarding your question on the leadership team, we at Hollister have added leadership to the team over the past couple of quarters. We have a few positions that we're still looking to fill and have complimented it already was a strong team here.
So, moving forward on that front.
Neely J. N. Tamminga - Piper Jaffray & Co (Broker)
Thank you.
Operator
And next, we'll move to Simeon Siegel, Nomura Securities.
Gene Vladimirov - Nomura Securities International, Inc.
Hey. Good morning, guys.
This is Gene Vladimirov on for Simeon. It looks like you guys had a sizable inventory reduction for the Q.
Just wondering if you're expecting that trend to continue through the year and then maybe if you'd give us some color on the current composition. And then just the quick reminder on the current split of logo versus non-logo product, what it looks like and whether we should expect that to change going forward?
Thanks.
Joanne C. Crevoiserat - Chief Financial Officer & Executive Vice President
Hi. So, on inventory reduction, we did expect the large reduction and we continue to believe we have opportunity to improve productivity in our inventory.
So we expect going forward, that we both, through better management of the buy and the inventory management process end-to-end, should see continued improvement in inventory productivity. On the logo, we did make a structural change in the logo position in our assortment about a year ago.
We've basically let those structural changes as we move into the back half of the year. I would say we're comfortable with where the logo is in our assortment in terms of absolute level.
And as I mentioned, we intend to manage that as we would any other aspect of our assortment moving forward.
Gene Vladimirov - Nomura Securities International, Inc.
Great, thanks.
Operator
Oliver Chen with Cowen & Company is next.
Oliver Chen - Cowen & Co. LLC
Hi, thanks, and congrats on the solid improvement here. We were just curious about as we look forward and model the new positive impact from the remodeled stores and the store fronts, what's the timing from which we should think about the materiality of driving the comp?
Also, what's the context from which you're seeing improvement on the remodels? Is it traffic and conversion?
Just curious about the context of how the benefit is manifesting. Thank you.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Yeah. Hi, Oliver.
So on the last part of the question, it's a combination of both. We've seen traffic and conversion both up in those converted stores.
In terms of the impact of the remodels, we have a relatively small number today and that will remain the case through the end of the year. So, the overall impact on the comp is therefore pretty much de minimis at this point.
It's an open question at this point as to how many stores we are going to convert in 2016. That's something we're going to be looking at very hard over the next couple of months as we think about our capital allocation plans as we continue to track the performance of the stores we have remodeled, but we're certainly very encouraged by what we've seen so far and we certainly do expect there to be an increased rollout in 2016, but precise numbers still to be confirmed.
Oliver Chen - Cowen & Co. LLC
Okay. And just a quick follow-up on the store checks, we've noticed a little bit more markdowns on men's versus women's at both concepts.
We're curious about how you felt about where you were in the innings of those assortments. It's really good that you're pretty happy with women's.
Fran Horowitz-Bonadies - Brand President, Hollister Co. California LLC
I'll go first. From a Hollister perspective, we made improvement actually in both men's and women's over the quarter, a little bit more in women's.
As I mentioned earlier, we did positive comp in tops for women's in the first quarter in quite some time, but men's made some very significant improvements as well and we see that continuing.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
In Abercrombie, we definitely haven't seen the same improvements in male as we have in female and I would put that down to the need for us to offer more newness and variety across styles, fits, fabrics, and washes.
Oliver Chen - Cowen & Co. LLC
Thank you. Best regards.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Thanks.
Operator
Our next question will come from Paul Alexander, BB&T Capital Markets.
Paul Stephen Alexander - BB&T Capital Markets
Thank you. Just a follow-up on the logo discussion.
It sounds like you're not taking the logo down anymore. What's your philosophy around logo?
Do you see the decline in the logo trend stabilizing? Or do you just feel like you have such a sizable logo business that you no longer want to take it down?
And how do you think about your approach to logo versus the competition?
Fran Horowitz-Bonadies - Brand President, Hollister Co. California LLC
Oh, hi, Paul. It's Fran.
Regarding logo for Hollister, we are seeing nice customer acceptance to our logo product. It is something that we focused on when we first got here and putting sort of quality and value back into our logo.
It is seeking a piece of the business that's sort of going to be part of a balanced assortment that we will offer to the customer going forward. So, it is seeking its own level and that's what the customer is currently telling us.
And regarding the competition, we don't normally comment on what's happening with the competition.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
In Abercrombie, Paul, we don't actually set a level for logo. It will be what customers want it to be.
Fortunately, there is good traction. Customers appear to like the new logo product we're developing.
So, we'll just run with that and see where it takes us.
Paul Stephen Alexander - BB&T Capital Markets
Great. Thank you.
Operator
Next is Thomas Filandro with SIG.
Thomas A. Filandro - Susquehanna Financial Group LLLP
Hey, thank you very much and nice job on the progress. I was hoping to ask the question on the field organization.
I was hoping you could help us better understand the initiatives to empower the field organization. What exactly is occurring across both brands?
And have you seen any impact on the business in terms of maybe shopper conversion, UPTs? And then for – how should we think about payroll as a percent of sales with some of these new empowerment initiatives?
Thank you.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Hi, Tom. It's Jonathan.
So, let me give you a couple of cross-branded comments about what we've done with the stores. First of all, as we mentioned I think a couple of quarters ago, we put in place an incentive scheme at the store level related to the store sales performance with a couple of other levers in there.
We've also given the store associates, the store managers, in particular, greater autonomy to make changes within the stores. If they see something selling well, they can move it within the store.
They have some latitude around moving fixtures. We're also supporting them with some additional training in how they interact with customers and directing them to spend more of the hours that are within the store on customer-facing activities rather than back office-type activities.
I think all of those are examples of things we're doing across both brands. Christos, Fran, anything else to add brand-specific?
Fran Horowitz-Bonadies - Brand President, Hollister Co. California LLC
Specifically for Hollister, keeping the customer at the center of everything that we do is the mantra we have put out there, a bit different than where we were in the past, Thomas. We are seeing conversion internationally as well as domestically, which leads us to believe that the customer is being serviced in a way that we are charging the field with.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
And then I think on the second part of your question, Tom, about the payroll as a percentage of sales, we're still looking to be very efficient on that. We're reallocating that payroll more than looking to increase it and the incentive scheme is obviously tied to results.
So, if we're delivering a strong incentive through that, then we're getting a good top line performance that we'll more than pay for that.
Thomas A. Filandro - Susquehanna Financial Group LLLP
Thank you very much. Best of luck.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Thank you.
Operator
Betty Chen with Mizuho Securities is next. Betty, your line is open.
Please go ahead. And if you're on a speakerphone, please pick up your handset or de-press your mute function.
And again, Betty, if you're on a speakerphone, please pick up your handset or de-press your mute function. And hearing no response, we will move on.
We have Marni Shapiro, The Retail Tracker.
Marni Shapiro - The Retail Tracker
Hey, guys. Congratulations.
The stores really look a lot better. It's exciting to be there.
I just have two quick questions. One is, I know this is going to sound silly, but the sales associates seem much happier and a lot less stressed in all of these stores.
So, I'm wondering if that's just a function of better sales or have you actually changed the way you're incenting them and the way you're working with them other than allowing them more autonomy in the stores. And then if you could just give me a quick update.
I've already seen the extended kids assortment in the Abercrombie stores that I've been in, but you said you're expanding it to 13. How many have the kids stores today?
Because I've seen the extended sizes today.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Go ahead.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
Okay. So, in terms of – I have to say it's up to the sales associate.
I actually think one of the reasons they might appear happier is that they've got control over their own store and they're more autonomous. It makes a big difference.
It means they can have impact on their own sales and they can see if they react in a certain way and they get a positive result. I'm sure that that motivates them.
In terms of kids, we have – I think it's 29...
Fran Horowitz-Bonadies - Brand President, Hollister Co. California LLC
26.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
...26 in total, including the 13.
Marni Shapiro - The Retail Tracker
That includes the 13. And so there's been no change in the way you're incenting the associates as far as the pay structure.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Well, yes. As I've mentioned a minute ago, Marni, we have an incentive scheme in place in the stores which is for the managers.
Marni Shapiro - The Retail Tracker
Right.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
And clearly they're motivated to drive the sales in the store. And I would fully echo Christos' point that I think people value the empowerment and like to be held accountable as long as they're given the ability to impact the outcome, which is what they're now getting.
Marni Shapiro - The Retail Tracker
All right. Congratulations, because I have to tell you it's been a really big change in your stores and it seems the customer is responding.
I'm watching adults actually spend more time in your stores. It's amazing.
Best of luck with the back half of the year, guys.
Joanne C. Crevoiserat - Chief Financial Officer & Executive Vice President
Thank you.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Thank you, (39:35).
Operator
Our next question will come from Janet Kloppenburg with JJK Research.
Janet J. Kloppenburg - JJK Research
Good morning, everyone. Congratulations on the progress.
For, Joanne, on the expense side including G&A, you're down about 8% year over year for the first half of the year. I'm wondering if you could talk to us directionally about what we should look for in the second half, could it be the same level of expense reduction or something greater.
And for Fran and Christos, on the category falloff, Fran, can you talk about your denim performance? Because we are seeing a resurgence in denim demand throughout the industry.
And Christos, I think the knit category's been challenging for the A&F brand. Perhaps you could talk to us about what you see there and if you're making any progress.
Thanks so much.
Joanne C. Crevoiserat - Chief Financial Officer & Executive Vice President
Thanks, Janet. I'll start with the G&A.
In our outlook we provided for the back half of the year, we expect expense dollars, excluding managing expense with changes in comp sales, we expect the expense dollars to be roughly flat with last year. And that's made up of a couple of, I think, big puts and takes.
The FX we expect to continue to be a benefit to operating expense in the back half of the year. But that is offset with normalized incentive provisions – incentive comp provisions, which in the beginning of the year, we did talk about our expense performance through the year.
The restoration of our incentive comp accrual versus zero last year hits the back half of the year more heavily than, certainly, the front half of the year, offsetting some of that FX benefit. We also expect to invest in marketing and DTC, also roughly offsetting the benefit we expect to see in FX.
Now, having said that, we have had success in driving expense reductions and we're continuing to focus on it. Although those are changes that we report when they're certain, so, we wouldn't want to get ahead of ourselves in that.
Janet J. Kloppenburg - JJK Research
But – just so my interpretation's correct, there's some flexibility there?
Joanne C. Crevoiserat - Chief Financial Officer & Executive Vice President
We expect to continue to focus on driving down operating expense, yes.
Janet J. Kloppenburg - JJK Research
Thank you.
Joanne C. Crevoiserat - Chief Financial Officer & Executive Vice President
As we have in the past quarters.
Fran Horowitz-Bonadies - Brand President, Hollister Co. California LLC
Regarding your question on denim, Janet, we were pleased with our performance in the second quarter for Hollister denim, both girls and guys, we have had a strong denim business over the past 12 months to 18 months, I think we spoke about that in the last call. And when we recap Q3, we'll bring those results as well.
Janet J. Kloppenburg - JJK Research
Thank you.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
And I think now, (42:25) Janet, in terms of your call-out on knits being challenging. You're correct, it has been very challenging, particularly in male.
And I put the reasons down to the fact that we haven't moved the collection on enough. And what we'll be doing therefore is bringing in (42:39) more variety in terms of price points and as well as design.
Janet J. Kloppenburg - JJK Research
Thank you.
Operator
And next we'll hear from Anna Andreeva with Oppenheimer.
Anna Andreeva - Oppenheimer & Co., Inc. (Broker)
Congratulations on seeing sequential improvement. I guess my question is, if we can talk about the degree of improvement you're seeing at Hollister versus A&F and the disconnect there.
Just curious, do you think it's the Hollister brand that is healthier than A&F? Do you think it has to do with the lower ticket or overall better product execution?
Just curious on your thoughts there. And keeping in mind, like you said, turnarounds are never linear and you do have a new team at A&F, just how do we think about the timing of improvement at A&F brand going forward?
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Yeah, thanks, Anna. I'll kick off on this.
So, I think the – first of all, I think it would be unusual to expect that the brands would move in lockstep with each other. We have, by the way, seen good progress in kids which has been similar to what we've seen in Hollister.
So I don't think we would ever expected that the recovery curves of the two brands would take precisely the same path over time. There is probably some additional baggage that A&F carries related to the historical issues.
And then I think Christos alluded to where the brand is starting to get some traction, where progress has been slower from a product standpoint, which is also clearly going to be a component of the transition over time. So, inherently, I don't think we think it's surprising.
We did hope to make a little more progress on A&F. We made a little more progress than expected on the other two brands, and that we wouldn't expect that to move lockstep going forward either.
Anything to add?
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
No, I think just in terms of the new leadership team, Anna. There'll be continuous improvement.
From the moment they walked through the door they started to make a difference, and that will just continue all the way through the rest of this year and into next year.
Anna Andreeva - Oppenheimer & Co., Inc. (Broker)
Okay, that's helpful. And just a follow up on gross margins.
Your gross margins have come in, I think, more or less on line so far in the first half, and you're tweaking down gross margin guidance for the year to flat from I think flat to up slightly, previously. Just what's driving that thought process?
And how should we think about the AUC opportunity within that? Thanks.
Joanne C. Crevoiserat - Chief Financial Officer & Executive Vice President
Yeah, so, roughly – gross margin guidance is roughly in line with basically how we performed in the second quarter, roughly flat to last year but up significantly on a constant currency basis. We still expect foreign currency to be a headwind in gross margin.
AUC has driven our gross margin performance year-to-date. We continue to expect AUC to be down as we move through the third quarter, but not down as far, and stabilizing as we sort of wrap the improvements we made in AUC last year.
So we start to anniversary some of those AUC improvements. We're encouraged by the AUR stabilization that we've seen, which is also an element of our gross margin performance and our outlook, as well as the success we've had and the traction we've seen at selling goods at ticket price and stepping away from promotional activity.
And we also believe that our inventory management has left us in a good place in terms of managing AUR as we move through the back half.
Operator
Our next question will come from Kimberly Greenberger, Morgan Stanley.
Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC
Great. Thank you.
My question's for Christos on the Abercrombie brand. It looks like there was a tremendous amount of progress in the international comp from Q1 to Q2 but not really in the Abercrombie brand comp from Q1 to Q2.
So I'm wondering if the international results are actually not getting better. And we're wondering now, particularly because I think Abercrombie stores are in many of the tourist destinations and we're hearing others talk about very much a surging tourist business in their international markets, particularly Europe.
So I'm just trying to reconcile this seemingly conflicting results coming out of that business.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Yeah, Kim, let me make a couple of comments on that. I think first of all, it's important to keep in mind that the A&F stores international component of our business is a relatively small segment.
It's much smaller, for example, than the Hollister stores business internationally. We did see a bit of progress, though, in the stores business internationally.
The DTC business was down in Q2, relative to where it had been in Q1 for A&F internationally. So, that's part of – what you're seeing reflects both the store and DTC comp, plus the brand cut.
But I think overall, as we said, the progress was a little slower in A&F in total than we'd expected, but we did see – if you're focusing on stores specifically, we did see some modest progress in the A&F international stores. I think to one of the points you may have alluded to, there is, perhaps, a great tourist impact in those stores than there is for Hollister where it's predominantly a mall-based customer, whereas in our European flagship stores, particularly London, for example, there's a significant tourist component in there.
But, again, I think it's important to caveat all of that with the observation that A&F international stores are a relatively small piece of our overall business.
Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC
Thank you.
Operator
Next we'll take a question from Dana Telsey, Telsey Advisory Group. Dana Telsey, your line is open.
Please go ahead. And if you're on a speakerphone, please pick up your handset or de-press your mute function.
And we'll pause just one moment. Again, if you're on a speakerphone, please pick up your handset or de-press your mute function.
And hearing no response, we will move to Susan Anderson with FBR.
Andrew G. Schmidt - FBR Capital Markets & Co.
Hi, guys. This is Andy Schmidt on for Susan.
Thanks for taking our question. Our question is on the gross margin for the back half.
Your outlook is for a flat rate in the back half. And it sounds like the third quarter opportunity is more AUC-driven, in the fourth quarter, maybe AUR-driven, just given improving momentum.
How should we think about the cadence in the third quarter and the fourth quarter in the back half? And then additionally, if you guys could comment on the second quarter traffic by brand, that would be helpful.
Thank you.
Joanne C. Crevoiserat - Chief Financial Officer & Executive Vice President
We haven't provided specific guidance on the Q3, Q4 split. We do expect, as you mentioned, I think, accurately, the AUC to be a bigger driver in Q3.
In terms of traffic by brand, we have seen improvements. Continued stabilization in North America, I think that's fairly consistent in improvements.
In Europe, I think – I don't have the brand specifics, but it's been fairly broad-based on the store side of the business.
Andrew G. Schmidt - FBR Capital Markets & Co.
Great. Thanks, guys.
Best of luck.
Operator
Our next question will come from Rick Patel with Stephens.
Rick B. Patel - Stephens, Inc.
Thank you. Good morning, everyone.
Could you provide more color on omnichannel? I'm curious about how receptive your customers have been to your new capabilities, and whether you think it's been a greater benefit from a comp or margin perspective.
And then perhaps a little bit more detail on the opportunity for omnichannel in Europe.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
Well, Rick, we've been investing significantly in omnichannel, and we think it's a very important thing for us to be investing in, particularly given how our customer shops. We are less far along internationally than we are in the U.S.
We referenced in our prepared comments that we're just starting to roll out some of the omnichannel capabilities, particularly in the UK, then we will look to roll that out further in Europe going forward. But in the U.S.
now, we have order-in-store and ship-from-store pretty well rolled out. We're progressively seeing more of the lift coming from those, and we think it's an important part of being customer-centric in how we provide a seamless experience to the customer.
So I think U.S. definitely more progress to come.
Europe still relatively early days but also an important initiative there.
Rick B. Patel - Stephens, Inc.
Thank you.
Operator
Our next question will come from Omar Saad with Evercore ISI.
Omar Saad - Evercore ISI
Thanks. Good morning.
Thanks for all the information. Christos, I wanted to ask you about the A&F positioning.
It sounds like you're still going through the progress of trying to leverage your analysis of the brand and research of how to position it in the marketplace. But any sort of updates, information that you've gleaned – or insights you've gleaned about where the brand has its areas of resonance with different types of customers, and perhaps maybe segmentation and market positioning relative to the marketplace landscape would be really helpful as we think about how that turnaround (52:21).
Thanks.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
Yeah, so, Omar, as you know, we will have more detail on this later in the year, but currently, I'll just call out some indications of where we feel the brand is positioned. And I think first and foremost, it's important that we recognize it's an American brand.
And that's something that's very important in the way that we put this business together. Secondly, it's an iconic American brand, as designated by the moose.
And thirdly, it has a lot of heritage. It was founded in 1892.
So it's three components, the things we're thinking about every day when we put the collection together. More than that, probably a little bit early for me to give you more details, Omar.
Omar Saad - Evercore ISI
And as you continue down this road, Christos, how do you think about...
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
Yeah.
Omar Saad - Evercore ISI
The role of marketing, advertising, leveraging some of those elements (53:14)?
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
Yeah, they play a very important role and everything has to be synced up simultaneously and at the same time. So, when we have more color on exactly where we think the positioning will be, we'll align all of those components together.
What we do feel is that the positioning is evolving. kids are playing a very important role in that positioning.
So we do find that when we link kids either on the website to adults or kids in the store, then we are reaching new customers. So, it's our job to make sure we satisfy the existing customer base with our brand positioning, but also be in a position where we can attract new customers.
So that's part of the thought process as well.
Omar Saad - Evercore ISI
Thanks. Appreciate the insight.
Operator
And our next question will come from Lorraine Hutchinson with Bank of America.
Lorraine Maikis Hutchinson - Merrill Lynch, Pierce, Fenner & Smith, Inc.
Joanne, how big was the incentive comp reversal in the third quarter? And then secondly, just following up on Neely's question, the fourth-quarter optimism around big sequential pickup in the comp, is that primarily driven by the expectation for higher AUR that's product-driven?
Joanne C. Crevoiserat - Chief Financial Officer & Executive Vice President
I'm sorry. I missed the second part of that question.
The incentive comp reversal, I think we spoke about it in the beginning of the year, was in the neighborhood of $20 million affecting the back half of the year. I think the reversal was in the third quarter.
So, we're up against that activity from last year.
Jonathan E. Ramsden - Chief Operating Officer & Executive Vice President
The second part of that, I think I'll take a crack at, Lorraine, was about again (54:43) coming back to the sequential – or the pace of improvement in the back half of the year and the differential in Q4, I think as Joanne said earlier, Q2 we made a little more progress than we expected. So as we think about how we planned out the year, and as we've learned from some of the things that have occurred, as we've gone through the past couple of quarters, things that we can react to going forward, we feel we have a stronger opportunity to make progress in the fourth quarter.
Lorraine Maikis Hutchinson - Merrill Lynch, Pierce, Fenner & Smith, Inc.
Thank you.
Operator
Our next question will come from Lindsay Drucker Mann with Goldman Sachs.
Edward J. McLaughlin - Goldman Sachs & Co.
Good morning. This is Edward McLaughlin on for Lindsay.
You touched on it before, but could you go into a little bit more detail about what you expect would be the drivers of improvement in U.S. margins going forward and how that might shift over the next two to six quarters being the breakdown in markdowns, markdown improvement, or AUC reductions, or just leveraging fixed expenses.
And then if there's any other detail you could also provide on international margins.
Joanne C. Crevoiserat - Chief Financial Officer & Executive Vice President
So for the U.S. business, on the gross margin line, we have had success driving gross margin through AUC.
We believe going forward, our margin success would be driven by better inventory management, higher acceptance of the product by the customer, certainly higher sales at reg price and better management of promotional activity will be a bigger driver in the U.S. business.
And as it relates to operating margins, continued rationalization of our fleet in the U.S. market will also contribute.
And, again, we continue to focus on expense reductions and making productivity a way of life and driving more efficiency in the business. On international markets, we are focused on stabilizing the business through comp sales trend stabilization, we made investments in price.
We have seen some returns on those investments in the second quarter and we continue to evaluate and drive more productivity, and as we do in those boxes, we expect to stabilize those margins, which are already elevated versus our U.S. margins.
Operator
And we'll move to our next question. Dorothy Lakner with Topeka Capital Markets.
Dorothy Senghas Lakner - Topeka Capital Markets
Yes, good morning, everyone. Just a quick question going back to the kids business, you spoke about adding I think three years old through seven years old.
I'm just wondering what the timing is on that, and is it throughout the fleet including the stores that are within the adult stores.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
So three years to several years will be available in all lids stores by Christmas.
Dorothy Senghas Lakner - Topeka Capital Markets
Okay.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
And it will be available in a limited fashion online by that period of time as well. As we go through 2016, then we'll expand that out quite significantly.
We carried out tests recently and it proved successful and that's why we're expanding that assortment out further.
Dorothy Senghas Lakner - Topeka Capital Markets
Okay, Terrific. And the stores within A&F?
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
The stores within A&F will also carry the three years to seven years age group.
Dorothy Senghas Lakner - Topeka Capital Markets
Okay. Great.
Thank you and good luck.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
Thank you.
Operator
And next we'll hear from Mark Altschwager with Robert W Baird.
Mark R. Altschwager - Robert W. Baird & Co., Inc. (Broker)
Good morning and thanks for taking the question. Could you just update us on your chase initiatives?
There's been a lot of changes to the business and the assortment. Is it still a component of the expected comp improvement in Q4?
And just how do you see your speed-to-market capabilities evolving with the holiday season and into spring?
Fran Horowitz-Bonadies - Brand President, Hollister Co. California LLC
Yes. Hi, Mark, it's Fran.
The past several years, and I think we've spoken about a couple times, we've really worked hard on evolving our pipeline and our speed to market. We're continuing to focus on that.
The teams are able and ready on chase capability. They hold a significant part of their open divide to make sure that they can react to the business.
They've also been empowered to make quicker decisions. So, we are pleased with where we are on our chase initiatives.
Operator
Anything further for Mark?
Mark R. Altschwager - Robert W. Baird & Co., Inc. (Broker)
No. Great, thank you.
Operator
And, next we'll go to Dana Telsey, Telsey Advisory Group.
Dana L. Telsey - Telsey Advisory Group LLC
(59:56) everyone. Thank you very much.
A little phone issues before. On the Abercrombie & Fitch brand, the jeans and dresses were certainly wins.
What are the categories that are being worked on that we should look forward to, as we move to the back half of the year? And then I have to tell you on the store experience, the Hollister stores do look very good in our mall visits.
Anything else we should be noticing with the new formats of Hollister or in Abercrombie with the shutters now removed as we get towards holiday? Thank you.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
So, in terms of products you should be looking out for, certainly sweaters, both on male and female. And I think I would call out Christmas-specific product.
Things like loungewear or motif product. Anything that's got a relationship to Christmas-giving.
I think that will be a very important component for Abercrombie.
Fran Horowitz-Bonadies - Brand President, Hollister Co. California LLC
Yeah, for Hollister as well, I think you're going to continue to see what you've been seeing, which is continued improvement with these product updates. And as we get into the holiday, we will also be focused on the holiday experience within Hollister and the gift-giving opportunity.
Christos Emilios Angelides - President-Abercrombie & Fitch Brands
Just picking up on the store experience, just we're going to continue to make improvements. As we make adjustments to the stores, whether that be lighting or sound levels.
We learn something from that and then we'll adjust again. So, I would expect that process will just continue.
There isn't a stop point moment.
Dana L. Telsey - Telsey Advisory Group LLC
Thank you.
Operator
And that does conclude today's question question-and-answer session and that will conclude today's conference call. Thank you for your participation.