Fran Horowitz - Chief Executive Officer Scott Lipesky - Chief Financial Officer Joanne Crevoiserat - Chief Operating Officer

Omar Saad - Evercore ISI Mark Altschwager - Baird Paul Lejuez - Citi Tiffany Kanaga - Deutsche Bank Kate Fitzsimons - RBC Julie Kim - Nomura Instinet Janet Kloppenburg - JJK Research Susan Anderson - B. Riley FBR David Buckley - Bank of America Merrill Lynch.

Thank you. Good morning and welcome to our fiscal third quarter 2018 earnings call.

Joining me today on the call are Fran Horowitz, Chief Executive Officer, and Joanne Crevoiserat, our Chief Operating Officer. Earlier this morning, we issued our third quarter earnings release, which is available on our Web site at corporate.abercrombie.com under the Investors section.

Also available on our Web site is an investor presentation, which we will be referring to in our comments. Before we begin, I would like to remind you that any forward-looking statements we may make today are subject to the Safe Harbor statement found in our SEC filings.

In addition, we will be referring to certain non-GAAP financial measures during the call. Additional details and a reconciliation of GAAP to adjusted 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, third quarter comp sales are compared to the 13-week period ended November 4, 2017. With that, I will turn the call over to Fran.

Thanks Scott. Good morning everyone and thank you for joining us today.

We are pleased with our third quarter performance. We delivered another quarter of comparable sales growth across brands and improved net income building on our strong U.S.

business, while making progress with our ongoing transformation initiatives. Our focus on a consistent execution of our playbook keeping the customer at the center of everything we do continue to pay off.

This marks our fifth consecutive quarter of comp sales growth for the company, the eighth quarter in a row of positive comps for Hollister and the fourth for Abercrombie. This also marks the first time in nearly seven years the company has delivered positive comps on top of positive comps.

I'm pleased to report this momentum is carried into the fourth quarter. We saw a solid start to the holiday season in November with strong double-digit growth on singles day on T-Mall and a record performance of the peak holiday period from Thanksgiving Day to Cyber Monday.

We remain on track to achieve top-line growth, gross profit rate expansion and operating expense leverage for the full year. In addition to our Q3 results, this morning we announced an important organizational changes, I'm pleased to report we've appointed Hollister brand President Kristin Scott to the newly established role as President Global Brands.

Kristen will be responsible for driving the growth of all the company's brands globally reporting to me. We also announced that we'd eliminated the individual brand President roles and Stacia Andersen brand President of Abercrombie & Fitch and Abercrombie Kids will be leading the company.

I'm grateful to Stacia for the many diverse contributions she has made to stabilizing the Abercrombie brand. As part of this organizational change, we've also combined the leadership of planning an inventory management into a cross brand role reporting to Kristin.

So the aim of driving greater agility, consistency and efficiency across the global business. This change follows a streamlining of our stores management and operations organization and several senior appointments in merchandising, marketing and design that we made earlier this year.

Poor customer facing functions including marketing and product development remain in branded structures to ensure continuing closeness to each brand's customers and will report to Kristin. With strong foundations in place across our brands, our playbooks working and a solid start to the holiday season, these organizational changes are part of the continuing transformation of our business to support our longer term global growth ambition.

Since joining the company as brand President Hollister in 2016 Kristin has refined and driven consistent execution of Hollister's ambitious business objective. Her obsessive focus on the customer has been a critical factor in Hollister's growth and success and I'm excited for her to take on this new role.

Turning to the performance of our brands. We continue to focus our execution on aligning product, voice and experience in order to drive traffic and conversion across channels.

Starting with Hollister's performance, we delivered a four comp on top of an eight comp last year with growth across genders and channels. From a product perspective we're getting faster and closer to our customer, which allows us to remain highly responsive to fashion trends and the growing demand for wear now product.

Across genders, we saw a strong trend in bottoms with record third quarter sales in guys denims and in girls an increasing demand for wear now soft dressing. Outerwear has performed well across genders and a transition to colder weather drove an improvement in categories like fleece.

Turning to Gilly Hicks, the team is focused on fit, sizing and assortment with our back to school set received a strong response in the quarter and we're excited about the potential we see for Gilly going forward. Secondly, Hollister's marketing continues to be industry standout.

Most recently we won a Billboard Live music awards for our collaboration with Khalid, which also supports our multi-year anti-bullying initiative. Our integrated approach is really hitting its stride now through our expanding high school ambassador program, the H collective and our high school nation concert program, we remain close to our core customer and well-positioned to understand evolving trends preferences and issues they care about most.

Our physical stores continue to be important part of our overall brand experience with our new and remodeled Hollister stores driving strong customer engagement. This includes our ongoing investments in new Gilly Hicks base to side by side and carve outs as shown in our investor presentation on Slide 24, this is a side by side, we just opened in Vienna, Austria.

Moving on to Abercrombie. We are encouraged by the brand's progress as we continue to apply our customer centric playbook, stabilizing and improving the brand's performance.

Abercrombie delivered an increase of 1% in comp sales this quarter marking its fourth consecutive quarter of positive comp sales. From a product perspective, we are leveraging our closeness to the customer to better react to product trends.

For Abercrombie, we see a growing demand for fashion items and we are focused on continual improvement of our agile supply chain to support more speed. Based on our early reads, we were able to add depth and key fashion items and saw a good response in jumpsuits, rompers and fashion denim.

We saw strength in bottoms throughout Q3 with skirts and shorts performing well given the prolonged warm weather into fall. As we moved into our holiday set in October, we leveraged those early fall insights to further distort to certain fashion items in sherpa velvet and taping.

On the marketing front, we are ramping up integrated marketing activities leveraging authentic user generated content in the places that are digitally native customers spend their time. Our recent ultra coat launch is a great example of our integrated marketing and action.

As illustrated on Slide 22 of our presentation, you can see our giant ultra coats that worn around in Manhattan and featured heavily on social. The launch event and marketing campaign resulted in more than 190 million impressions across paid, earned and shared media and ultra coat collection has delivered some of our top performing outerwear sales this season in both men and women.

From an experience perspective in A&F, we are creating engaging new environments with the latest being our first mall based prototype in Europe and our kids prototype which you just opened here in Columbus. In the appendix, the investor presentation, you'll see images of both.

Kids also had another strong quarter across genders and categories and we're excited to announce our collaboration with TV personality E! network presenter in Giuliana Rancic and her son Duke with an everybody collection capsule launch planned for the spring.

Turning to our regional performance across brands, the U.S. continues to deliver solid comp sales growth with positive comparable sales of 6% on top of 6% last year and our international business we saw sequential comp trend improvement in Europe across the brands as weather cooled moving through the quarter.

As I just mentioned, we opened our first European mall-based prototype store in Manchester. We're pleased with its early performance and it is already demonstrating how our physical stores act as a gateway to the brand driving incremental digital sales.

We look forward to an additional opening next month in the Myzeil shopping center in Frankfurt. We continue to adapt and apply the learnings of our playbook to the European Asian market.

As in the U.S., we believe the key to success is having an obsessive focus on the customer. We're getting closer to our local customer in each of our international markets, leveraging our growing royalty program data, building on our local infrastructure and developing our teams and processes to ensure timely, market specific insights that can be used to better inform localized planning, merchandising and marketing.

Turning to our transformation efforts. We're making good progress on the four initiatives we outlined at our Investor Day in April, while delivering top-line improvement in this transforming while growing things.

These initiatives are on Slide 4 of the presentation. Our first initiative is optimization of our stores network as we continue to deliver engaging new store experiences both a physical design and technology integration perspective.

In the third quarter, we delivered 28 new store experiences for our customers including 11 new stores, five right sizes and 12 remodels based on a combination of improved performance and better lease terms, we now expect to close up to total of 40 stores in 2018 a third fewer than originally expected. At the same time, we remain focused on rightsizing our store fleet and driving store productivity.

This is a journey we have been on for some time now. By the end of 2018, we will have closed more than 450 stores since 2010 with approximately 60% of our U.S.

leases coming due for renewal by the end of fiscal 2020. We have a great deal of flexibility in-house best to optimize our stores network including two remodels, right sizes foreclosures.

Secondly, the ongoing global roll out of our army child capabilities is delivering results. The significant investments today are paying off.

During the third quarter, we saw digital sales momentum across both brands and geographies. The global DTC sales up 16% compared to last year.

Importantly we continue to leverage shipping costs on DTC sales driven by our transformation efforts. The transition to mobile continues and it accounted for over three quarters of our digital traffic in the third quarter.

Our highly rated apps are still our fastest growing digital platform from both the traffic and sales perspective. Overall, we're currently on track to exceed $1 billion in digital sales this year.

Our online and in-store shopping experiences are well integrated. We are already seeing strong up tick of purchase online pickup in-store and order in-store and it's rolled out globally mirroring the successful rollout of similar capabilities in the U.S.

back in 2016 and 2015 respectfully. Poppins are now in-stores across brands in 10 countries.

It was also our first Black Friday with all our U.S. stores being equipped with handheld technology allowing associates to better serve customers with mobile access to product availability and loyalty data and line busting capabilities.

I am delighted with this positive impact on the customer experience. Our third initiative is focused on overall sourcing in supply chain efficiency including how we assort and manage across channels and geography.

We're investing in capabilities for greater speed, agility and flexibility to the increased use of near shoring strategic platforming and cultivation for a robust and diverse supplier base across 17 countries. We are also focused on how we leverage data analytics throughout our supply chain to enhance our efficiency.

One example of how we're doing this is the recent rollout of an improved sign optimization tool. This allows us to better anticipate customer demand as we buy and allocate inventory across stores.

Lastly, as we continue to focus on effective customer engagement. Our fourth initiative is the optimization of our marketing investments including the global rollout of our loyalty program.

Loyalty is a critical marketing investment it's already delivering with more than 23 million member accounts across both brands, it delivers valuable insights about a core of engaged customers who shop more often and spend more. We've recently introduced a new club Cali VIP in Hollister with the aim of getting even close to this group of loyal higher spending customers.

In summary building up a solid year-to-date performance, we remain on track to achieve our full year outlook while making meaningful progress with our transmission efforts to support our long-term growth ambitions for our iconic global brands. Now I will turn the call over to Scott to take you through the details of our third quarter results and outlook.

Thanks Fran. As Fran detailed, our third quarter results reflect another quarter of progress.

Going through our third quarter results in more detail, net sales were $861 million slightly higher than last year reflecting positive comparable sales of 3% and adverse impacts from the calendar shift resulting from the 53rd week in 2017 which impacted the top-line by approximately $20 million or two percentage points. In adverse changes in foreign currency exchange rates of approximately $7 million or 1 percentage point.

Q3's comp sales growth of 3% reflects positive comp sales of 4% for Hollister and 1% for Abercrombie. Our results were driven by a strong U.S.

business with positive U.S. comp sales for the quarter of 6% on top of the prior year comp of 6%.

The international business saw sequential comp trend improvement versus the prior quarter with comp sales down 3%. The trend improvement was driven by performance across the brands in Europe.

Our direct to consumer business is performing strongly with solid growth across brands and geographies. For the quarter, total company DTC net sales were up 16% and represented approximately 28% of total sales compared to 24% last year.

Gross profit rate was 61.3% flat to last year. On a constant currency basis, gross profit rate was down 40 basis points driven by slightly higher average unit costs.

Our year-to-date gross profit improvement on a constant currency basis is a key indicator of the healthier business. I'll now recap the rest of our results for the quarter compared to last year on adjusted non-GAAP basis.

Excluded from our third quarter adjusted operating results were pre-tax benefits related to certain legal matters of approximately $3 million compared to pre-tax legal charges, in-store asset impairment of approximately $15 million last year. Starting with expense.

Adjusted operating expense excluding other operating income was up 1% to last year better than our expectations coming into the quarter primarily due to the timing of certain transformation investments. Our investments in marketing and our transformation initiatives continue to gain traction and driving customer engagement and efficiency in our business.

Adjusted operating income for the quarter was $37 million flat to last year including benefits from foreign currency of approximately $4 million. The adjusted effective tax rate for the quarter was 31% including tax charges of approximately $2 million related to a change in share based compensation accounting standards that went into effect last year.

Adjusted net income for diluted share improved to $0.33 compared to $0.30 last year. The year-over-year increase includes benefits from foreign currency of approximately $0.05 and adverse impacts from the calendar shift of approximately $0.05.

Moving onto the balance sheet. We ended the quarter with $521 million in cash compared to $459 million last year and $253 million in gross borrowings outstanding compared to $268 million last year.

We ended the third quarter with inventory up slightly year-over-year entering the fourth quarter with a clean inventory position and depth in key holiday categories. Looking forward we expect inventory to be flat to up low single digits at the end of the fourth quarter.

We continue to leverage our ongoing transformation initiatives to improve long-term inventory productivity. As Fran mentioned, we were pleased with our performance during Black Friday weekend and Cyber Monday.

In light of this performance, we remain on track to achieve our full year 2018 outlook for sales growth, gross profit rate expansion and operating expense leverage. For the fourth quarter, we expect comp sales to be up low single digits and net sales to be down mid single digits with net sales reflecting the adverse impact from the calendar shift and loss of 2017's 53rd as well as the adverse impact from foreign currency.

The calendar shift and the loss of 2017's 53rd week is expected to adversely impact net sales in the fourth quarter compared to last year by approximately $60 million. We expect foreign currency to adversely impact net sales in the fourth quarter compared to last year by approximately $15 million.

We expect the gross profit rate for the fourth quarter to be flat to up slightly compared to the 2017 rate of 58.4%. For the fourth quarter, operating expense excluding other operating income is expected to be down in the range of 1% to 2% from fiscal 2017 adjusted operating expense of $561 million reflecting continued investments in marketing and our transformation initiatives more than offset by reduced expenses due to the calendar shift and loss of 2017's 53rd week changes in foreign currency rates and lower compensation expense.

We expect other operating income which fluctuates due to the changes in foreign currency exchange rates to be approximately $2 million in the fourth quarter. Finally, for the fourth quarter, we expect the effective tax rate to be in the mid to upper 20s.

Moving on to capital allocation. We now expect capital expenditures for the full year to be approximately $145 million up from our previous range as we accelerated investments in-store infrastructure to modernize operations, improved connectivity and to support our digital selling platform and point of sale systems.

Our CapEx plans for the year include approximately $90 million for store updates in new stores and approximately $55 million for the continued rollout of omni channel and CRM capabilities including our loyalty programs and IT systems and tools During the fiscal 2018 year-to-date period, we returned approximately $109 million to shareholders through share repurchases and dividends. A complete breakdown is provided on Slide 13 of the presentation.

Turning to tariffs, we have seen only a minor direct impact from the China tariffs implemented to dates. Similar to the rest of our peers, we continue to plan for potential tariffs on apparel.

For context in 2018, we currently anticipate approximately 25% of our goods to be imported into the U.S. from China.

As we gain more clarity around potential apparel tariffs, we have a number of tools available to help mitigate the potential impacts including continuing to leverage our diversified supplier base across 17 countries to shift additional production out of China to existing and potential new partners as necessary. Before I turn the call back to Fran, I would like to welcome Pam Quintiliano to the A&F team.

Pam will be joining us next week as our Head of Investor Relations. Some of you may know Pam as she comes to us with more than 20 years of experience in the investment community most recently as Director of Equity Research at SunTrust Bank covering specialty retail.

Fran?

Thank you, Scott. We had another strong quarter of execution and we're off to a solid start to the fourth quarter.

We remain on track to deliver improved results this year including top-line growth, growth product rate expansion in operating expense leverage for 2018. We continue to focus on transforming our operating model to deliver the best customer experience in a rapidly evolving retail environment.

Lastly, I would like to thank all of our associates around the world for their passion and commitment as we pursue our strategic transformation. Thank you.

And with that I'm headed to the operator to start the Q&A.

Thanks. Good morning.

Great quarter. Appreciate all the information as well.

Two quick questions. First of all, what gives you, as you think about that low-single digit guidance for the fourth quarter, it sounds like you had a good start so far?

Are there other levers you have in hand that gives you confidence in that low-single digit guidance for the fourth quarter, just given how much harder to compare as you guys had such a great comp last year in the fourth quarter? And then I also wanted to ask about the reorganization around the brand presidencies.

How do you think about why it makes sense to split to combine that function of brand presidents of Abercrombie and Hollister especially given the positioning of those two brands has evolved and kind of really starts trying to have their own positioning separate from each other does it still make sense to consolidate the leadership at the top? Thanks.

Hi, Omar. Good morning.

It's Fran. We'll start with the first question.

So we feel like we are prepared to comp the comps as we head into the fourth quarter. I obviously spent a lot of time in the stores spent a lot of time out there during the holiday weekend and we're seeing a healthy environment out there, walking around the mall seeing energy, seeing consumers ready to shop, seeing lines.

The promo environments to us feel fairly competitive it's always with the fourth quarter, but it does feel consistent to last year. Specifically our inventories are clean, we have depth in the right categories.

We've seen some good signs specifically in our must win categories for the quarter starting in the third quarter had a nice strong outerwear performance that grows importance as we head into the fourth quarter. We've had a positive results.

We had a launch of a new line for Abercrombie called the ultra parkas and ultra puffers. That's off to a strong starts and we've seen some of those as our best sellers.

Additionally, as the weather got cooler, we've seen nice reaction to things like fleece and Sherpa. Our marketing to date, we're seeing strong performance in that as well.

And all of that is in our -- is considered in our outlook for the fourth quarter and for the total year. Specifically to your other question regarding the change in our reorganization, we are really building on stabilized foundations particularly excited that A&F just delivered its fourth positive comp in a row.

And Kristin has really proved to be a brand builder. She gets extremely close to the customer.

She will continue to oversee all products facing teams with now with all brands, her track record with Hollister and how that business has continued to grow, our eighth consecutive quarter their positive comps. So we feel that very thankful to Stacia for the work that she did in helping us to stabilize Abercrombie and certainly built a strong assortment architecture.

But today moving forward and being able to achieve our long-term ambitious goals for global business we feel Kristin is the right person to do that.

And are there certain functions brand that are going to remain at the brand levels distinct at the brand level or are there going to be a lot of consolidation in terms of functionality.

The functions that we are consolidating will be -- I guess I would consider back -- operational. So for example, our planning inventory management will now be under one lead but all brand all customer facing functions will remain branded.

Great work Fran and team. Thank you.

Thanks Omar.

Great. Good morning.

Thank you. Nice quarter.

First just a quick follow-up on the reorganization you were just discussing just curious how that impacts perhaps your longer term SG&A growth outlook. And then, separately regarding the successful renegotiations of leases I think you mentioned in the release, I think you changed your store closure plans for the year.

Can you give us a sense of the profile of the stores that have seen the successful renegotiations? Or these lower tier malls where you're entering some shorter term leases or how many of these represent situations where the landlord is contributing to right sizing initiatives for a new and prototypes [indiscernible]?

Thanks.

Hey, Mark. It's Scott.

I'll grab the first one quickly. No impact on our long-term SG&A outlook here.

This is just a continued evolution of our organization and how we're going to build the structure around the company. So no real change go forward.

Yes, Mark. This is Joanne.

I'll pick up the store closures. We've been very active in aggressively managing our fleet as we've watched the customer shopping preference change over time.

We've invested in our digital capabilities and our omni channel capabilities and we've managed our square footage closing several stores over 400 stores since 2010. We continue to have a lot of lease flexibility with 60% of our U.S.

leases expiring by the end of 2020. That flexibility has allowed us to do a number of things.

It allows us to continually evaluate our fleet. It does allow us to negotiate with landlords on stores that are maybe non-performing or underperforming economically.

We have had some successful negotiations the changes that we announced today reflect both successful negotiations with landlords as well as improved performance of our fleet. We are very focused on driving productivity and the tools that we have at our disposal include not just store closures, but right sizes to your point and investments that we're making and improving the experience and we've seen those investments pay off in terms of productivity.

So our focus is really on driving productivity in our store fleet and improving the customer experience. And we've been successful at doing that over time.

Thank you and best of luck over the holidays.

Thank you.

Hey, thanks guys. Can you maybe give us a sense of how each brand performed in the U.S.

versus international. And I'm also curious about how gross margin came in relative to your expectations for each brand in the U.S.

versus internationally? Thanks.

Yes. I'll kick it off here, Paul.

On the brand performance and geography. We mentioned that we were very pleased with our performance in the U.S.

total company we had a six comp on top of the six comp last year. Hollister outperformed a little bit which has been consistent with the trends outperformed Abercrombie in the U.S.

but both brands positive. So we continue to be pleased with that performance.

Our gross margin, we haven't gotten into this by brand at this point, but in total we were generally pleased with our performance at flat to last year actually FX has flipped against us here in the back half. But as we look forward into Q4, we're still have an outlook and projection of flat to up slightly and for the full year we still expect to deliver that outlook of flat up slightly.

Got you. And then, anything you mentioned the strong start to holiday any color you can give on how promotions look over that quarter-to-date period?

We had a solid start to the fourth quarter. We did mention brands that we had record sales between on Thanksgiving Thursday through Monday.

We are seeing that the environment is consistent competitive but consistent to last year from a promotional activity perspective at this point in time. We go into each quarter with an opportunity to reduce promotions but we also go in ready to compete.

So as we see it today, the environment looks healthy. Our inventories are clean and we're ready to compete for the fourth quarter.

Thanks guys. Good luck to you.

Thank you.

Hi. Thanks for taking our questions.

Given the 40 basis point decline in constant currency gross margin would you dig into AUR in markdown rates in the quarter and how you're thinking about constant currency gross margin for the fourth quarter and into 2019 especially as freight is still a headwind. Thanks.

Yes. Looking at Q3 specifically as you mentioned down 40 and FX neutral flat on a reported basis.

The primary driver here was a slightly up AUC that was driven mainly by mix and then also some of the transportation headwinds that you mentioned. So AUR was up slightly on mix also but just not enough to cover that that increase in cost.

So there's no real call outs to talk about from a increased markdown perspective. As we think about Q4, again, the outlook is for flat to slightly up and as we haven't talked about 2019 yet but we'll be sure to cover that on the year end call.

All right. Thanks so much.

Hi. This is Kate on for Brian.

Thanks for taking our questions. I guess first, if you could just begin in terms of what you're seeing in terms of tourist sales in the U.S.

and also internationally? And then also on the sequential improvement in the international business could you just speak to any headway you're making in terms of appealing to that local customer particularly in Europe?

Thank you.

Okay. It's Scott.

I'll kick it off with the U.S. tourism and then send it over to Fran for the International piece.

In the U.S., as I mentioned a bit ago, but we had a very strong U.S. business plus six comp on top of the six comp last year.

The base U.S. business continues to more than offset some weakness that we see in tourism.

We mentioned last quarter that we saw some softness in Florida on more to a South America customer. We have seen a little softness on the coast out of Europe, but again, we've been able to overcome that with the strong U.S.

business. Given the geopolitical and currency environment.

We expect this softness to continue in the U.S. and that's baked into our outlook for Q4.

I'll hand it over to Fran.

Sure. Hey Kate.

So we did see sequential improvement actually in both brands. We saw that both from second quarter to third quarter as well as seeing it throughout the quarter.

Certainly as the weather even turns more seasonal towards the end of the third quarter. For Hollister, we are leveraging our local insights to adjust our assortment making them more wear now.

But we did see A&F also improved sequentially. There we're focused as you know really transitioning from our flags to local mall based stores.

We just opened our first European mall prototype and we're off to a solid start in Trafford. But overall sort of big picture our international penetration is still low.

We see opportunity to grow as stated in our Investor Day and our future plans.

Great guys. Best of luck for holiday.

Thank you.

Good morning. This is Julie Kim on for Simeon.

Thank you for taking our question. Could you give more color on your thoughts around marketing spend as we wrap up the year as well as looking into next year.

I mean the return you're seeing kind of where that spend is being allocated? Thank you.

Hey Julie. It's Fran.

We have increased our marketing spend as we head into the fourth quarter actually seeing nice results from our investments. We've done a lot of work on integrating all of our campaigns.

I sort of referred to them as a real 360 in our business. Our integrated campaigns are paying off.

We mentioned earlier today, we had a strong back to school campaign for Hollister even one in Billboard Music Awards for that. But what you see in our marketing is every channel that you go to whether it's through our Awesomeness TV show, whether it's Instagram in-store or e-mail.

It's very connected in Abercrombie as well. We just came off a strong integrated campaign launching our new coat line for Abercrombie, the ultra parkas.

With that, I will handover the specific spend to Scott.

Yes. Say for all those reasons we're going to continue to increase our investment as we move into Q4.

That is baked into our OpEx outlook. And one quick add there as part of our transformation initiatives that we've been going through is really trying to understand the return and the effectiveness on our marketing.

We've made great progress this year. So while we're increasing spend we're also making sure the underlying spend that we have is more effective and giving us a great return.

So again that is baked into our Q4 outlook and we will increase the spend.

Great. Thank you.

Good morning, everyone and congrats on a nice performance. Fran, I was wondering if you could talk a little bit more about the international store performance -- progress that you saw in the third quarter and what the outlook is.

And I was also wondering if you could talk a little bit about other operating expense pressures for next year. People are talking about further wage pressure, great pressure et cetera and how that may impact your outlook for operating margin improvement next year.

And just lastly on the A&F brand slower to turn than Hollister and if you could talk about your outlook there and the opportunity for accelerated traction at A&F. Thank you.

Hey, Jane. It's Joanne I'm going to jump in on the first one regarding the international store performance as we as we mentioned we did see sequential improvement in the international business really driven by improvement in Europe across both brands.

As Fran mentioned earlier a couple of drivers there, one was certainly the weather change as we move through the third quarter really helped to lift some of our seasonal categories as we move through the third quarter, but we also made adjustments to our wear now assortments and we saw the customer respond to those as well. We are very focused on getting closer to our customers in this market and taking the playbook that has been so successful in the U.S.

and moving it to our international markets we're in the early stages of that right now. We've rolled out our loyalty programs internationally, we're getting our teams closer to the customer and beginning to execute more marketing initiatives in those markets and we expect those to pay off.

We see a lot of runway in the future our opening of our A&F store in Manchester shows some early promise. We see nice productivity there but we also see building digital business around that store.

So we know that there's some wide space for us particularly with the Abercrombie brand. As we open in international markets as it relates to OpEx pressure….

I'll pick up the OpEx side here Janet. So consistent story here on wages and inflation throughout the year we have seen wage inflation in our distribution centers in our stores.

Those increases have been reflected in our outlook and our actuals throughout the year from a distributor distribution center performance. We continue to be pleased that we're competitive in the markets that we're operating in and see no issues there.

And then, on the store side mostly a part time workforce here. We continue to see minimum wage inflation.

We've seen this for years and we expect to see this for years to come. So without getting into 2019 specifically and going back a little bit to our 2020 goals that we talked about the Investor Day this inflation has been baked in and we don't see updates made it to that right now.

Hey, Janet, it's Fran. I'll take the third part of the question.

So we are pleased with the progress that we continue to make and a friend you're coming off our fourth positive comp in a row. We are still on a journey we've talked about that before.

But we are seeing really positive signs for the A&F brand. For example our internal and external brand health metrics are up and putting trending positive on a year.

We are making nice progress executing our playbook and very confident with Kristin moving into her new position really getting us even closer to the customer and in charge of all those product facing teams that we will continue to move the brand forward. That is baked into our outlook for Q4.

Thanks and lots of love for the holiday.

Thank you.

Hi. Good morning.

Nice job on the quarter. And I was wondering maybe if you could talk about the A&F brand.

It's nice to see that continued better performance there maybe if you could talk a little bit more now that what's working it sounds like outerwear was strong but maybe any other categories. And then, also as you look out the opportunity to maybe potentially even accelerate the comps and looking at the customer.

Any thoughts or data around, are you starting to see new customers come into the brand. Thanks.

This is Fran. So we are seeing good cross-channel traffic growth which really -- it's illustrated in our brand traction.

We are also seeing positive movement in our brand health that's measured both internally and as well as externally. We're seeing nice strength in our core U.S.

business. We did talk a bit about the outerwear, our must win categories also continue to perform and grow in importance as we move throughout the year.

Another category would be fashion denim where we're seeing a nice response to that category as well. We've launched our ambassador program.

We've had a solid response to that as well that's really helping us create what we call user generated content that the customer is responding to. Additionally our loyalty programs are growing.

We have to be more members in our program than we did last year for fourth quarter. So we are pleased with where we are and prepared to compete for the fourth quarter.

Great. Thanks so much.

Good luck next quarter.

Thank you.

Good morning. Thanks for taking our question.

Something you could just discuss the traffic trends you saw for the quarter for stores and then looking to 2019 what's your -- U.S. outlook.

Yes, Scott. I'll grab this one.

Fran just mentioned but we're pleased with our cross-channel traffic growth for both brands -- remain positive for both brands. We view this as evidence our growing loyalty base and improved marketing efforts are working as we think about the store traffic.

We continue in the U.S. to outpace the mall which again makes us feel that our efforts are working.

In the end though we're trying to balance that traffic growth with conversion in AUR to deliver profitable growth. And as we mentioned earlier also our OpEx outlook includes continued investment in marketing.

And we feel that that can help us continue this traffic trend into Q4. Too early to talk about 2019 at this point as we'll cover that at the end of the year call.

Thank you. We are pleased with our year-to-date performance and are excited about the holiday season.

Coming with solid start to the holiday weekend, our global team is excited and ready to compete in fourth quarter and ready to deliver top-line growth gross profit rate expansion, operating expense leverage in 2018. I look forward to updating you on our progress and year end.

Thank you for your continued interest and support and have a great day.