Operator: Good day, and welcome to the Abercrombie & Fitch Second Quarter Fiscal Year 2026 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mohit Gupta. Please go ahead.

Mohit Gupta: Thank you. Good morning, and welcome to our second quarter 2026 earnings call. Joining me today on the call are Fran Horowitz, Chief Executive Officer; Scott Lipesky, Chief Operating Officer; and Robert Ball, Chief Financial Officer. Earlier this morning, we issued our second quarter earnings release, which is available on our website at corporate.abercrombie.com under the Investors section. Also available on our website is an investor presentation. Please keep in mind that we will make certain forward-looking statements on the call. These statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mentioned today. These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission. In addition, we will be referring to certain non-GAAP financial measures during the call. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are included in the release and the investor presentation issued earlier this morning. With that, I will turn the call over to Fran.

Fran Horowitz-Bonadies: Thanks, Mo, and thanks, everyone, for joining. I'm excited to report we delivered our 15th consecutive quarter of top line growth on record second quarter net sales. Sales growth was above the expectation we set in May and was balanced across regions and brands with both Abercrombie and Hollister brands achieving record second quarter net sales. While we benefited from tariff refunds in the quarter we beat our outlook by more than the refund on both operating margin and earnings per share. Year-to-date, we've repurchased approximately 7% of shares outstanding at the beginning of the year. With the first half complete and a strong start to August, we're updating our full year net sales outlook to the high end of our prior range and increasing our expectations on the bottom line, setting us up for another year of consistent profitable growth in 2026. Importantly, we're making meaningful progress across key strategic priorities, which we believe will further strengthen our foundation and set us up for long-term success. Diving into the results. For the second quarter, we delivered record net sales of $1.27 billion, growing 5% from last year, a nice acceleration from the first quarter. While we benefited from $100 million in tariff refunds, we beat our outlook by more than that on the bottom line, delivering an operating margin of 19.9% and net income per diluted share of $4.17 for the quarter. We continue to leverage our strong cash flow and balance sheet, returning $177 million to shareholders in the quarter through our 10th consecutive quarter of share repurchases. We grew in the second quarter across our regions. The Americas grew 5% in the quarter, with growth across our direct channels, EMEA saw return to net sales growth of 2%, U.K. remains a strong growth market for us, and we saw a good sequential improvement in Germany as well as in the Middle East as the team has managed inventory and receipts well across the region. Our APAC business remained strong, growing 19% on comparable sales growth of 13%. Both our brands achieved record second quarter net sales led by Abercrombie brands growth of 8%, an acceleration from 3% in Q1. The brands also returned to comparable sales growth of 4% on improvements in conversion and AUR on full price selling, particularly in the Americas. Growth was balanced by gender and category with knits and wovens contributing along with a solid bottoms business across pants and shorts. Outside the strong financial results, it was an exciting quarter for the Abercrombie & Fitch brand. The brand is rooted in 130 years of New York City heritage, and we're so excited to bring that authenticity to life in our new SoHo store. The new location represents the modern expression of the brand and has been very well received by customers. We're continuing to lean into our New York roots with the city serving as a backdrop for our recent fall denim campaign featuring the variety of styles and fits we're known for. We also continue to build on our connection to sport. We're entering our second year as the NFL's official fashion partner with an expanded collection across several categories, serving fans of all 32 teams with styles for men, women, kids, babies and toddlers. We're bringing the partnership to life through both players and fans reflecting the personal style at the center of Abercrombie today. We featured Jaxson Dart and Malik Nabers of the New York Giants in our recent denim campaign, along with several other players, we'll continue to highlight throughout the season. We're just getting started on back-to-football for Abercrombie with more to come as we build towards holiday. Turning to the record second quarter for Hollister. The brand grew 2% on top of a 19% increase in the second quarter last year, and also sequentially accelerated from a flat first quarter. We grew across regions and genders led by strength in knits, shorts and non-denim bottoms. Hollister's collaboration with Target, the brand's first meaningful wholesale and category expansion in the U.S., has performed very well against expectations and added nicely to top line growth this quarter. Having our product in over 1,500 Target locations has also given us access to new Hollister customers across the country while providing our existing customers new categories available on our owned digital app and web experiences to outfit their dorms. We're very encouraged by this partnership and underlies the potential for our brands to expand their reach through new distribution channels and categories. Hollister's back-to-school season continued to build as we exited the second quarter, and we've seen growth accelerate off of Q2 levels so far in August. We started the season with our Lollapalooza festival launch, which included an exclusive collection with Y2K nostalgic styles expressed through a modern lens for the young adult customer as well as on the ground activations at the festival. Additionally, we teamed up with rising star, Freya Skye in our fall denim launch featuring limited edition product and a broad range of denim styles. We're excited by back-to-school, keeping Hollister on track to make 2026 the best-ever sales result in the history of the brand. Halfway into 2026, we're diligently executing to the ambitious goals we set across the business. As a reminder, our 4 priorities for the year are: first, to grow sales across brands with continued investment in owned and operated stores and digital businesses while adding growth from partnerships and new product categories; second, to stabilize gross margins by mitigating external cost pressures. Third, to continue to invest in tools and technologies, including AI to improve speed and efficiency across the product and customer journeys. And finally, to maintain our strong profitability and fuel excess cash return to shareholders. We've made meaningful progress across all 4 of these objectives in the first half of 2026. One area to highlight is the work we're doing to expand our reach through new distribution channels and product categories. We continue to be pleased with our abercrombie kids licensing performance as well as the Target partnership I mentioned earlier. And we are very excited to build on a couple of areas this fall. First, we've seen good initial reads in our footwear and accessories business across brands as we bring new categories to support head-to-toe dressing. And second, we look forward to expanding the distribution of our NFL products, which will now be sold on nflshop.com and NFL stadium stores and on official team e-commerce sites and fanatics.com. I'm so proud of this team as we continue to set sales records, improve gross margin and control expenses while making important long-term investments. We remain on offense and our updated full year outlook reflects increasing confidence that we can deliver balanced growth across brands and regions. We're also on the path to deliver industry-leading margins again this year, demonstrating the sustainability and overall quality of our business, powered by a culture of financial discipline. We see the quality in our cash flow as well. Coupled with a strong balance sheet, we now expect to return at least $500 million to shareholders through share repurchases for the year. While we've made meaningful progress so far in 2026, I am most excited by how much opportunity is ahead and the proof points we're seeing show how uniquely positioned we are to capitalize on it. We remain on track to deliver strong results this year while staying focused on what will be the next great chapter of our journey. Thank you to the entire team, the best in retail for making it all happen. And with that, I'll hand it over to Robert.

Robert Ball: Thanks, Fran, and good morning, everyone. We delivered record second quarter net sales of $1.27 billion, up 5% and above the 2% to 4% growth range we provided in May. Comparable sales were flat and AUR increased mid-single digits for the quarter, with lower promotions driving better-than-expected results to our outlook. By region, net sales increased 5% in the Americas, 19% in APAC and 2% in EMEA. Comparable sales increased 1% in the Americas, 13% in APAC and declined 4% in EMEA. In EMEA, the U.K. remained strong and Germany returned to growth. By brand, Abercrombie brands' net sales increased 8% with comparable sales up 4%. Hollister net sales increased 2% against last year's record with comparable sales down 3%. Both brands grew net sales in the Americas, Abercrombie led the growth in EMEA and Hollister led the growth in APAC. Across regions and brands, the spread between net sales growth and comparable sales was driven by net new store and third-party channel performance. I'll cover the rest of our results on an adjusted non-GAAP basis, which excludes the $39 million net benefit from a favorable litigation settlement in the second quarter of 2025. Reconciliations are included in this morning's earnings release and investor presentation. Second quarter operating income was $253 million, and operating margin was 19.9% of sales. That compares with adjusted operating income of $168 million and adjusted operating margin of 13.9% of sales last year. Given the size and unique nature of the IEEPA tariff refund, we believe it's important to walk through the individual components and impact on our results this quarter, and we've included a schedule at the bottom of the first page of today's press release with the details. We received and recognized approximately $100 million of refunds related to IEEPA tariffs in the quarter. The full amount is included as a reduction of cost of sales and contributed approximately 790 basis points to second quarter operating margin and approximately $1.75 to diluted earnings per share. Our operating margin was roughly 990 basis points above the around 10% outlook we provided in May. About 790 basis points of that outperformance came from the IEEPA tariff refund. The remaining approximately 200 basis points came primarily from favorable gross margin and operating leverage on stronger sales. While the refund was meaningful, the underlying business performed above our expectations. Year-over-year, operating margin increased 600 basis points from 13.9% in the second quarter of 2025. The tariff refund benefit was partially offset by higher year-over-year tariff expenses of 100 basis points, store occupancy and fulfillment costs and selling expense as well as higher incentive compensation and general and administrative expense. We've included a table in the investor presentation with additional detail on the timing of tariff refunds and ongoing tariff expense. Tax rate for the quarter was 29%, better than our outlook due to higher earnings from the IEEPA tariff refund and overall international outperformance. Net income per diluted share was $4.17 compared with adjusted diluted earnings per share of $2.32 last year. That was above our outlook of $1.80 to $2, even when taking into account the approximate $1.75 benefit from the IEEPA tariff refund. Inventory remains tightly managed and both brands are chasing. Ending inventory at cost was approximately flat to last year, with units up low single digits and aligned with our expected unit sales growth. On the balance sheet, we ended the quarter with $628 million of cash and cash equivalents, approximately $1.1 billion of liquidity and $10 million of marketable securities. We repurchased $177 million worth of shares during the quarter and $282 million year-to-date. Repurchases for the quarter and year-to-date periods represented approximately 4% and 7%, respectively, of shares outstanding at the beginning of the year, and we ended the quarter with $568 million remaining on our current repurchase authorization. Turning to the outlook. Our first half execution and strong start to August support a higher full year sales expectation and an increase to our operating margin and EPS outlook. Our underlying second half operating margin assumptions have also improved from our May expectations. Updating our tariff refund assumptions, we now expect to recognize a total of approximately $120 million of refunds related to IEEPA tariffs, excluding accrued interest. We recognized $100 million in the second quarter and expect to recognize the remaining $20 million in the third quarter. The full year outlook includes the entire $120 million refund. We estimate that the refund will contribute approximately 220 basis points to full year operating margin and approximately $2.10 to full year diluted earnings per share. The remaining expected $20 million refund is included in our third quarter outlook. We estimate it will contribute approximately 160 basis points to third quarter operating margin and approximately $0.35 third quarter diluted earnings per share. Separate from the IEEPA tariff refunds for 2026 tariff expense, our outlook for the second half reflects the current Section 301 tariff rates of 10% to 12.5% effective on global imports into the U.S. On that basis, our updated tariff assumptions provide approximately 10 basis points of full year gross margin favorability year-over-year. We expect that benefit to be largely offset by higher freight costs. We've included a schedule in today's release and our investor presentation to provide further detail on our tariff expense and refund history. For the full year, we now expect net sales growth of around 5% from $5.27 billion in 2025, with growth across regions and brands. Our first half APAC performance reinforces the region's growth potential, and our strategic review remains focused on the best path to capture that opportunity. We continue to expect modest AUR improvement and approximately 30 basis points of benefit to net sales from foreign currency. We now expect full year operating margin in the range of 14.5% to 15%, including approximately 220 basis points of benefit from the IEEPA tariff refunds. We're forecasting a tax rate around 29%, diluted weighted average shares of around 44 million and net income per diluted share in the range of $13.10 to $13.60. The EPS outlook includes an estimated $2.10 benefit from IEEPA tariff refunds. For capital allocation, we now expect capital expenditures around $250 million. We plan to deliver approximately 130 net new store experiences, including 50 new stores and 80 remodels and right sizes against approximately 20 closures. New stores are expected to be relatively balanced across brands and weighted towards the Americas. We now expect at least $500 million of share repurchases for 2026. For the third quarter of 2026, we expect net sales growth of 5% to 6% to the Q3 2025 level of $1.3 billion with growth across regions and brands. We expect third quarter operating margin in the range of 13% to 14%, including the expected $20 million or approximately 160 basis point IEEPA tariff refund benefit. We also expect modest AUR growth and slight year-over-year favorability from tariff expense to more than offset modest freight pressure on gross margin. We expect slight operating expense deleverage from incremental payroll and amortization related to the ERP implementation completed in the first quarter. We expect a third quarter tax rate of around 29% and net income per diluted share in the range of $2.90 to $3.20, including an estimated benefit of $0.35 from the IEEPA tariff refund. Diluted weighted average shares are expected to be around 43 million, including the anticipated impact of at least $100 million of third quarter share repurchases. To close, the first half demonstrated the strength of our -- and balance of our business. We've continued to do what we said we would do, deliver profitable growth while investing for the future. We're strengthening our brands, expanding our capabilities and building the infrastructure needed to support the next phase of growth. At the same time, we've maintained healthy double-digit operating margins, generated strong cash flow and returned significant capital to shareholders through consistent share repurchases. Our updated outlook includes the benefit of IEEPA tariff refunds. More importantly, it reflects the underlying strength of the business and our confidence in our ability to continue delivering sustainable profitable growth. And with that, operator, we are ready for questions.

Operator: [Operator Instructions] First question coming from the line of Dana Telsey with Telsey Advisory Group.

Dana Telsey: Congratulations, everyone. So nice to see the progress. Fran, as you think of the product acceptance and what you've been seeing in Hollister and Abercrombie, when you think of new product trends or fashion versus core, what are you seeing in each? And how do you see the denim cycle? And then, Robert, as you think about inventory, AUR versus units, how do you think of that progress as we go through the year?

Fran Horowitz-Bonadies: Yes, exciting quarter for us, exceeded expectations, 15th consecutive quarter of growth, win across both Abercrombie and Hollister brands and regions. So super excited about what we reported this morning. Regarding fashion, we're seeing lots of different things in the brands. It's exciting to see the customer really showing up. We're seeing a balance between casual and dressed up. Second quarter was really driven through some incredible key knit opportunities and items that we had in wovens. Denim specifically is important to both brands. We're heading into the back -- obviously, we're in the middle of the back-to-school season for Hollister. It's part of the assortment. We learned years ago. We got to stay balanced to make sure it doesn't become too dominant in the assortment, but exciting. The Hollister team is absolutely loving low rise. The Abercrombie consumer is loving actually the styles we have across brands because theirs really depends on their wearing occasion and what they're doing for the day. So lots of exciting things happening and thrilled to have momentum heading into the back half.

Robert Ball: Dana, as it relates to AUR versus units, not assuming anything different than what we've been talking about all year here. Outlook continues to expect modest AUR improvement in the back half. That's consistent with what we shared back in May. We're happy with this being a demand story. In Q2, AUR came in stronger than expected on reduced promotional activity. The consumers are responding really well to the assortments, and that came with unit sales growth. So it's balanced, which is what we like to see. So as we think about like going forward, inventory is in good shape, up mid-single -- up 3% across the company here with both brands positioned well to chase into the back half. And all of that gives us the best chance to grow our AURs here in the back half of the year.

Operator: Our next question in queue coming from the line of Corey Tarlowe with Jefferies.

Corey Tarlowe: I guess what I'm wondering is on the third quarter sales outlook, which is quite healthy. Curious how that breaks down by brand, if you could share any color and really would just be curious to understand kind of the sequential trends at Hollister as well and maybe the regional differentials, if there's been any impact based on exposures to various regions?

Robert Ball: Yes, Corey. So on the outlook for sales for Q3, again, expecting 5% to 6% growth with growth across regions and brands. I haven't given specific color on individual brand performance, but we've been happy with what we've seen on the A&F side, delivering plus 8% for Q2. Happy to see that trend, and we've had a nice start to the month of August, and we've got new things coming down the pipeline with the NFL drop and different supplements to the assortment. On the Hollister side of the business, we're kind of in the middle of back-to-school here. It's been a nice acceleration here into August. So happy with what we're seeing there. And that's kind of where we are today. The EMEA business has been strong. It's been -- we saw a nice sequential improvement. The APAC business continues to be strong, and both brands are growing in the Americas. So a nice balanced business that gives us confidence here going into the back half.

Corey Tarlowe: That's very helpful. And then just as a follow-up, I think Fran mentioned in her remarks, but curious if you could unpack that for us a little bit on the margin commentary. Full year margin outlook raised and by more than the amount of the tariff benefit. So seemingly, there's some embedded improvement in the margin profile based on where you were versus prior expectations. So could you kind of highlight what the main differentials are or the puts and takes, that would be really helpful.

Robert Ball: Yes. I mean if you think about full year, it's a pretty straightforward story. Underlying tariff rates and freight rates are kind of going in different directions, and those are largely offsetting one another. We've talked all year about modest AUR growth as we move through the year here. That's still in play. We still continue to expect that. We did have the outperformance in margins in Q2 that we are rolling us through. So that all keeps us kind of in line when you do the -- add them up. We've got modest AUR growth offsetting some investments that keeps us kind of in that 12.5-ish percent range around last year. And then on top of that, you've got this 220 basis point benefit from the tariff refunds, and that gets us to our 14.5% to 15% range for the full year. So we feel good about where we are. The business is executing. We've got some outperformance in Q2 that we're rolling through. Now we're just focused on executing for the back half.

Corey Tarlowe: Great. Best of luck.

Robert Ball: Thank you.

Operator: Our next question coming from the line of Matthew Boss with JPMorgan.

Matthew Boss: So Fran, could you speak to structural drivers, which you think have been built that support the return to positive comps at the Abercrombie brand? And specifically, any key categories which you saw inflect this quarter and just drivers of opportunity that you see in the back half at that nameplate?

Fran Horowitz-Bonadies: Thanks, Matt. So yes, we've been on quite a journey here and really have rebuilt this entire company from bottom to top and top to bottom. And the fundamentals that we've built to do that are rooted in our operating model and they're rooted in all the technology and investments that we've been making. We paid back a lot of tech debt. We talked a lot about our ERP system that's just come to fruition in March. So lots of exciting things happening, to your point, from a fundamental perspective. What we see in the business is the opportunity to get really close to that customer. Both the teams in Abercrombie and Hollister are excellent at doing that, and that showed in our results for the second quarter and the momentum that we have heading into the third quarter. Abercrombie specifically, knits, wovens, really strong throughout the second quarter, swim. Hollister also strong knit business, strong bottoms business. So what I'd like to see in the business is a balance, and that's what we're seeing right now. So balance across categories, that we're winning in lots of categories. We're winning across genders and brands and regions. So all around, super excited about the back half.

Matthew Boss: Great. And then, Robert, could you just help break down expectations for AUR, freight and marketing as we think about the third quarter operating margin forecast, excluding the benefits from tax refunds?

Robert Ball: Yes. So on the AUR side, no change to our thinking here. We're expecting modest AUR growth in the back half of the year. When you think about the tariff side of things and then the freight side of things, so freight has been a bit of a headwind for us here. The rates have remained elevated. So that is largely offsetting the benefit that we would be seeing from outlook to outlook related to the 10% to 12.5% tariff rates that are in place today for the 301s versus that 15% that we had assumed back in our last guide. So you can think about freight and tariffs largely offsetting one another and then getting that benefit in AUR kind of rolling through. I'm excluding all of the tariff refund components, but obviously, you've got that $20 million on the Q3 side, and then we should be relatively clean here for Q4. And then on the marketing side, I really like where our marketing has been. It's been a deleverage point for us in the front half of the year, and we've talked quite a bit about that as we've lapped some of the investments that we made last year. We're lapping that in the back half. We kind of like this, a little north of 5% range. So we wouldn't expect to see any sort of meaningful leverage or deleverage on the marketing side for the back half of the year.

Fran Horowitz-Bonadies: Matt, let me add one more piece also. As we head forward, we've been talking quite a bit about this opportunity for us to diversify our operating model. So we had 2 really nice proof points this quarter, one from Abercrombie and one from Hollister. And that is expanding into new channels and new categories for us. So the great example was this Target partnership where we've introduced dorm. We got proof points now that Hollister can certainly expand way beyond apparel and there's significant opportunity there. And we just recently mentioned the fact that we're expanding our NFL partnership, and we're going to be selling in the venues and nflshop.com and other channels as well. So that's been a big piece that we've been working on behind the scenes and we're excited about what that can bring for the future.

Matthew Boss: Best of luck.

Fran Horowitz-Bonadies: Thanks.

Robert Ball: Thanks, Matt.

Operator: Our next question coming from the line of Marni Shapiro with The Retail Tracker.

Marni Shapiro: Congratulations. The stores look incredible. So I have a quick question on Hollister. At times during the quarter, the inventory was very clean. And I'm curious if you had any delivery issues at Hollister or if it was just selling out at store in stores that quickly? And then I do have one quick follow-up just on Abercrombie.

Fran Horowitz-Bonadies: Sure. So Marni, I'll take that first one. So yes, we had incredible demand for the brand. It really honestly exceeded our inventory at many points during the quarter. The team was absolutely chasing, chasing, chasing, which is what our model can help us do. Now that inventory has caught up, we're excited to see the acceleration and have nice momentum heading into the balance of back-to-school in the back half.

Marni Shapiro: That's a great problem to have. Actually, the stores looked very empty again yesterday. And then I'm curious on Abercrombie. Other than social media, have you got -- are you activating new customers? And are you planning any activations in the back half of the year that it's going to be a balance of sort of activations and online? How are you thinking about that for the Abercrombie brand?

Fran Horowitz-Bonadies: I'll take that one, too. So our goal, obviously, is always to bring new customers into the brand as well as to retain our active customers, which we're working on. We talked a bit about some new opportunities. So yes, as we head into the back half with Abercrombie, the NFL is a great example of that -- our second year as the official fashion partner, and now we're going into stadium, nflshop.com. We have an opportunity, again, for example, with Target, reaching new customers through new categories, exciting, exciting with the opening up of SoHo. That has been really a terrific opportunity for Abercrombie that bringing our heritage to where the brand is today. The customer feedback has been terrific, and the business has really exceeded our expectations.

Marni Shapiro: Congrats. Best of luck with the back-to-school.

Fran Horowitz-Bonadies: Thank you.

Operator: Our next question coming from the line of Alex Straton with Morgan Stanley.

Katherine Delahunt: This is Katie Delahunt on for Alex. Maybe just -- you mentioned Hollister demand being constrained by inventory at some point during the second quarter. Can you maybe frame like how meaningful that was to the second quarter? And what kind of acceleration that you're seeing as you kind of catch up on inventory quarter-to-date?

Robert Ball: Yes. Katie, we had a great second quarter, Hollister sequential improvement up 2%, and we're squarely focused on carrying that demand and that momentum here into the third quarter. What we can say is we've seen that Hollister growth accelerate from its Q2 level so far in August, and we feel good about the product across -- and the assortment across that brand.

Operator: Our next question in queue coming from the line of Mauricio Serna with UBS.

Mauricio Serna Vega: I wanted to ask about Abercrombie. I think you talked about better conversion. Could you elaborate on that? Is that across both online and stores? And what in your view has led to that improvement? And then on Hollister, maybe could you talk about what kind of comp sales cadence you've seen throughout Q2? And is it fair to assume like it's -- the comp is near an inflection to positive in Q3? And yes, just on those 2 things to start, that will be super helpful.

Robert Ball: Yes. I mean -- so we've been on this journey with A&F, Mauricio, with conversion. We've continued to see nice traction within the brands, and that speaks a lot to the quality of the traffic that we're bringing into the brands. When you see conversion improve on reduced discounts and still selling more units, that's a really nice sign, and it shows that the assortments are resonating with customers. And we're actually seeing that across both brands, which is great to see. And that's really showing up in a nice back-to-school and a nice start to the month of August. So we're attracting the right consumer. We're bringing them into the stores based on what we see in the first half, where the investments that we're making are great, and we're excited to see that continue into the back half. In terms of comp sales cadence again for Q2, again, not talking comps here. We're focused on driving the total here. We've got plus 2% sales on the Hollister side. We've got momentum headed into and through back-to-school, and that's carrying us into August and Q3. And so we're excited to be positioned to drive another quarter here of 5% to 6% growth on the top line and double-digit operating margins. So that's what we're squarely focused on executing here in the back half.

Mauricio Serna Vega: Got it. And then just a quick follow-up on like the guidance for the year. I think if you do the math like for 5% total sales growth full year, it implies an acceleration in Q4 to roughly 7%. So just wondering what in your view is driving that acceleration. And then on the collaborations and partnerships that you're doing with Target, NFL, could you elaborate maybe on what are like the gross margin and operating margin implications of those businesses as they continue to scale?

Robert Ball: Yes. So on the fourth quarter, right, we've guided Q3. We've given you the full year implications would be that we've got a nice healthy business here headed into the back half. We just got to execute. We're going to keep inventories tight, make sure that we're continuing to lean into the places that we're seeing the marketing be effective. So that's what we're focused on. Obviously, a lot of business to do here as we get through the balance of Q3 and then head into the holiday season. As it relates to the gross margin impact on 3P, I'd say like sitting here today, the short answer is there's nothing meaningful to -- there's not a meaningful impact here today. We like these opportunities. We like the incrementality of what they give us. They allow us to reach new customers. It's a nice opportunity for us to participate in new categories and extend that brand reach without requiring a ton of capital deployment. So we're excited about where that looks like. We're evaluating the right mix, obviously, of distribution channels for us. And -- but sitting here today, I don't see any sort of meaningful impact to gross margin.

Fran Horowitz-Bonadies: It's very early innings, Mauricio. So stay tuned, more to come, but excited to see the beginning of this happening.

Mauricio Serna Vega: Great. Best of luck.

Robert Ball: Thanks, Mauricio.

Operator: Our next question coming from the line of Jon Keypour with Goldman Sachs.

Jonathan Keypour: Just a very quick one and then a follow-up. I noticed you raised buybacks $50 million for the year, and you've got $120 million incoming from the total tariff refunds. Just wondering what the $70 million remaining will be used for?

Robert Ball: Yes. So Jon, this is Robert. I think it's pretty straightforward here. The refunds don't change how we allocate capital in our business. Balance sheet has been strong for years now, and we've been able to invest in the brands, invest in future growth and at the same time, consistently return cash to shareholders. We've got 10 consecutive quarters of share repurchases here now, and we continue -- and we expect to see that continue. So we'll work the refunds through that same framework as we go forward. But nothing else to report today.

Jonathan Keypour: Got it. Okay. And then just in terms of the Target partnership, I'm not sure if you guys are willing to give the size of the impact to the quarter. But just curious about if you guys are seeing anything in terms of like a positive feedback loop where it's growing the customer book on the apparel side of things at Hollister as well?

Robert Ball: Yes. I mean it's early, Jon, and we're not sizing the opportunity today. We're seeing evidence that we're reaching new customers, which is great. That's one of the primary objectives of the partnership. So we're focused right now on making sure that we have that strong customer response, healthy sell-through of the product and ultimately trying to evaluate the long-term opportunity that we have here.

Fran Horowitz-Bonadies: I mean the reaction to the product has been absolutely terrific. I mean, the virality of it was incredible. I mean, from the plushies to the comforters, I mean, we learned a lot, Jon. It was really exciting to be able to see the opportunity to sell Hollister outside of apparel. So again, we're at early stages, but we're learning and testing and more to come in the future.

Operator: Our next question in queue coming from the line of Janine Stichter with BTIG.

Janine Hoffman Stichter: I was hoping you could comment a little bit on the promotional environment. I think you said promotions were down better than your plan. Was that across all brands? And just curious what you're seeing broadly in the environment? And then for Robert, just as we think about long-term operating margins, we're sitting here this year, stripping out the tariff benefits kind of in the 12% to 13% range. Is there anything structurally changing that you would see from here to prevent that from being a sustainable operating margin?

Fran Horowitz-Bonadies: Janine, yes. So I would say, our results from Q2 are really proof that our model is working. Outperforming our outlook was primarily driven from lower discount levels, and that was across both brands, delivering this 5% growth that we have. This read and react model is really working for us. The team is chasing and tightly managing the inventory. So exciting to see how that's working for us. We don't view our promotions on what's happening on a competitive basis. We sit down with the team literally week by week, see what's working in our business, what's working, what's not working, and we take action. So again, focused on what we can control within our world.

Robert Ball: Yes. And on the long term, Janine, not providing any sort of specific guidance beyond 2026 today. As we've been talking about, we are excited about new growth levers that we're building that are available to these brands on a go-forward basis, category expansion, channel diversification, new partnerships. All of those can work to complement what is effectively a very healthy and profitable owned and operated business over time. But nothing structural that I would say that would stop us from maintaining these healthy double-digit operating margins as we have for a number of years now.

Operator: [Operator Instructions] Our next question in queue coming from the line of Adrienne Yih with Barclays.

Angus Kelleher-Ferguson: This is Angus Kelleher on for Adrienne Yih. I wanted to ask a question on category expansion. Footwear and accessories are getting good initial reads across both brands. How big can head-to-toe be as a percent of the assortment? What is the margin structure there? And then if you could just remind us if that is an owned built or a licensed category?

Robert Ball: Yes. I mean, we like these opportunities, Angus, because they expand our addressable market. They diversify our growth drivers, whether it's NFL, Target, footwear, accessories, home goods, licensing, wholesale, right? Those all help us reach customers in different ways. It's early days. We're learning a ton. We're not sizing them today because quite honestly, they are still relatively small in the grand scheme, but we're excited about the longer-term growth potential that we see across these buckets.

Angus Kelleher-Ferguson: Great. And then just while I have you, I'll ask a follow-up. On the stores, you're at 130 new experiences this year with 80 of those remodels and rightsizes. So I guess the mix has kind of shifted from new doors towards modernizing the existing fleet. How much runway is left on new stores in the Americas? And then how much is left on modernizing the existing fleet?

Fran Horowitz-Bonadies: So actually, that -- we have been very consistent in the balance between our new stores and our store experiences over the past several years, fifth year of being a net store opener continuing with the strategy as we move forward. And to answer the question on how many new stores are left, there's no finish line in retail, there's always new opportunities for us to explore, just like we've been doing with these street locations for Abercrombie recently. This new SoHo experience has really been so well received by our consumer. We're so excited to continue to implement that in some stores going forward. So again, no finish line, but exciting strategy that we've had on retail real estate.

Operator: Our next question coming from the line of Janet Joseph with JJK Research Associates.

Janet Kloppenburg: Congratulations on a nice quarter. I wondered if you could talk a little bit more about the AUR improvement and the unit improvement. On AUR, are you seeing that that's coming from less promotions and you did speak to that and also price increases and what the outlook looks like for that going forward? And then on units, I was just wondering if that's a mix issue or just overall units are improving? And then lastly, when you think about EMEA, do you have confidence that, that for Hollister will continue to accelerate as we go through the second half?

Robert Ball: Janet, I'll take a couple of these. So on the AUR improvement, yes, we're seeing nice AUR improvement. The outperformance to our outlook in the second quarter was primarily driven through better-than-expected AURs, and that really came from reducing our overall promotional or overall discount levels from our expectations. So nice to see the progress there. That shows that the product is resonating. We are selling more units coming along with that. That is not just a mix dynamic that is true sales units out the door. So again, nice signs that the consumer is responding to what we're putting out there for them. We haven't taken any sort of additional price increases and none of that versus what we've been talking about. That is all baked into our outlook. So we continue to expect modest AUR growth in the back half of the year. On the EMEA side of the house...

Fran Horowitz-Bonadies: On the EMEA side of the house, yes, we are confident. We certainly believe in the long-term potential of that region, Janet. The local team is really busy at work staying close to that customer. Our playbook that we've exported is working. It's exciting to see that the U.K. has continued to be positive and that Germany flipped positive. All of that is obviously in our outlook for the back half. But yes, I believe in the long-term opportunity and have the confidence to see that business continue.

Janet Kloppenburg: Okay. Best of luck.

Fran Horowitz-Bonadies: Thank you.

Robert Ball: Thank you.

Operator: And there are no further questions in the queue at this time. I will now turn the call back over to Fran for any closing remarks.

Fran Horowitz-Bonadies: Yes. I just want to thank everyone for participating, and we look forward to updating you after the third quarter.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.