- Guidance Raised: Full-year adjusted EPS guidance raised to $3.35–$3.60, with net sales growth narrowed to 1.5–2.7%.
- Q2 Financials: Net sales rose 1.5% to $1.5B, gross profit rate hit 41.3%, exceeding expectations.
- Tariff Mitigation: $85M tariff impact expected for 2025, with $40M in Q3, offset by sourcing and operational efficiencies.
- Digital & Expansion: $400M share repurchase boost, $250–270M capex for tech/real estate, and 7M campus store access.
- Men’s & Product Focus: Men’s business grew, Summerween collection succeeded, but fragrances/body mist declined low single digits.
Revenue Growth Drivers
The company's semiannual sale was a key contributor to the quarter's performance, with focused execution by the teams. The company is also seeing growth in its men's business and success with its Summerween product collection. Additionally, the company's Campus stores are contributing to growth, and it is exploring new channels of distribution to introduce new consumers to the brand.
Gross Margin and SG&A
The company's gross profit rate was 41.3%, and adjusted SG&A as a percentage of net sales was 30.2%. The company expects tariffs to negatively impact gross profit by approximately $85 million, with $40 million of that impact in Q3. The company is confident in its ability to mitigate these costs over time through strategic sourcing, operational efficiencies, and other targeted initiatives.
Guidance and Outlook
The company is raising the low end of its adjusted earnings per diluted share guidance to $3.35 to $3.60 and narrowing its net sales guidance to 1.5% to 2.7% growth. For the third quarter, the company expects net sales growth of 1% to 3% with system-wide international retail sales up high single digits. The company's full-year capital expenditures are planned to be $250 million to $270 million, with a focus on real estate and technology.
Valuation
With a P/E Ratio of 7.66 and an EV/EBITDA of 6.45, the company's valuation appears reasonable. The company's ROE is -51.78%, but its ROIC is 26.3%, indicating a strong return on invested capital. The company's Free Cash Flow Yield is 12.63%, suggesting a strong ability to generate cash. Analysts estimate next year's revenue growth at 2.4%, which is slightly higher than the company's current guidance.