Shares of Abercrombie & Fitch soared Wednesday, even after the retailer slashed its profit outlook due to tariffs, which are expected to hit its business by $50 million.
The company is now expecting full-year earnings per share to be between $9.50 and $10.50, down from a previous range of between $10.40 and $11.40. Analysts were expecting earnings of $10.33 a share, according to LSEG.
Abercrombie also cut its operating margin forecast, another closely watched metric by investors. It’s now expecting its operating margin to be between 12.5% and 13.5%, down from a previous range of between 14% to 15%.
The company’s guidance includes the estimated impact from tariffs that are currently in effect, including a 30% tariff on imports from China and a 10% levy on goods from dozens of other countries. It excludes other currently paused tariffs.
Still, shares of Abercrombie closed more than 14% higher after the company reported fiscal first-quarter results that beat Wall Street’s expectations on the top and bottom lines and issued revenue guidance that topped forecasts. The stock had fallen nearly 49% this year entering Wednesday.
Here’s how the apparel company performed in the fiscal first quarter compared with expectations, based on a survey of analysts by LSEG:
- Earnings per share: $1.59 vs. $1.39 expected
- Revenue: $1.10 billion vs. $1.07 billion expected
The company’s reported net income for the three-month period that ended May 3 was $80.4 million, or $1.59 per share, compared with $114 million, or $2.14 per share, a year earlier.
Sales rose to $1.10 billion, up about 8% from $1.02 billion a year earlier. In a news release, Abercrombie said sales reached a record high for the fiscal first quarter.
“This was above our expectations and was supported by broad-based growth across our three regions,” CEO Fran Horowitz said in a statement. “Hollister brands led the performance with growth of 22%, achieving its best ever first quarter net sales, while Abercrombie brands net sales were down 4% against 31% sales growth in 2024.”
Beyond its profit outlook, Abercrombie slightly raised its full-year sales guidance and is now expecting revenue to rise between 3% and 6%, up from a previous range of between 3% and 5%. That’s largely ahead of expectations of 3.3% growth, according to LSEG.
For its current quarter, Abercrombie anticipates sales will rise between 3% and 5%, which is in line with expectations of 4.7% growth at the high end, according to LSEG. The company expects its operating margin to be between 12% and 13%, lower than expectations of 14.1%, according to StreetAccount. It anticipates earnings per share will be between $2.10 and $2.30, below expectations of $2.50.
On a call with analysts, finance chief Robert Ball said Abercrombie expects a $70 million hit from tariffs, but will lower it to $50 million through mitigation. To offset the duties and maintain profits, the company is not planning “broad-based” price increases, but is working with its vendors to offset costs and looking to diversify its sourcing network.
“The more diversified we get, the faster that we can be,” Ball told CNBC in an interview. “We’re looking for expense reductions … across the business, but we’re doing that with a very clear eye to protecting long-term investments for the business, because we just see a ton of opportunity for these brands globally and longer term. So it’s a very cautious approach.”
Abercrombie sourced about 30% of its products from China before the pandemic, but that number is now in the low single digits, said Ball. Its biggest trading partners are now Vietnam, Cambodia and India, which would all face tariffs between 26% and 49% under President Donald Trump’s April proposal.
Currently, those tariffs are lowered to 10% while Trump negotiates trade deals with each nation. When asked in a CNBC interview if Abercrombie will implement broad-based price increases if those tariffs go into effect, Horowitz declined to answer.
“At this point, it’s all hypothetical, so we’re not going to respond to a hypothetical question. We will manage through, you know, what the situations are when they become real,” she said.
Abercrombie’s weak guidance largely reflects how tariffs will cut into its profits, but its sales are also expected to take a hit as it contends with a slowdown at its namesake banner. Abercrombie’s eponymous chain fueled its historic comeback over the last few years, but sales fell 4% at the brand in the first quarter, following 31% growth in the year-ago period. Meanwhile, comparable sales for the Abercrombie brand plunged 10%.
On the call with analysts, Horowitz acknowledged that Abercrombie’s performance fell short of expectations. She blamed it on winter inventory that the company needed to discount to sell, which came at a time when consumers are typically pulling back from new clothes after the holiday shopping season. That discounting impacted Abercrombie’s sales and margin for the quarter.
The company is also lapping the strong launch of its wedding shop in the year-ago period. The product launch included dresses and outfits for all of the occasions surrounding the modern-day wedding, such as the rehearsal dinner, the morning after brunch and the bachelorette trip.
“The other piece of it was up against, honestly, a spectacular launch of the wedding shop, which we just did not comp as well,” said Horowitz. “So we had dresses that were strong, that sold, but they did not sell to the level of … the launch of the shop.”
To build on the success of wedding apparel, Abercrombie launched its vacation shop this year, which Horowitz expects will be a growth driver for the company.
“We had a really nice reaction to swim earlier in the year. We were able to, based on this model of ours … get back into swim in a much bigger way,” Horowitz told CNBC. “We’re also able to ramp up a pre-planned vacation shop, putting some more marketing behind it and some more assets.”
She expects the Abercrombie brand to return to growth in the back half of the year.
The company’s Hollister brand performed much better than its namesake banner. During the quarter, sales at Hollister surged 22%, while comparable sales grew 23%. The teen-focused chain is expected to drive Abercrombie’s growth ahead.
