Abercrombie & Fitch shares soared 25% on Wednesday after the retailer reported stronger-than-expected first-quarter results and raised its full-year revenue forecast.
The stock jump came even as the company slashed its profit guidance due to the impact of tariffs, which are forecast to reduce its annual earnings by $50 million.
While the revised earnings outlook fell short of Wall Street expectations, investors reacted positively to record-breaking sales, especially at Hollister.
The teen-focused brand led the quarter with 22% year-on-year growth, helping total sales rise to $1.10 billion—an 8% increase from the same period in 2024.
Earnings fall but beat expectations
For the three months ending on May 3, Abercrombie reported net income of $80.4 million, or $1.59 per share, compared with $114 million, or $2.14 per share, a year ago.
Though down year-on-year, earnings still exceeded analyst forecasts of $1.39 per share, according to LSEG.
Revenue also came in ahead of projections at $1.10 billion, compared with the $1.07 billion expected by analysts. The company said in its statement that the results marked its highest-ever first-quarter net sales.
Sales increased across all three of its operating regions, although the performance was uneven between its brands.
Abercrombie’s namesake banner saw sales decline 4%, following a 31% rise in the same period last year.
Comparable sales at the brand fell 10%, suggesting the slowdown may be due to either market normalisation after rapid growth or emerging competition taking market share.
Full-year profit forecast lowered on tariff pressure
Despite the strong quarter, Abercrombie revised its full-year earnings per share guidance down to a range between $9.50 and $10.50.
That’s a reduction from its prior estimate of $10.40 to $11.40 and below the consensus estimate of $10.33.
The company attributed the change to existing tariffs, including a 30% levy on Chinese imports and a 10% duty on goods from multiple countries.
These costs are expected to trim $50 million off this year’s earnings.
Operating margin guidance was also reduced to between 12.5% and 13.5%, down from 14% to 15%.
For the second quarter, Abercrombie expects sales growth between 3% and 5% and earnings per share in the range of $2.10 to $2.30.
Both forecasts are lower than analyst expectations, which had pegged EPS at $2.50 and revenue growth at 4.7% on the upper end.
Hollister becomes key to growth strategy
While Abercrombie’s core brand experienced a contraction in performance, Hollister appears to be picking up the slack.
The division’s 22% net sales growth in the first quarter was accompanied by a 23% jump in comparable sales.
CEO Fran Horowitz highlighted this in the earnings statement, noting Hollister delivered its best-ever Q1 performance.
Looking ahead, Abercrombie has slightly raised its full-year sales outlook and now expects revenue to rise between 3% and 6%, compared with its earlier range of 3% to 5%.
This increase puts the company’s revenue guidance above analyst projections of 3.3% growth.
The strength of Hollister could play a pivotal role in offsetting challenges elsewhere in the portfolio.
However, the firm will need to maintain its momentum at Hollister while reworking strategy at its flagship brand to stay competitive under increasing pricing pressure from global trade policies.
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