Shares of Abercrombie & Fitch soared on Wednesday, even as the retailer slashed its profit outlook due to the impact of tariffs, which are expected to cost the company $50 million. Despite the downward revision, the company’s fiscal first-quarter results surpassed Wall Street’s expectations, with revenue and earnings per share both outperforming forecasts. Abercrombie’s stock rose more than 14%, reflecting investor optimism despite concerns about future profitability.
Profit Outlook Adjustments and Tariff Impact
Abercrombie revised its full-year earnings per share forecast to a range of $9.50 to $10.50, down from an earlier range of $10.40 to $11.40. Analysts had previously expected earnings of $10.33 per share. The company also lowered its operating margin forecast to between 12.5% and 13.5%, compared to the previous range of 14% to 15%. The profit cuts are largely attributed to the ongoing impact of tariffs, including a 30% tariff on imports from China and a 10% tariff on goods from other countries. Despite these challenges, Abercrombie remains focused on managing its costs without implementing broad-based price increases.
Strong First-Quarter Results
In the fiscal first quarter, Abercrombie reported earnings of $1.59 per share, significantly beating the expected $1.39. Revenue also exceeded expectations, coming in at $1.10 billion, compared to an estimate of $1.07 billion. The company’s net income for the quarter was $80.4 million, a decrease from $114 million in the same period last year. Abercrombie saw 8% year-over-year growth in sales, which set a record high for the fiscal first quarter. CEO Fran Horowitz attributed the strong sales performance to broad-based growth across regions, particularly with its Hollister brand, which saw a 22% increase in sales.
Challenges for Abercrombie’s Namesake Brand
Despite Hollister’s strong performance, Abercrombie’s namesake brand faced difficulties in the quarter, with sales dropping 4%. This decline was attributed to a challenging comparison with last year’s 31% growth and a slowdown in consumer spending. Horowitz also pointed to the need for discounting excess winter inventory as a factor that hurt sales and margins. The company also faced challenges from the launch of its wedding shop last year, which set high expectations that were not fully met this year. However, Abercrombie remains optimistic and expects its brand to return to growth in the latter half of the year.
Growth Drivers: Vacation and Swim Shops
To capitalize on new opportunities, Abercrombie launched its vacation shop, following the success of its swimwear collection. Horowitz believes that these initiatives, coupled with targeted marketing, will help drive growth in the coming months. The company is also ramping up its efforts in the vacation category, with strong reactions to swim products earlier in the year. Abercrombie’s commitment to expanding these product lines is seen as key to its recovery and future growth.
Outlook for the Remainder of the Year
Looking ahead, Abercrombie has slightly raised its full-year sales guidance to a range of 3% to 6%, up from the previous forecast of 3% to 5%. For the current quarter, the company anticipates revenue growth of 3% to 5%, in line with expectations. However, it expects a dip in operating margin to between 12% and 13%, below analysts’ expectations. Despite these challenges, Abercrombie remains confident in its long-term strategy and ability to navigate the complexities of the market while delivering value to its customers and shareholders.
