Abercrombie & Fitch soars 25% even as retailer slashes profit outlook due to tariffs

Abercrombie & Fitch shares surged 25% premarket despite cutting its full-year EPS guidance to $9.50-$10.50 (from $10.40-$11.40) due to an expected $50 million tariff impact and lowering its operating margin forecast to 12.5%-13.5% (from 14%-15%). The positive market reaction was driven by a strong Q1 performance, with EPS of $1.59 versus the $1.39 expected and revenue of $1.10 billion versus the $1.07 billion expected, and an increased 2025 revenue outlook of 3%-6% growth (from 3%-5%). Hollister's 22% sales growth offset a 4% decline in Abercrombie brand sales.

Analysis

Abercrombie & Fitch (ANF) shares experienced a significant 25% premarket surge despite the company revising its full-year profit outlook downwards due to an anticipated $50 million impact from tariffs. The revised full-year earnings per share guidance is now $9.50 to $10.50, a reduction from the previous $10.40 to $11.40, and falls short of the analyst consensus of $10.33. Concurrently, Abercrombie lowered its operating margin forecast to a range of 12.5% to 13.5%, down from 14% to 15%. This negative guidance was, however, overshadowed by a robust first-quarter performance where ANF reported earnings per share of $1.59, surpassing the $1.39 expected, and revenue of $1.10 billion, which exceeded the $1.07 billion forecast and marked an 8% year-over-year increase to a record high for the fiscal first quarter. Net income for Q1 was $80.4 million, or $1.59 per share, compared to $114 million, or $2.14 per share, a year earlier. Adding to the positive sentiment, ANF raised the upper end of its 2025 net sales growth outlook to 3% to 6%, an increase from the prior 3% to 5% estimate. The strong Q1 sales were driven by broad-based growth across regions, with Hollister brands delivering a notable 22% sales increase, while Abercrombie brands saw a 4% decline against a challenging comparison of 31% sales growth in the prior year. The stock's rally also occurs in the context of a nearly 49% decline year-to-date entering Wednesday, suggesting a potential rebound driven by the better-than-expected Q1 results and improved revenue guidance.

Key Decisions for Investors

• Investors should weigh the strong Q1 earnings beat and upwardly revised sales forecast against the lowered full-year EPS and operating margin guidance due to tariff impacts, recognizing the market's current positive reaction.
• Monitor Abercrombie & Fitch's ability to mitigate tariff costs and manage operating margins in subsequent quarters, as these will be critical to sustaining profitability.
• Closely observe sales trends within the Abercrombie brand to ascertain if the Q1 decline is transient or indicative of a longer-term shift, particularly in contrast to Hollister's strong performance.
• Consider the stock's significant prior YTD decline; while the current surge reflects positive Q1 momentum, future volatility related to margin pressures and tariff uncertainties remains a key factor.