Abercrombie & Fitch Beats Expectations With Continued Sales Growth, Share Price Spikes
- David Moin
- Jun 4
- 5 min read
The company raised its sales outlook while lowering its profit forecast for 2025.
Fran Horowitz Sari P PHOTOGRAPHY
Shares of Abercrombie & Fitch Co. skyrocketed Wednesday after the company reported a solid top-line performance in the first quarter, particularly at its Hollister brand, and projected further sales gains for the year.
Total net sales of $1.1 billion were up 8 percent in the first quarter ended May 3, from $1.02 billion last year; comparable sales rose 4 percent. The sales result and outlook impressed investors, who pushed the stock price up 15 percent, or $11.32, to $88.47 by the close of trading Wednesday.
However, net income declined to $80.4 million, or $1.59 per diluted share, in the quarter ended May 3, from $113.9 million, or $2.14 per diluted share, in the year-ago quarter. Operating income of $102 million compared to operating income last year of $130 million. Operating margin as a percent of sales decreased to 9.3 percent from 12.7 percent last year.
Hollister showed an impressive 22 percent gain in sales to $549.4 million, from $449.2 million in the year-ago period. The double-digit growth came on top of a 12 percent gain in last year’s first quarter. But sales at the Abercrombie brand last quarter slipped 4 percent to $547.9 million from $571.5 million in the year-ago period.
The company is now forecasting total sales will grow 3 to 6 percent this year, versus its previous forecast of sales growth ranging from 3 to 5 percent.
Asked to comment on how Hollister was able to generate its big sales gain last quarter, despite reports from other retailers that consumers are pulling back on discretionary spending, Horowitz said, “There are still customers out there shopping and they always have a choice as to where to shop.” She also said Hollister had balanced growth across genders, regions and in almost every category, with particular strength in jeans, skirts and fleece.
In a teen market that is contracting a bit, Horowitz said, “We are clearly taking market share.” Asked how she knows that, she replied, “To come out with 22 percent growth clearly explains it.”
At the Abercrombie brand, which appeals to an older audience than Hollister, sales were down a bit, which Horowitz attributed to some merchandise carryover into the first quarter and being up against a “grand slam” wedding shop introduction last year. “We couldn’t comp the launch,” said Horowitz. On the positive side, the active, bottoms and swim categories sold well last quarter, Horowitz said.Despite the outsized growth at Hollister, A&F Co. did report a slight decline in profit, which Robert Ball, chief financial officer, attributed to some gross margin pressure resulting from higher costs of inventory, higher freight costs, and some carryover of merchandise involving selling more winter goods in the first quarter than a year ago. Regarding the impact of tariffs, Horowitz said she does not expect the company to raise prices and hasn’t done it in the past when there were spikes in the cost of cotton, rising freight costs, and inflation. “We’ve never driven that to the consumer,” Horowitz said.
For 2025, A&F Co. expects, at least at this point in time, a $70 million impact from tariffs. But the company also expects to be able to mitigate about $20 million through vendor negotiations, greater diversification of the sourcing, and operating efficiencies, Ball explained.
During a conference call with investors and retail analysts, Ball said, “On the cost side, our 2025 outlook assumes a 10 percent tariff on all global imports into the U.S., as well as a 30 percent tariff on imports from China. For China specifically, we’ve worked for some time now to relocate sources of supply, and this year sourcing volume from China will be in the low single digits. Globally, we remain nicely diversified across 16 countries.”
During the call, Horowitz expressed confidence in the company’s ability to successfully manage through new tariffs, stating: “As we navigate through the evolving trade environment, we remain open and agile with our inventory receipts and marketing spend to ensure we can best align our product investments with selling trends. Our playbook was built to effectively respond to circumstances like these, just as our team successfully managed the freight and cotton spikes from a couple of years ago. Our global supply chain and sourcing teams are working hard to drive efficiency across the supply chain based across the supply base through discussions with our sourcing partners and by making strategic geographic changes to our buys and supply footprint. Throughout our business, we are looking for expense efficiencies while remaining on offense in key investment areas. All of this work will have clear impact and based on our current assumptions on tariffs, we are not planning broad-based ticket increases. As we’ve done season after season, our goal is to deliver high-quality products and align inventory and promotions with our customers’ value perception.”
Despite this year’s economic uncertainties and dynamic tariff situation, Horowitz also said the company is continuing to invest in marketing, technology, new channel partnerships and company-owned stores.
She said this year, about 100 new physical experiences will be added, including 60 new stores and 40 remodels and right-sizings. Additional localized product and advertising will support the stores. Twenty store closings are seen this year.
She also said she expects Abercrombie to return to a growth path sometime in the second half of this year. “We’re not going to give an exact date and time, but we do expect to see it in the back half and the drivers are the categories that we’re starting to see some nice reaction, that the team is getting back into… The team is busy, hard at work…chasing into product that we are seeing selling, and we’re excited about seeing an inflection in the back half of the year…There are new trends emerging that the team is very excited about. A great example of that would be what’s happening now in boho and Western. Customers are starting to respond to them. There are some leg shapes that are changing that we’re excited about for the second half.” She also noted that business is improving in bottoms, dresses, swim, and activewear under the brand’s own YPB label.
“As we navigate the current environment,” Horowitz said in a statement, “we have the team and proven capabilities in place to read, react and adapt, while continuing to deliver for customers globally.
Importantly, with a strong foundation, we remain on offense and focused on top-line growth, store expansion, and investments in digital and technology that will enable sustainable long-term success.”
From the Hollister summer campaign.
Regarding the outlook for the year, officials said that A&F Co.’s net income per diluted share is now seen ranging from $9.50 to $10.50, versus the previous forecast of $10.40 to $11.40 per diluted share. The company indicated that the current outlook for net income per diluted share and diluted weighted average shares includes the anticipated impact to shares outstanding from potential share repurchase activity in fiscal 2025. The timing and amount of any such repurchases will be determined based on an evaluation of market conditions, the company’s share price, legal requirements, and other factors.
Second-quarter sales are seen increasing 3 to 5 percent, while net income per diluted share is seen ranging from $2.10 to $2.30. In the first quarter of 2024, A&F Co. reported $2.14 in earnings per diluted share.
“From what I’ve seen, Abercrombie & Fitch has executed one of the most impressive brand evolutions in recent retail history,” said Martin Balaam, CEO of Pimberly, a product information management firm. “It seems they’re leveraging their product data and AI to better understand their existing and potential customers and have a presence where they’re shopping before the customer even arrives there — a notable example of this would be being more diverse and inclusive through expanding their size ranges that where previously much narrower. They’ve also clearly optimized their supply chain and unified their product content across global channels — all of which helped them remain agile, and therefore relevant, despite external unplanned pressures like tariffs.”
Comments