Abercrombie & Fitch shares soared 25% on Wednesday after the retailer reported stronger-than-expected first-quarter results and raised its full-year revenue forecast.
Stocks rose even though the company cut its profit forecast due to tariffs that are expected to lower its earnings by 50 million dollars.
Investors reacted positively, however, to the record sales at Hollister, despite Wall Street’s expectations.
Brands aimed at teens grew by 22% on an annual basis, and helped total sales reach $1.10 Billion. This is an 8% rise from 2024.
The earnings fell but exceeded expectations
Abercrombie’s net profit for the quarter ending May 3 was $80.4 million or $1.59 a share. This compares to $114 million or $2.14 a share compared to 365 million or $3.54 if you look at yearly figures.
LSEG reports that despite earnings being down on the previous year, they still exceeded analysts’ expectations of $1.39 a share.
Analysts had predicted $1.07billion in revenue, but the company’s $1.10bn came out ahead. In a statement, the company stated that this was its best-ever net first-quarter sales.
The company’s sales increased in all of its three operating regions. However, the results were uneven across its brands.
Abercrombie’s name-brand banner experienced a 4% decline in sales, after a 31 % increase during the same time period last year.
The brand’s comparable sales fell by 10%. This could be caused either by a market that has normalised after rapid growth, or new competition taking over market share.
Tariff pressure lowers the full-year forecast profit
Abercrombie has revised down its earnings-per-share guidance for the full year to an estimated range of $9.50 to $10.50.
This is a decrease from the prior estimate, which was $10.40. It’s also below the consensus of $10.33.
The company attributes the change to current tariffs. These include a 30% tax on Chinese imports as well as a 10% tax on products from other countries.
The costs will reduce earnings by $50 million this year.
The operating margin was reduced from 15% to 14%.
Abercrombie anticipates a 3% to 5% increase in sales for the second quarter and earnings of between $2.10 and $2.30 per share.
Analysts had expected EPS to be $2.50, and revenue growth of 4.7%.
Hollister is key in growth strategy
Hollister seems to have picked up where Abercrombie left off.
Comparable sales grew by 23% in tandem with the division’s net sales increase of 22% in the first three months.
Hollister’s best ever Q1 results were highlighted by CEO Fran Horowitz in Hollister’s earnings report.
Abercrombie’s sales forecast for the full year has been slightly revised upward. It now anticipates revenue growth between 3%-6%, as opposed to its previous range of 3%-5%.
The company now expects to grow its revenue at a rate higher than the analyst’s forecast of 3,3%.
Hollister’s strength could be a key factor in overcoming challenges in other parts of the portfolio.
The firm must maintain momentum with Hollister, while also re-working its strategy for its flagship brand in order to remain competitive as global trade policies increase the pressure on pricing.
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