Abercrombie & Fitch reported mixed fiscal first-quarter results, with shares surging approximately 13% in morning trading Wednesday as the company surpassed Wall Street's earnings expectations. However, the apparel retailer's performance was tempered by weaker-than-expected guidance for the current quarter, attributed in part to the conflict in the Middle East which "directly impacted" sales, the company stated.
Despite these headwinds, Abercrombie & Fitch reaffirmed its full-year guidance. The company anticipates net sales to rise between 3% and 5% for the fiscal year, with earnings per share projected to be in the range of $10.20 to $11. This outlook suggests a fourth consecutive year of net sales growth, according to CEO Fran Horowitz.
Sales in Abercrombie's Europe, Middle East, and Africa (EMEA) region experienced a 10% decline during the quarter. Finance chief Robert Ball explained on a call with analysts that this downturn was primarily driven by a slowdown in demand at the Hollister brand, coinciding with the escalation of the Middle East conflict. This regional slowdown reduced the company's first-quarter total net sales growth by more than 0.5 percentage points relative to its initial outlook.
"We're focused on what we can control, including our inventory levels and marketing investments, ensuring we can respond to what's happening in real-time," CEO Fran Horowitz added during the analyst call. She further noted, "Despite these EMEA headwinds, we expect total sales growth for the second quarter, along with full-year 2026, which would be our fourth consecutive year of net sales growth."
For the current quarter, Abercrombie projects earnings per share to fall between $1.80 and $2, a figure notably below the $2.54 estimated by analysts surveyed by LSEG. While the company's near-term outlook fell short of analyst expectations, its long-term forecast remained intact.
Overall, Abercrombie's companywide sales increased by 2% year-over-year, reaching $1.11 billion for the first fiscal quarter ending May 2. This growth was achieved despite the 10% sales dip in the EMEA region, which constitutes approximately 15% of total company sales. The reported net income for the quarter was $67.13 million, or $1.47 per share, compared to $80.41 million, or $1.59 per share, in the same period last year.
Robert Ball elaborated on the company's outlook, mentioning easier year-over-year comparisons in the latter half of the year and reduced marketing expenditures as contributing factors, rather than an anticipated surge in organic consumer demand. He also noted that while average unit retail has seen modest growth, funding company investments and maintaining operating margins between 12% and 12.5%, the overall sales growth was bolstered by new store openings and favorable foreign exchange rates.
Adding to its financial outlook, Abercrombie is incorporating recent reductions in tariff rates following a U.S. Supreme Court ruling that deemed President Donald Trump's reciprocal tariffs illegal. The company now expects tariffs to impact profitability by approximately 0.2 percentage points in fiscal 2026, a decrease from the previous estimate of around 0.7 percentage points. Abercrombie has also applied for a tariff refund of approximately $100 million, though this potential influx has not been factored into its current financial projections.
