By Mackenzie Tatananni

Abercrombie & Fitch posted better-than-expected earnings on Wednesday, but cautioned that fiscal-year results would take a $90 million hit from tariffs.

In midday trading, the stock was up 2% at $98.63. The benchmark S&P 500 index was up 0.2%. It a markedly more muted reaction than the double-digit jump after earnings in May. Shares have fallen 34% this year.

For the second quarter, adjusted earnings were $2.32 a share, compared with the $2.30 a share forecast by analysts, according to FactSet. Net sales of $1.2 billion marked a record for the company and slightly topped the $1.196 billion Wall Street had expected..

Net sales within the retailer's Hollister brand, which targets younger shoppers, grew 19%, with comparable sales rising 3%. Net sales within the Abercrombie brands fell 5%, with comparable sales falling 11%.

CEO Fran Horowitz said the company "made progress on key inventory initiatives by leveraging promotions and testing new product concepts," despite the slump in Abercrombie sales.

The company scrapped its previous fiscal-year outlook. Abercrombie & Fitch now projects net sales growth of 5% to 7%, up from 3% to 6%.

"We entered the second half of 2025 on offense," Horowitz said. "We are increasing our full year net sales outlook, reflecting our strong positioning and growth trajectory, building on record 2024 results."

Management also raised the lower end of its operating margin guidance, forecasting a range of 13% to 13.5% instead of 12.5% to 13.5%. The company now sees $225 million in capital expenditures, up from $200 million.

The updated guidance includes the estimated impact of tariffs across Vietnam, Cambodia, India, and China, plus a base 10% tax on all other global imports, Abercrombie & Fitch said. The four countries account for the bulk of its manufacturing operations.

After planned mitigation efforts, the outlook assumes roughly $90 million of tariff expense, management added.

Last quarter, Chief Financial Officer Robert Ball said the retailer had worked to adjust supply chains and was "nicely diversified across 16 countries." He said 2025 sourcing volume from China would be "in the low single digits."

Part of the outlook for the current third quarter was softer than expected. Abercrombie & Fitch projected sales growth of 5% to 7%, above the 4% forecast by analysts, according to FactSet. But earnings of $2.05 to $2.25 a share missed analysts' consensus call of $2.53 a share -- at the midpoint of the range.

Analysts at Telsey Advisory Group maintained an Outperform rating and $125 price target on the stock after the report. The team pointed out that the Hollister sales contributed to an operating margin that outperformed management's expectations.

While tariffs pose "an incremental headwind," the better-than-expected top-line performance and boosted annual outlook are "reflective of continued teen engagement at Hollister," the analysts wrote.

Citi Research reiterated a Neutral rating and $105 target price. The firm downgraded Abercrombie & Fitch from Buy on Aug. 20.

In the latest note, analysts said they expected shares to trade lower, citing weakness in comparative sales across brands outside Hollister. The below-consensus earnings guide for the current quarter is also indicative of heightened gross margin pressure, the firm added.

Attitudes on the Street are mixed. Of 13 analysts polled by FactSet, seven rate the stock at Buy or the equivalent and six rate it at Hold.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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August 27, 2025 11:18 ET (15:18 GMT)

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