Abercrombie & Fitch (NYSE: ANF) had provided a first-quarter fiscal 2025 earnings beat that surpassed analyst projections to instantaneously retrench hard with a cut of its full-year profit outlook because of looming tariff effects. The stock of the company jumped 27% on May 28, 2025, when it announced that fresh trade policy would eliminate $50 million of its earnings in a bleak reminder of the precarious interplay among corporate performance and geopolitical economic stress.
Strong Q1 performance driven by Hollister’s recovery
Abercrombie & Fitch recorded first-quarter revenue of $1.10 billion, the highest in its history, above Wall Street’s estimate of $1.07 billion and up 8% compared to the same quarter last year. This was driven by Hollister, which raised sales 22% to $549 million—a best-ever first-quarter result. Brand turnaround, driven by disciplined inventory management and focused marketing efforts, differed from a 4% drop in the core Abercrombie brand, which struggled with difficult comparisons to its 31% Q1 2024 increase.
EPS of $1.59 comfortably surpassed the $1.39 consensus estimate, although net income declined to $80.4 million from $114 million in the comparable period a year ago. CEO Fran Horowitz attributed “broad-based growth across our three regions” as a primary driver and said operational efficiencies helped to mitigate inflationary pressures.
Tariff headwinds prompt guidance reduction
The retailer’s enthusiasm was tempered by its reduced adjusted full-year EPS guidance to $9.50–$10.50 from $10.40–$11.40 previously. It is an estimated tariff earnings impact of $50 million in the form of a 30% on Chinese products and 10% duty on other countries’ imports. While Abercrombie upgraded its revenue growth estimate to 3–6% (up from 3–5%), it also reduced operating margin expectations to 12.5–13.5% (down from 14–15%).
Analysts were upbeat, if cautiously so, with Jefferies maintaining a “Buy” rating and $135 price target in light of the guidance reduction. The firm cited Abercrombie’s better-than-peer ability to “better navigate macroeconomic headwinds,” referencing improved inventory turns and controlled cost discipline being managed.
Investors initially greeted the company with a 27% stock gain, a solid bounce for shares that fell 49% through last trading day before earnings. That type of stock gain indicates that markets valued the Q1 beat and higher revenue guidance more than risk associated with tariffs—something that was reinforced by RBC Capital Markets analyst Steven Shemesh, who stated, “The stock market is pricing in Abercrombie’s proven agility in supply chain realignment.”
The delay in guidance upgrades versus share price appreciation highlights shifting investor sentiment across the retail space. As tariffs redefine international trade patterns, firms with the ability to display localized manufacturing capabilities and value leadership are being revalued. Abercrombie’s 18% North American same-store sales growth probably comforted markets about its US supremacy.
Strategic implications and path forward
Abercrombie’s updated guidance is based on existing tariff policies not changing in fiscal 2025. Abercrombie has also taken contingency actions, including:
- Ramping up nearshoring efforts with Central American production partners
- Applying selective price inflation on tariff-impacted categories
- Redirecting sourcing away from China, which represents 35% of imports at present
Horowitz confirmed the company’s dedication to “sustainable, profitable growth,” referencing a 53% fiscal 2024 operating income increase. The guidance downgrade, however, makes one wonder if tariff effects will disrupt Abercrombie’s post-pandemic recovery story.
For investors, the question is how long Abercrombie can sustain 62.1% gross margin at the cost of tariffs. The increase in full-year revenue guidance implies optimism about demand elasticity, but the real test will come during holiday quarters when tariff-imposed price increases are more pronounced to consumers.
While trade tensions simmer worldwide, Abercrombie & Fitch’s shifting strategy is a masterclass in how to reconcile growth aspirations with macroeconomic tides. The firm’s capacity to grow stronger than adversity may lock it into being a turnaround tale—if it can navigate the tariff tightrope while retaining its stylish appeal.
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