Sometimes the best defense is a good offense. Abercrombie & Fitch (ANF) proved that point Wednesday, as its stock jumped more than 11% after the apparel retailer reported first-quarter earnings that topped Wall Street expectations. The beat came even as the company navigated geopolitical turmoil in the Middle East and softer demand in Europe.
The headline numbers were a mixed bag. Adjusted earnings came in at $1.47 per share, comfortably above the analyst consensus of $1.27. Sales hit a record $1.114 billion, up 2% from a year ago, though that fell just short of the $1.124 billion analysts were looking for. Investors, it seems, focused on the profit beat and the growth story rather than the slight revenue miss.
The real star of the quarter was the Asia-Pacific region, where sales surged 24%. The Americas also chipped in with a 3% gain. But those wins were partially offset by a 10% decline in the Europe, Middle East and Africa (EMEA) region. CEO Fran Horowitz explained the dynamic bluntly: "In EMEA, demand softened as the Middle East conflict ramped up, particularly impacting Hollister Brands, and we are proactively managing inventory and marketing to support the region."
Brand performance was led by Abercrombie's namesake labels, which grew 3%, while Hollister brands were flat. Operating margin slipped to 8.0% from 9.3% a year earlier, reflecting some cost pressure. The company ended the quarter with $594 million in cash, down from $760 million at the end of January but up from $511 million a year ago.
On the conference call, management highlighted several strategic initiatives. Lower tariff rates provided some relief during the quarter, though higher freight costs could weigh on the second half. Abercrombie has applied for about $100 million in tariff refunds but isn't counting on that money in its forecasts. The company is also investing in a major ERP upgrade and artificial intelligence tools to speed up decision-making, boost digital growth, and improve customer engagement.
For the full fiscal year 2026, Abercrombie affirmed its GAAP earnings guidance of $10.20 to $11.00 per share, bracketing the analyst estimate of $10.77. It also maintained its sales outlook of $5.424 billion to $5.529 billion, versus the Street's $5.464 billion. But the second-quarter outlook was more cautious: the company expects GAAP earnings of $1.80 to $2.00 per share, well below the $2.53 analysts had penciled in.
At publication time, shares were trading at $83.56, up 11.75% on the day. The market seems to be betting that Abercrombie's international expansion and tech investments will pay off, even as the near-term outlook remains tempered by geopolitical uncertainty.
