Young adult apparel retailer Abercrombie & Fitch (NYSE: ANF) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 7.5% year on year to $1.10 billion. Its GAAP profit of $1.59 per share decreased from $2.14 in the same quarter last year.

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StockStory’s Take

Abercrombie & Fitch’s first quarter results were defined by significant divergence between its two core brands and regional performances. Management attributed the company’s overall sales growth to Hollister’s strong momentum, with CEO Fran Horowitz highlighting “record first quarter results” and balanced demand across genders and categories such as fleece, jeans, and skirts. The Americas and EMEA regions posted solid traffic and store productivity, while Abercrombie brands faced a net sales decline due to lower average unit retail (AUR) and lingering winter inventory. Horowitz acknowledged that Abercrombie’s challenges were expected as the brand cycled exceptionally strong prior-year growth and worked through carryover product, noting, “the team acted quickly, leveraging our agile operating model to shift inventory receipts.”

Looking ahead, management’s guidance is shaped by the impact of new U.S. tariffs and the company’s mitigation strategies. CFO Robert Ball explained that the updated profit outlook reflects approximately $50 million in additional annual costs from tariffs, despite ongoing efforts to diversify supply and negotiate with vendors. Capital deployment remains focused on growth, with planned investments in store openings, marketing, and digital infrastructure. Horowitz expressed confidence that Abercrombie brands will return to growth later in the year, stating, “we do expect to see an inflection in Abercrombie in the back half,” while the company expects continued momentum at Hollister. However, management cautioned that promotion and inventory management will be critical as the business navigates these external cost pressures.

Key Insights from Management’s Remarks

Management cited Hollister’s outperformance, ongoing expense discipline, and the need to adapt to higher tariffs as central themes for the quarter’s results and future outlook.

• Hollister’s sustained growth: Hollister delivered its eighth consecutive quarter of sales growth, driven by strong demand in core categories and targeted marketing initiatives like The Grad Shop. Management noted balanced performance across genders and a focus on culturally relevant product launches.

• Abercrombie brand headwinds: The Abercrombie brand reported lower sales and average selling prices, as it cycled last year’s large gains and worked through winter carryover inventory. Management called out softness in spring categories and the impact of a less successful wedding shop compared to the prior launch.

• Geographic sales momentum: Both the Americas and EMEA regions posted net sales growth, with the UK and Germany highlighted as standouts. APAC also grew, albeit at a slower rate, with “nice comparable sales performance in China.”

• Tariff-driven margin pressure: New U.S. tariffs are expected to reduce operating margin by about 100 basis points in 2025, despite the company’s efforts to shift sourcing out of China and negotiate with supply partners.

• Expense management and capital deployment: Operating expense leverage, particularly in administrative costs, partially offset margin declines. The company continued to invest in marketing and digital initiatives while repurchasing shares and opening new stores to drive long-term growth.

Drivers of Future Performance

Abercrombie & Fitch’s guidance reflects tariff-related cost headwinds, continued investment in growth, and an expectation for sequential improvement as inventory normalizes.

• Tariffs and supply chain adjustments: Management assumes a 10% tariff on global imports and a 30% tariff on imports from China, leading to higher product costs. The company is mitigating this by diversifying sourcing and negotiating with vendors, but expects a net $50 million cost impact for the year.

• Abercrombie brand recovery plans: Leadership expects Abercrombie to return to sales growth in the second half of the year, citing actions to align inventory with demand and focus on new product trends, such as swimwear and emerging fashion categories.

• Ongoing investments in stores and digital: The company plans to add around 100 new store experiences in 2025, including new stores and remodels, while also increasing marketing and technology spending to support both in-store and online channels. Management believes these efforts will underpin future revenue and profit growth, even as short-term margins remain pressured.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) Abercrombie’s ability to work through remaining carryover inventory and return to sales growth, (2) the impact of tariffs on margins and the effectiveness of sourcing mitigation strategies, and (3) the pace of store expansion and remodels, especially in key international markets. Continued momentum at Hollister and execution on new product trends will also be crucial markers of progress.

Abercrombie and Fitch currently trades at a forward P/E ratio of 7.5×. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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