Hollister lifts Abercrombie & Fitch, raises sales outlook amid market uncertainty

Thanks to a strong quarter for Hollister, Abercrombie & Fitch (NYSE:ANF) had its best day in two years and took the rare step of raising FY sales outlook while others are ditching guidance due to uncertain market dynamics.

Efforts to expand their demographic and keep inventory fresh continues to pay off for the retailer as Hollister reported another quarter of double-digit growth while the Abercrombie banner is expected to inflect in the second half of this year.

“We see sales momentum continuing as multi-year efforts spanning marketing, product, and in-store presentation have yielded distinctive brands that strongly resonate with their particular audiences,” says Jefferies’ Corey Tarlow, who maintains a Buy rating on the stock and a very optimistic $135 price target, representing a 75% premium over Tuesday’s closing price.

There was enough good news in the Q1 report to launch the stock more than 30% higher at the open, although it also exposed challenges that suggest the company is contending with the same headwinds affecting its peers. This includes lowered guidance for both its operating margin and earnings guidance for FY26 to include a $50M headwind from tariffs, and inventory levels up 21% from last year at cost, but only up 6% on a unit basis.

“Overall, we believe this pressure is transient for [Abercrombie],” assures Tarlowe, while J.P. Morgan’s Matthew Boss fears the carryover inventory costs will pressure average unit retail at the Abercrombie brand.

Like other retailers, tariff risk encourages a defensive strategy, and at Abercrombie, this does not include price increases.

“Our playbook was built to effectively respond to circumstances like these,” CEO Fran Horowitz said on the company’s earnings call.

“Our global supply chain and sourcing teams are working hard to drive efficiency across the supply base through discussions with our sourcing partners and by making strategic geographic changes to our buys and supply footprint.”

As of 2024, ANF only imports 7% from China, but still sources 35% from Vietnam and 22% from Cambodia.

But aside from margin pressure and inventory costs, Boss and Tarlowe remain bullish on Abercrombie & Fitch (NYSE:ANF) and view the Hollister brand inflection “only in the middle innings” with men’s and tops representing two opportunities for further upside. Additionally, Boss anticipates brand momentum building internationally, with ~$400M revenue recapture opportunity remaining relative to pre-pandemic.