Abercrombie & Fitch's Q2 2025: Contradictions Emerge on Traffic Trends, Inventory Strategy, Store Growth, Tariff Mitigation, and Denim Event Planning

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 27, 2025

Financials Results

• Revenue: $1.21B, up 7% YOY (approx. 100 bps FX benefit)
• EPS: $2.32 adjusted EPS, down from $2.50 last year
• Operating Margin: 13.9% (adjusted), with operating income of $168M vs $176M last year

Guidance:

• FY25 net sales growth 5%-7% vs $4.95B in 2024; ~50 bps FX tailwind.
• FY25 GAAP operating margin 13%-13.5%; tax rate ~30%.
• FY25 EPS $10.00-$10.50; diluted shares ~49M.
• FY25 tariff impact ~$90M (Q2 $5M, Q3 $25M, Q4 $60M); mitigation ongoing; no broad-based ticket increases in 2H.
• Q3 sales +5%-7% vs $1.2B; operating margin 11%-12%; EPS $2.05-$2.25; tax ~31%; ~48M diluted shares; marketing +>100 bps YoY; slight freight tailwind.
• Capex ~$225M; ~60 new stores and ~40 remodels; ~20 closures (net openers); targeting ~$400M 2025 share repurchases.

Business Commentary:

* Record Revenue and Growth: - Abercrombie & Fitch Co. reported record net sales of $1.2 billion for Q2 2025, up 7% year-on-year. - The growth was driven by strong performance in the Americas and APAC regions, particularly from Hollister brands.

• Hollister Brand Success:
• Hollister brands achieved a 19% increase in net sales for Q2, with 19% growth in comparable sales.

• This success was attributed to strong cross-channel traffic and engagement with the team consumer, as well as effective brand activations.

• Tariff Impact and Mitigation:

• Abercrombie & Fitch faced a $25 million tariff impact in Q2 and anticipates a total of $90 million for 2025, impacting operating margins by 170 basis points.

• The company plans to mitigate costs through supply chain shifts, vendor negotiations, and operating expense efficiencies.

• Digital and Store Expansion:

• The company plans to open 40 new stores in the second half of 2025, contributing to omnichannel growth.
• This expansion strategy aims to enhance brand experiences and leverage digital channels for scaled reach and personalization.

Sentiment Analysis:

• Company delivered record Q2 net sales ($1.21B, +7% YOY) and its 11th straight growth quarter. Management raised FY25 sales outlook to 5%-7% and guided Q3 sales +5%-7%. FY25 GAAP operating margin guided to 13%-13.5% with strong balance sheet and planned $400M buybacks. While tariffs are a headwind (~$90M in 2025), management cites proven mitigation playbooks and strong brand traffic.

Q&A:

• Question from Dana Lauren Telsey (Telsey Advisory Group): What gives you confidence A&F will reaccelerate given last year’s outsized success, and how are you treating the credit card settlement in guidance?
  Response: A&F traffic is strong with cleaned inventory; chasing Boho/Western and denim; expects A&F to return to growth by year-end. GAAP guidance includes the $39M settlement; higher tariff impact (~$90M for 2025 vs $50M prior) largely offsets the benefit.

• Question from Dana Lauren Telsey (Telsey Advisory Group): Update on abercrombie kids’ department-store launch and potential for other brands?
  Response: abercrombie kids’ global licensing in department stores (e.g., Macy’s, Nordstrom) is reaching new customers; focus is on kids for now, leveraging stores’ low footprint to build awareness.

• Question from Corey Tarlowe (Jefferies): What drove Hollister’s +19% momentum and what sustains it into back-to-school?
  Response: Broad-based strength across genders/categories; heritage Y2K reissues and homecoming shop sold through; Collegiate collection off to a good start—momentum continues into the back half.

• Question from Corey Tarlowe (Jefferies): Inventory/carryover update and unit outlook amid tariffs?
  Response: Inventory is clean; Q2 inventory cost +10% with units +7% (≈1 pt cost from tariff timing). Both brands positioned to chase in 2H; units managed tightly vs outlook.

• Question from Matthew Robert Boss (JPMorgan): Q2 traffic cadence; what missed at A&F; how should comps progress?
  Response: Traffic was strong globally across channels. A&F missed mainly due to lower AUR from clearing carryover; early Q3 reads in denim and Boho/Western are positive, supporting improvement toward year-end.

• Question from Matthew Robert Boss (JPMorgan): How to think about Q3 gross margin vs the 11%-12% operating margin guide?
  Response: Expect margin pressure from ~$25M tariffs (~200 bps) and >100 bps marketing deleverage; slight freight tailwind; together bridge to 11%-12% operating margin.

• Question from Paul Lawrence Lejuez (Citi): Detail the $90M tariff impact and mitigation; Europe performance/outlook?
  Response: Tariffs remain fluid; using sourcing shifts, vendor negotiations, OpEx efficiencies, and selective pricing (no broad hikes in 2025); most mitigation benefits show in 2026. EMEA: U.K. strong; Germany softer; investing and exporting U.K. playbook.

• Question from Marni Shapiro (The Retail Tracker): What’s behind the >100 bps Q3 marketing increase and the mix of channels heading into holiday?
  Response: Stepping up investment to support NFL partnership and fall campaigns; balanced mix of social and events; back-half marketing a bit above 5% of sales.

• Question from Alexandra Ann Straton (Morgan Stanley): Why lean into store growth for A&F, and how many stores this year/over time?
  Response: Stores are essential for brand experience and acquisition within an omnichannel model; 2025 plan: ~60 openings, ~40 remodels, ~20 closures; ~37 of 60 openings are A&F.

• Question from Mauricio Serna Vega (UBS): Explain A&F third‑party channel headwinds; decompose Q2 gross margin pressure; any freight or unit color?
  Response: Third‑party headwinds reflect order timing and should normalize. Q2 margin down from lower AUR and higher-cost carryover inventory plus ~$5M tariffs; freight normalized as expected.

• Question from Adrienne Eugenia Yih-Tennant (Barclays): Tariff timing implications and potential spring pricing/mitigation?
  Response: Guidance includes tariffs known as of Aug 25 (~$90M in 2025: $5M Q2/$25M Q3/$60M Q4). Mitigating via sourcing, vendor negotiations, OpEx efficiencies, and selective pricing; no broad-based 2H price increases.

• Question from Adrienne Eugenia Yih-Tennant (Barclays): State of the denim cycle and pricing architecture at A&F?
  Response: Denim demand spans multiple fits by occasion (boot-cut, low-rise baggy, wide-leg); pricing follows demand. Both A&F and Hollister show strong denim cycles supporting tops/Boho/Western trends.

• Question from Janet Joseph Kloppenburg (JJK Research): How to think about brand comps given compares; outlook for AUR improvement?
  Response: Q3 guide implies +5%-7% on +14% prior-year; expect Hollister to outperform A&F near term. Aim to hold multi-year AUR gains; A&F AUR should improve as carryover clears.