Abercrombie & Fitch: Tariff Relief, Middle East Drag, and a Record Q1
The retailer beat on EPS despite an EMEA decline, banks on $100M in IEEPA refunds it won't book yet, and leans into AI, stores, and aggressive buybacks.
ANF · Earnings Call · 2026-05-27
A Resilient Quarter, but the Headlines Are Still Tariffs and the Middle East
Abercrombie & Fitch delivered a record first quarter, but the story is layered: net sales rose 2% to $1.1 billion, while EPS of $1.47 came in above guidance despite a 130 bps operating-margin decline. “growing net sales for the 14th consecutive quarter setting a record Q1 despite headwinds in the Middle East and other select countries in EMEA” — Fran Horowitz-Bonadies, Chief Executive Officer · 2026-05-27 – that is the headline. Yet the numbers underneath show a business still navigating a choppy geopolitical and trade environment.
The company's own keyword trajectory for the quarter is dominated by tariff rate – rising to #1 – alongside chase mode and fuel cost. Management was clear that tariff expense came in lower than modeled: “Tariff expense was lower than anticipated given the time and level of tariff rates in the quarter,” said CFO Robert Ball. That relief was partly offset by elevated freight costs as fuel prices rise, which the company expects to become a back-half headwind.
We've applied for around $100 million in IEEPA tariff refunds. However, we have not assumed any benefit from these in our outlook.
That cautious stance echoes a broader market theme – globally, IEEPA refund and “Tariff refund” have been top keywords in recent quarters, and other retailers and shippers are all wrestling with the same tariff whiplash. ANF is being disciplined: it won't bake in a refund it may or may not receive. The $100M figure is material – roughly 2% of trailing revenue – but booking it later could provide upside.
EMEA’s Decline Is Concentrated, But Manageable
Regionally, EMEA sales fell 10% as the Middle East conflict ramped up, cutting total company growth by about 50 basis points. APAC grew 24% and the Americas 3%, but the Middle East drag is a real weight on Hollister, which skews to that region. “We're managing inventory tightly, ending Q1 with inventory at cost down 2%,” Ball noted. The company is applying its playbook – dialing back receipts and promotions where demand is weak, while chasing in markets that are working. “We run the business in chase mode and Hollister is definitely in chase mode.” — Fran Horowitz-Bonadies, Chief Executive Officer · 2026-05-27 That agility is core to the model.
The Middle East impact is not unique to ANF – global earnings calls this quarter are full of companies mentioning the conflict, from shippers like Frontline to other retailers. The question is how long the drag persists. Full-year guidance still implies a second-half acceleration, with net sales growth of 3%–5% and operating margin of 12%–12.5%, which suggests management sees the EMEA pressure as cyclical, not structural.
The ERP Hangover Is Over, But Costs Are Front-Loaded
A key one-time drag in Q1 was the merchandising ERP implementation, which cost roughly 100 basis points of sales growth. Management says it's now behind them. “We're really excited to have that one cut over and be kind of back to normal operations here,” Ball said during Q&A. That's a notable milestone, but it also means the comparison gets tougher as they anniversary it.
The company is also deliberately front-loading investments: marketing spend was up 90 bps of sales in Q1, and they're planning 50 new stores and 80 remodels. CFO Ball explained, “We're continuing to invest in this business, all while returning a bunch of cash, $450 million to shareholders through share repurchases.” That combination – investing while returning capital – is only possible because of a strong balance sheet: quarter-end cash and marketable securities of $619M, and effective net cash of $897M, up 31% year-over-year. But the operating margin story is less rosy: Operating margin fell 1.4pp to 8.4% in Q1, below the 12%–12.5% full-year guide, reflecting the front-loaded expenses and tariff costs.
What’s Changed? The Tariff Calculus, But Not the Resolve
Compared to the prior-year quarter, the difference is stark. In March 2025, management was assuming a 15% tariff on all imports for the year. Now, with the IEEPA refund application pending, they've assumed only a 10% effective rate for Q2 and 15% for the back half – an improvement of ~50 bps of gross margin pressure. “We did take that pricing on spring products starting kind of late Q4,” Ball said on the March call, and that strategy is now producing unit growth and positive AUR. The company is also leaning into investment in marketing, which is helping to drive traffic, but it's a constant balancing act.
What's genuinely new this quarter is the explicit acknowledgment that the Middle East conflict is having a measurable, ongoing impact – that's not a theme we saw in prior calls. Combined with the tariff refund saga, the company is navigating a genuinely more complex global environment than it was a year ago. The playbook, though, remains consistent: control inventory, chase wins, and keep the customer at the center. Fran Horowitz summarized: “That was our model? I mean, that is what we do. The flexibility that we've built in, there's absolutely I mean, we're very open for the back half.” — Fran Horowitz, Chief Executive Officer · 2025-05-28