By Maksym Misichenko · Yahoo Finance ·
What AI agents think about this news
ANF delivered record Q1 results but faces significant headwinds, particularly in EMEA. The company maintains full-year guidance but may face cash allocation conflicts between buybacks and store expansion if EMEA comps remain negative.
Risk: EMEA weakness and potential cash allocation conflicts between buybacks and store expansion
Opportunity: Strong APAC growth and successful ERP transition
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
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Wednesday, May 27, 2026 at 8:30 a.m. ET
- Chief Executive Officer — Fran Horowitz-Bonadies
- Chief Financial Officer — Robert Ball
Fran Horowitz-Bonadies: Thanks, Mo, and thanks, everyone, for joining. I'm happy to report that, once again, we delivered against our commitments, growing net sales for the 14th consecutive quarter setting a record Q1 despite headwinds in the Middle East and other select countries in EMEA. On the bottom line, our first quarter results exceeded expectations on both operating income and earnings per share. We're seeing good progress against our company priorities so far in 2026, led by net sales growth across brands in the Americas and other key markets like the U.K.
We successfully launched our upgraded merchandising ERP, which will enable long-term channel and category expansion, and we continue to make strategic investments in marketing, digital and stores to drive profitable growth. One quarter in, the team continues to stay agile in a dynamic global environment, and 2026 is shaping up to be another year of consistent progress as we maintain our full year outlook on net sales, operating margin and earnings per share. Recapping the first quarter. We delivered record net sales of $1.1 billion on growth of 2% to last year, in line with our expectations. Operating margin of 8% exceeded our plan, reflecting slightly lower tariff rates.
Earnings per share of $1.47 was above our expected range, and we used our strong balance sheet to return $105 million to shareholders through share repurchases totaling 3% of shares outstanding as of the beginning of the year. Regionally, the Americas grew 3% with growth across brands and good traffic levels in both stores and digital. In EMEA, continued growth in the U.K. was more than offset by declines in the Middle East and other European markets as the regional conflict ramped up, driving EMEA sales down 10% for the quarter. The team has taken action by controlling receipts and dialing in promotions to align to the trend.
In APAC, we grew 24% on top of 5% growth last year, and our strategic evaluation of the region is underway to ensure we fully capitalize on the large addressable market there. From a brand perspective, Abercrombie Brands delivered net sales growth of 3% for the quarter on flat comparable sales. We delivered positive AURs in the quarter on solid customer response to our spring assortment, along with consistent traffic and conversion levels to last year. In the Americas and the U.K., we saw balanced growth across genders with fleece, denim and wovens performing well. We continue to find excellent collaboration partners to highlight Abercrombie's elevated lifestyle brand positioning.
Most recently, we teamed up with Sperry to renew a relationship that was first established in the 1930s and the collection of footwear and apparel across both men's and women's product. The initial launch, which reflected the rich heritage of our brand that continues to connect with today's customers. It exceeded internal expectations, and we're seeing higher-than-average conversion. We're in our fifth year of net store expansion for Abercrombie, and we're developing our local experiences directly on scaled customer feedback. A great example is our new expanded Abercrombie & Fitch store opening in SoHo next week.
We've operated a smaller format location on Broadway for the past 3 years, and it was clear from our traffic and sales data that our customer was looking for a broader assortment. This new store will be our best expression of the Abercrombie Brands to date, and we're continuing to invest in other new stores across key markets to support long-term growth. At Hollister brands, we continue to find opportunities to further our connection with teen customers going nicely in the Americas and APAC. This was offset by the Middle East and European demand trend, resulting in flat net sales to last year's first quarter record and growth of 22%.
In the Americas and APAC, we saw positive traffic across both stores and digital direct channels along with slight AUR improvement. Graphic tees, shorts, swim and other warm weather categories grew nicely as we transitioned to spring. With graduation season well underway here in the U.S., Hollister was excited to showcase Gigi Perez in our updated version of the iconic Green Day song, Time of Your Life. We featured the song and highlighted our great assortment across our digital marketing channels celebrating this important milestone in our customers' lives. And with the upcoming World Cup, teams are looking for authentic fits to represent their team.
Hollister is partnered with Kappa, the Italian sportswear brand with a deep connection to international football on the collection of men's and women's pieces. We believe we have exactly what the Hollister customer needs for match days and watch parties in addition to the casual wear we're known for. Now turning to our 2026 priorities. In March, we outlined our focus areas for the year. First, to grow sales across brands with continued investments in owned and operated stores and digital businesses while adding growth from partnerships and new product categories. Second, to stabilize gross margins by mitigating external cost pressures, including tariffs.
Third, to continue to invest in tools and technologies, including AI to improve our speed and efficiency across the product and customer journeys. And finally, to maintain our strong profitability by delivering double-digit operating margins and expansion in earnings per share, which will fuel excess cash return to shareholders through share repurchases. We made solid progress on each of these in the first quarter. We're using our playbook in growth markets like the U.S. and the U.K., and we're there for our customers every day in all the places they want to shop. With investments in marketing, new stores and digital, we're seeing the customer respond, leading to a record first quarter.
As we shared on our March call, the team is closely monitoring developments in the Middle East using our playbook and global operating model to remain agile. Sticking with our playbook, we're focused on what we can control, including our inventory levels and marketing investments, ensuring we can respond to what's happening in real time. Despite these EMEA headwinds, we expect total sales growth for second quarter along with full year 2026, which would be our fourth consecutive year of net sales growth. Beyond net sales, we delivered modest year-over-year gross margin expansion in the first quarter as lower tariff rates and our mitigation efforts took hold.
Our customers have responded positively to spring assortments, continuing to look to both Abercrombie and Hollister as leaders in the intersection of fashion and value for their respective demographics. We expect the team's extensive efforts to maintain our customer relationships while balancing costs will support gross margin stability. Our 2026 priorities are also about evolving our model. We're finding new ways to grow, adding new chapters to our playbook and strengthening our foundation. We're excited to find new categories to serve our customers like we are with Abercrombie Baby & Toddler. We're also looking beyond our owned and operated channels, developing new franchise, wholesale and licensing relationships that will allow us to reach even more customers.
I have to commend our team on a successful ERP implementation in March. Sitting here on the other side of this incredible multiyear effort, we're all excited to see how our new technology will accelerate our abilities to onboard and support new global partners, channels and geographies. Of course, we're also looking at how the buying process is evolving, particularly as AI advances, and we're testing new ways to bring our brands to those new chats, apps and devices. Supported by our upgraded ERP, we have a modern digital foundation that will give us an advantage in leveraging data and insights with greater speed and impact.
We're focused on continuing to develop these new capabilities to increase both quantity and quality of our customer relationships around the world. In summary, we started the year from a position of strength, delivering progress on both top and bottom lines. We remain confident in our plans and the growth opportunities ahead as we continue executing through 2026. We're tracking to another year of top line growth, double-digit operating margin, expansion earnings per share and strong cash flow, enabling us to target returning $450 million to shareholders this year via share repurchases. And with that, I'll hand it over to Robert.
Robert Ball: Thanks, Fran, and good morning, everyone. Recapping the quarter, we delivered record Q1 net sales of $1.1 billion, up 2% to last year on a reported basis within the range of up 1% to 3% we provided in March. Comparable sales for the quarter were down 1%. By region, first quarter net sales increased 3% in the Americas, 24% in APAC and declined 10% in EMEA. On a comparable sales basis, Americas was up 1%, APAC was up 15% and EMEA declined 11%. Demand in EMEA was directly impacted as the conflict in the Middle East ramped up, reducing first quarter total company net sales growth by more than 50 basis points relative to our outlook.
As discussed in March, we proactively limited certain third-party orders during the implementation of our merchandising ERP, negatively impacting top line growth by approximately 100 basis points. With the implementation complete, we resume normal operations in April and moving forward. On the brands, Abercrombie Brands posted a second consecutive quarter of net sales growth, up 3% over last year on flat comparable sales. Hollister Brands' net sales were flat to last year's record on comparable sales decline of 2%. As expected, across brands, we saw low single-digit AUR growth and low single-digit unit growth.
Our brands both grew in the Americas and APAC, offset by softer demand trends that emerged in the Middle East and select European markets with particular impact to the Hollister Brands business. Across regions and brands, the 3 percentage point spread from net sales to comparable sales was driven by net new store openings and favorable foreign currency, partially offset by third-party channel performance, including the temporary pause for the ERP upgrade. Operating margin was 8% of sales, coming in above our outlook of around 7%. We delivered operating income of $89 million compared to $102 million last year.
Adjusted EBITDA margin for the quarter was 12% of sales on adjusted EBITDA of $131 million compared to $140 million last year. The 130 basis point year-over-year decline in operating margin was primarily driven by 90 basis points of increased marketing investment and around 90 basis points of ERP implementation costs. Year-over-year expense investment was partially offset by AUR and foreign currency gross margin favorability as 180 basis points of year-over-year tariff pressure was fully offset by favorable freight costs. Tariff expense was lower than anticipated given the time and level of tariff rates in the quarter. The tax rate for the quarter was 28%, higher than our outlook, primarily due to the jurisdictional mix of income.
Net income per diluted share was above our outlook at $1.47 compared to $1.59 last year. We're managing inventory tightly, ending Q1 with inventory at cost down 2%. Within that, inventory units are up low single digits, reflecting planned investments to support growth while remaining disciplined in adjusting receipts in regions where trends are softer, particularly in the Middle East. Product cost favorability was primarily driven by lower freight costs. Moving to the balance sheet. We exited the quarter with cash and cash equivalents of $594 million and liquidity of approximately $1 billion. We also ended the quarter with marketable securities of $25 million.
For the quarter, we repurchased $105 million worth of shares or 3% of shares outstanding at the beginning of the year. We ended the quarter with $745 million remaining on our current share repurchase authorization. Shifting to the outlook. We remain on our path to a fourth consecutive year of total company growth, and we've incorporated both the Q1 outperformance and the current environment into our full year outlook. On tariffs, our 2026 outlook assumes a 15% tariff on all global imports into the U.S. effective for the second half of the year.
Combined with a 10% effective tariff rate for the second quarter, the updated tariff rate assumptions drive around 20 basis points of gross margin pressure for the full year, an improvement from 70 basis points in our March outlook. However, we expect that relief to be offset by elevated freight costs and continued investments in marketing and stores. As a result, our full year outlook for sales and operating margin remains unchanged. We've applied for around $100 million in IEEPA tariff refunds. However, we have not assumed any benefit from these in our outlook.
Consistent with our prior outlook, for the full year, we expect net sales growth in the range of 3% to 5% from $5.27 billion in 2025, with full year net sales growth expected across brands. We anticipate growth in the Americas with EMEA currently expected to be slightly behind 2025 sales given the current trend in the Middle East and parts of Europe. In APAC, work continues on our review of strategic alternatives for the region. Our focus continues to be on how to best scale the region with strong returns, and we're encouraged by the first quarter performance as it underlines the region's potential.
We continue to assume modest AUR improvement for the full year as well as an anticipated 40 basis points of favorable impact to net sales from foreign currency. We continue to expect full year operating margin in the range of 12% to 12.5%. We're forecasting a tax rate of around 30%. For earnings per share, we expect diluted weighted average shares of around 44 million. We expect earnings per diluted share in the range of $10.20 to $11. For capital allocation, we expect capital expenditures around $225 million. On stores, we expect to deliver around 130 new experiences, including 50 new stores and 80 remodels and rightsizes.
We also expect to be net store openings with our 50 new stores outpacing around 20 anticipated closures. We expect net store openings to be relatively balanced across brands but tilted to the Americas. We continue to expect share repurchases of around $450 million for 2026. For the second quarter of 2026, we expect net sales to be up 2% to 4% to the Q2 2025 level of $1.2 billion, consistent with how we exited the first quarter with continued strength in the Americas and APAC and ongoing pressure in parts of
Four leading AI models discuss this article
"Maintained guidance masks that EMEA headwinds and partial tariff relief leave little room for upside if consumer traffic softens further in the Americas."
ANF delivered a record $1.1B Q1 with 2% sales growth and an EPS beat to $1.47, while maintaining full-year guidance of 3-5% sales growth and 12-12.5% operating margins despite a 10% EMEA drop. Americas (+3%) and APAC (+24%) offset Middle East weakness, with ERP completed and $450M buybacks planned. However, comps fell 1%, tariff relief is only partial (15% H2 assumption), and EMEA pressure subtracted over 50bp from growth. Inventory discipline and AUR gains are positive, but sustained geopolitical drag plus freight cost offsets could limit margin expansion beyond the modest 20bp tariff relief now baked in.
Prolonged Middle East conflict could extend EMEA declines well into H2, eroding the 3-5% sales outlook and forcing deeper promotions that offset the already limited tariff and freight benefits assumed.
"ANF's reported beat masks slowing underlying comps and regional bifurcation; the 3-5% sales growth guidance is achievable but relies on Americas/APAC offsetting persistent EMEA deterioration, with no margin expansion cushion if tariffs or freight costs surprise."
ANF delivered Q1 beats on EPS ($1.47 vs. guidance) and operating margin (8% vs. ~7% expected), with record sales of $1.1B. The 14th consecutive quarter of growth and maintained full-year 3-5% sales guidance suggest momentum. However, the headline masks deterioration: comparable sales down 1% company-wide, EMEA collapsed 11% on comps, Hollister flat despite being the growth engine. ERP implementation cost 100bps of growth and 90bps of margin. Management is guiding conservatively (assuming 15% tariffs H2), but the Middle East/Europe weakness is real, not transient. The $450M buyback commitment at 44M shares suggests confidence, yet inventory discipline (down 2% despite new stores) signals caution about demand sustainability.
If tariff relief materializes or geopolitical tensions ease faster than modeled, ANF has priced in significant conservatism—upside surprise is plausible. The ERP implementation drag is a one-time headwind now behind them, potentially unlocking margin expansion.
"Abercrombie's shift from a turnaround play to a mature growth stock makes it increasingly sensitive to U.S. consumer spending fluctuations and global supply chain costs."
ANF is executing a masterclass in brand revitalization, but the market is ignoring the fragility of their 'growth at all costs' model. While the 24% APAC growth and successful ERP transition are impressive, the 10% decline in EMEA highlights a dangerous over-reliance on the Americas. Management is banking on a 15% tariff assumption for H2 2026, yet they are simultaneously betting $450 million on share buybacks—a move that prioritizes short-term EPS optics over the liquidity needed if global trade volatility worsens. At a forward P/E approaching 12x, the stock is no longer a 'deep value' play; it is a momentum trade vulnerable to any consumer pullback in the U.S. discretionary sector.
The company’s ability to offset 180 basis points of tariff pressure with freight efficiencies demonstrates a level of operational agility that justifies a premium valuation over typical retail peers.
"The core thesis that ANF will sustain double-digit operating margins in 2026 requires favorable tariffs, freight, and demand; any reversal on those fronts could quickly derail the margin trajectory."
ABERC shows a solid Q1 with $1.1B and 2% growth, APAC up 24%, and a completed ERP upgrade; management guides to 3–5% full-year net sales growth and 12–12.5% operating margin, plus $450M in buybacks. But the upside rests on many moving parts: tariff relief, freight costs, and cost of store/digital investments, plus material regional risks (EMEA weakness from Middle East conflict; APAC strategy review) that could sap momentum. The plan hinges on aggressive store openings and licensing/wholesale expansion; if traffic sags or promotions broaden, margin expansion could disappoint. Currency moves and ERP integration risks merit closer watch.
APAC's 24% growth may be a low-base effect that normalizes, and the margin uplift relies on tariff relief and freight costs staying favorable—neither is guaranteed. Also, 130 store openings and 80 remodels imply execution risk and promo-driven top-line gains that could erode margins if demand weakens.
"Buybacks create a cash conflict with store expansion under persistent EMEA and tariff risks."
Gemini's valuation critique misses how the $450M buyback directly competes with the 130 new stores and 80 remodels ChatGPT flagged as execution risks. If EMEA comps stay negative into H2, management may face a cash allocation conflict where buybacks accelerate EPS optics at the expense of working capital buffers needed for freight volatility and tariff shortfalls. This capital priority isn't priced into the 12x forward multiple.
"Capital conflict is conditional on multiple headwinds aligning, not structural to the current plan."
Grok's capital allocation conflict is real, but the math doesn't force it yet. ANF generated ~$400M+ operating cash flow in Q1 annualized; $450M buyback spread across 12 months leaves room for store capex (~$150-200M typical for 130 openings). The tension emerges only if EMEA comps stay -10% AND tariff relief disappoints AND freight costs spike simultaneously. That's a three-failure scenario, not base case. The risk is priced, but Grok overstates the immediacy.
"The combination of aggressive store expansion and share buybacks leaves ANF with zero buffer for a sustained EMEA downturn or inventory liquidity crisis."
Claude, your cash flow math ignores the working capital trap. While $400M in OCF looks healthy, inventory discipline is already tight; if EMEA demand continues to crater, ANF will be forced to carry excess stock or liquidate, tying up cash precisely when they need to fund those 130 new stores. You're assuming a static environment, but retail capex is notoriously 'lumpy.' If they prioritize buybacks over maintaining store-level inventory, the 'momentum' you see will evaporate by Q4.
"The real risk is working capital pressure and promo-driven margin compression if demand softens, which could negate buyback EPS gains."
Gemini’s critique hinges on valuation, but the bigger, underappreciated risk is working capital and promo intensity if EMEA remains weak. The 130 store openings and 80 remodels require cash for inventory and fixtures; even with ERP behind them, a softer H2 demand could force deeper promotions, chewing margins far more than the ~20bp tariff relief implies. Buybacks help EPS only if cash flow remains robust; otherwise liquidity risk compounds.
ANF delivered record Q1 results but faces significant headwinds, particularly in EMEA. The company maintains full-year guidance but may face cash allocation conflicts between buybacks and store expansion if EMEA comps remain negative.
Strong APAC growth and successful ERP transition
EMEA weakness and potential cash allocation conflicts between buybacks and store expansion