Abercrombie & Fitch Co. (ANF) Earnings

Management highlights

### Overall Q1 Performance - Delivered 14th consecutive quarter of net sales growth, with record Q1 results that exceeded analyst expectations for operating income and earnings per share - Returned $105 million to shareholders via share repurchases in Q1, equal to 3% of outstanding shares at the start of 2026 ### Strategic Brand & Partnership Updates - Abercrombie launched a successful heritage collaboration with Sperry for footwear and apparel, which exceeded internal conversion expectations - A new expanded flagship Abercrombie & Fitch store is opening in New York City's SoHo district next week, designed around customer demand for a broader assortment - Hollister partnered with Italian sportswear brand Coppa for a football-themed collection tied to the upcoming World Cup, and launched a digital marketing campaign centered on graduation season - New categories are being tested, including Abercrombie Baby and Toddler, to expand addressable market ### Operational Milestones - Successfully completed the multi-year project to launch an upgraded merchandising ERP system in March 2026; the new system is fully operational, supporting faster expansion into new channels, categories, and global markets - The temporary third-party order pause during ERP implementation reduced Q1 top-line growth by 100 basis points, with normal operations resuming in April - The company is actively integrating AI across business functions, including agentic commerce testing, customer care, forecasting, inventory management, and internal productivity, with all staff receiving AI upskilling and access to premium AI tools ### 2026 Core Company Priorities - Grow net sales across both brands via investments in owned stores, digital channels, new partnerships, and new product categories - Stabilize gross margins by mitigating external cost pressures including tariffs - Invest in technology and AI to improve operational speed and customer experience - Maintain strong profitability to support excess cash returns to shareholders via share repurchases ### Capital & Store Plan - Total 2026 capital expenditures are projected to be ~$225 million - Plans call for ~130 store updates, including 50 new stores and 80 remodels/right-sizes, with ~20 total closures for a net positive store opening count, balanced across brands and tilted to the Americas

Guidance

- Full year 2026 net sales growth guidance is maintained at 3% to 5% year-over-year (vs 2025's $5.27 billion total net sales), with growth expected across both brands, the Americas, and APAC; EMEA full-year sales are expected to be slightly below 2025 levels due to ongoing Middle East headwinds - Full year 2026 operating margin guidance is maintained at 12% to 12.5%, consistent with prior guidance - Full year 2026 diluted earnings per share guidance is maintained at $10.20 to $11.00 - Full year 2026 share repurchase guidance is maintained at $450 million, with ~$745 million remaining under the current repurchase authorization as of Q1 end - The 2026 effective tax rate is forecasted to be ~30%

Segment performance

By brand: 1. Abercrombie Brands: Net sales grew 3% year-over-year, with flat comparable sales. It achieved positive average unit retail (AUR), with strong performance across fleece, denim, and wovens in the Americas and UK. 2. Hollister Brands: Net sales were flat year-over-year (following a record Q1 2025), with a 2% comparable sales decline. It achieved a 22% two-year stacked growth, with slight AUR improvement, and strong performance in graphic tops, shorts, and swimwear in the Americas and APAC. By region: 1. Americas: Net sales grew 3% year-over-year, with 1% comparable sales growth. Both brands grew here, with positive AUR and unit growth. 2. EMEA: Net sales declined 10% year-over-year, with an 11% comparable sales decline. Continued growth in the UK was offset by sharp declines in the Middle East and select other European markets, driven by regional conflict. This headwind reduced total company net sales growth by over 50 basis points in Q1. 3. APAC: Net sales grew 24% year-over-year, with 15% comparable sales growth, following 5% growth in Q1 2025. Overall company Q1 2026: Record net sales of $1.1 billion, up 2% year-over-year; operating margin of 8% ($89 million operating income); adjusted EBITDA of $131 million (12% margin); diluted earnings per share of $1.47; inventory at cost was down 2% year-over-year.

Risks & headwinds

- Ongoing regional conflict in the Middle East has created significant demand headwinds in EMEA, which reduces overall company growth and is expected to continue through the remainder of 2026 - Scheduled 15% US import tariffs on all global imports effective in H2 2026, combined with rising fuel costs driving higher freight costs in the back half of 2026, create gross margin pressure that offsets tariff relief from lower Q1 2026 rates - Higher than expected tax rates due to jurisdictional income mix created a headwind in Q1, and may impact full year results - Dynamic consumer demand and shifting promotional environments require continuous inventory adjustment, particularly in challenged EMEA markets

Analyst Q&A

• Q: What is the magnitude of the Middle East sales impact, is the ERP implementation fully complete, and what is the current consumer sentiment for both brands?

  A: The Middle East conflict reduced Q1 2026 total company net sales by ~50 basis points, and this impact is expected to continue through Q2 and the full year. Management is adjusting inventory levels and promotional activity to mitigate the impact as much as possible. The upgraded merchandising ERP implementation is fully complete and in the rear view, strengthening the company's operational foundation to support future growth. Both brands remain strong, with customers continuing to show up across all cohorts, and management expects full-year growth for both brands, with Hollister disproportionately impacted by EMEA headwinds.

• Q: What drove the full-year 3-5% growth target despite Q1 and guided Q2 growth coming in below that range, and how do tariff, freight, and marketing cost headwinds net out to maintain the 12-12.5% operating margin guidance?

  A: The 100 basis point Q1 growth drag from the temporary ERP implementation will reverse over the rest of the year, providing the building blocks to hit the full 3-5% full-year target. Modest AUR growth across the business is funding ongoing strategic investments, offsetting small net full-year headwinds from tariffs and freight (each in the tens of basis points of pressure). Tariff headwinds were 180 basis points in Q1 and will shift to a tailwind in H2 when lapping 2025's higher rates, while freight was an 180 basis point tailwind in Q1 that will flip to a small headwind in H2, resulting in a small net full-year headwind. Marketing investment was front-loaded to H1, with levels returning to more normalized year-over-year growth in H2.

• Q: Has the strong Q1 APAC growth changed the timeline or scope of the region's ongoing strategic review? What are the main drivers of the Q2 10% guided operating margin, down from Q1's 8%?

  A: Strong Q1 APAC growth reinforces management's belief in the region's long-term opportunity, with no change to the ongoing strategic review of the go-to-market model, which is evaluating optimization via partnerships and alternative capital structures. An update will be provided later in 2026. The main drivers of lower Q2 operating margin are the $20 million (120 basis point) net tariff impact, the reduction of the large Q1 freight tailwind to only a small tens of basis points benefit in Q2, and ongoing planned investments in marketing and new stores, all offset partially by modest AUR growth.

• Q: What is the opportunity for the footwear category following the successful Sperry collaboration, and will excess sales leverage above the 3-5% guide flow through to margins or be reinvested?

  A: The strong Sperry collaboration response confirms customer demand for complete outfit offerings including footwear, and management is continuing to explore category expansion. The company's model is focused on balance and long-term sustainable growth, with any leverage from sales above the 3-5% target delivering incremental margin expansion, while excess capital will either flow through to shareholders or be reinvested in long-term growth initiatives.