Abercrombie Raises 2026 Outlook After Record Q2 Sales as Tariff Refunds Lift Earnings

Abercrombie & Fitch raised its fiscal 2026 outlook after reporting record second-quarter sales, while a large tariff-refund benefit gave earnings an additional lift. The company said net sales rose 5% from a year earlier to $1.267 billion in the quarter ended August 1, and that approximately $100 million of International Emergency Economic Powers Act tariff refunds were recorded as a reduction of cost of sales, according to its second-quarter fiscal 2026 results release filed with the Securities and Exchange Commission.

The refund had a major effect on profitability. Abercrombie said the roughly $100 million pre-tax benefit added about $1.75 to diluted earnings per share and increased operating margin by about 790 basis points. Reported net income per diluted share came in at $4.17, well above the company’s prior second-quarter outlook of $1.80 to $2.00 per share, while operating margin reached 19.9% versus an earlier expectation of around 10%.

Management also increased its full-year guidance. Abercrombie now expects fiscal 2026 net sales growth of around 5%, operating margin of 14.5% to 15.0%, and net income per diluted share of $13.10 to $13.60. It also raised planned share repurchases to at least $500 million from around $450 million previously. The higher outlook reflects both solid operating performance and the tariff-refund benefit.

Record Revenue Came With Mixed Comparable Sales Trends

Second-quarter net sales reached $1.2667 billion, up from $1.2086 billion a year earlier. The company described the quarter as its 15th consecutive quarter of growth and said both of its brand families delivered their best-ever second-quarter sales. Abercrombie brand sales rose 8% to $596.8 million, while Hollister sales increased 2% to $669.9 million.

Comparable sales, however, were more mixed than the headline revenue growth suggests. Total company comparable sales were flat. Abercrombie comparable sales rose 4%, but Hollister comparable sales fell 3%. That split indicates that the company’s top-line growth was supported by stronger performance from the Abercrombie brand and by favorable regional mix rather than a broad acceleration across every business line.

Regional performance also varied. In the Americas, net sales rose 5% to $1.021 billion and comparable sales increased 1%. In Asia-Pacific, net sales climbed 19% to $44.2 million and comparable sales rose 13%, making it the fastest-growing region. Europe, the Middle East and Africa posted reported sales growth of 2% to $202.0 million, but comparable sales declined 4%.

Those figures still gave management enough confidence to lift its full-year sales outlook to growth of around 5%. That compares with the 3% to 5% range the company reaffirmed after first-quarter results in May. The second-quarter top line also exceeded the company’s specific quarterly forecast, which had called for revenue growth of 2% to 4%.

Inventory ended the quarter at $592 million, essentially unchanged from $593 million a year earlier and down from $601 million at the end of the previous fiscal year. A relatively stable inventory position alongside higher sales suggests the company did not rely on a significant stock build to generate the quarter’s revenue increase.

Tariff Refunds Changed the Earnings Picture

The biggest swing factor in the quarter was the recognition of IEEPA tariff refunds. Abercrombie said operating income was $253 million, including approximately $100 million of tariff refunds reflected as a reduction of cost of sales. The company’s operating margin was 19.9%, compared with 17.1% on a reported basis last year and 13.9% on an adjusted non-GAAP basis last year.

Abercrombie also provided a direct bridge showing how large the refund effect was. It said the benefit lifted operating income by $100 million, operating margin by roughly 790 basis points and net income per diluted share by $1.75. Even after factoring in the refund, management said both operating margin and earnings per diluted share were above its prior outlook by more than the tariff benefit alone.

The comparison with the first quarter helps show how much changed over the span of one earnings cycle. In its first-quarter fiscal 2026 results release, the company said it had applied for around $100 million of IEEPA tariff refunds but had not included any potential refunds or recoveries in its outlook. At that time, Abercrombie maintained full-year guidance for net sales growth of 3% to 5%, operating margin of 12.0% to 12.5% and diluted EPS of $10.20 to $11.00.

In the current outlook, the company now expects approximately $120 million of IEEPA tariff refunds for the full year, excluding accrued interest. It said about $20 million of that amount is expected to be recognized in the third quarter. Including interest, management estimated the refunds would add about $0.35 per diluted share in the third quarter and about $2.10 per diluted share for the full year.

The updated guidance also assumes a lower effective tariff rate on goods imported into the United States for the rest of fiscal 2026. In May, Abercrombie assumed a 15% effective tariff rate after the second quarter. It now assumes an effective rate of 10% to 12.5%, net of planned mitigation actions. That means the improved full-year margin outlook reflects not only the tariff refunds already recognized, but also some relief in the tariff assumptions for the balance of the year.

Outlook and Buyback Plans Move Higher

Abercrombie’s updated full-year guidance now calls for net sales growth of around 5%, operating margin of 14.5% to 15.0%, an effective tax rate of around 29%, and diluted earnings per share of $13.10 to $13.60. Capital expenditures are expected to be around $250 million, up from about $225 million previously. The retailer still expects around 30 net store openings, made up of about 50 openings and 20 closures, along with roughly 80 remodels and right-sizes.

Capital returns are also increasing. During the second quarter, the company repurchased 2.0 million shares for approximately $177 million. For the first half of fiscal 2026, it repurchased 3.2 million shares for $282 million, representing a 7% reduction in shares outstanding from the beginning of the year. Abercrombie said it had $568 million remaining under its March 2025 authorization.

The company now expects at least $500 million of share repurchases in fiscal 2026, up from around $450 million in the prior outlook. It also said it expects at least $100 million of share repurchases in the third quarter alone. Cash and equivalents stood at $628 million at August 1, with total liquidity of about $1.1 billion including available borrowing capacity under its asset-based revolving credit facility.

Third-quarter guidance points to continued top-line momentum, though with margins well below the second quarter’s refund-boosted level. Abercrombie expects net sales growth of 5% to 6%, operating margin of 13.0% to 14.0%, and diluted EPS of $2.90 to $3.20. That third-quarter outlook includes the expected $20 million remaining tariff-refund benefit, equal to around 160 basis points of operating-margin favorability.

The next earnings report will show how much of Abercrombie’s stronger outlook is driven by underlying demand and how much is tied to one-time tariff recoveries. For now, the company has paired record second-quarter sales with a materially higher earnings forecast and a larger buyback plan, giving investors a combination of operating growth and enhanced capital returns.