Abercrombie & Fitch reported record first-quarter sales and better-than-expected earnings despite softer demand linked to the conflict in the Middle East.
The apparel retailer said the ongoing conflict negatively impacted trading in its Europe, Middle East and Africa (EMEA) region, particularly for its Hollister business, contributing to weaker guidance for the current quarter.
CEO Fran Horowitz said demand slowed in the region as tensions escalated.
“Demand softened in Abercrombie’s Europe, Middle East and Africa region (EMEA) as the Middle East conflict ramped up, particularly impacting Hollister Brands, and we are proactively managing inventory and marketing to support the region,” she said in the earnings statement.
Sales in EMEA, which account for roughly 15% of the company’s total revenue, declined 10% during the quarter.
On the company’s earnings call, CFO Robert Ball said Abercrombie expects to deliver around 130 “new experiences” this year, including 80 remodels and store right-sizes alongside 50 new store openings.
“We expect net store openings to be relatively balanced across brands, but tilted to the Americas,” Ball told analysts.
For the quarter ended May 2, net income fell to $67.1 million, or $1.47 per share, from $80.4 million, or $1.59 per share, a year earlier. However, earnings still came in ahead of analyst expectations of $1.28 per share.
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Net sales increased 2% to a first-quarter record of $1.11 billion, marking the company’s 14th consecutive quarter of growth, although narrowly missing analyst estimates of $1.12 billion.
Performance was driven by the Abercrombie brands, where sales rose 3%, while Hollister brand sales were flat.
Comparable sales declined 1% overall. Regionally, comparable sales rose 1% in the Americas and 13% in APAC, but fell 11% in EMEA.
“Our bottom-line results reflect discipline and consistency, with both operating margin and earnings per diluted share exceeding our outlook,” Horowitz said.
“We continued to invest in stores and marketing to strengthen our brands and customer experiences, while also returning $105 million to shareholders through share repurchases, supported by our strong balance sheet.”
Looking ahead, Abercrombie expects second-quarter earnings per share between $1.80 and $2, below analyst expectations.
However, the company maintained its full-year outlook, forecasting net sales growth of 3% to 5% and earnings per share between $10.20 and $11.
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