Prices are something all American households still complain about.<\/p>\n
However, that does not mean they aren’t going out to purchase clothes.<\/p>\n
Abercrombie & Fitch (ANF)<\/strong> reported record second-quarter net sales of $1.27 billion<\/strong>, about 5% higher than a year ago and its 15th consecutive quarter of sales growth. It’s no small feat, considering the state of the average consumer these days.<\/p>\n Abercrombie-branded sales increased 8%, while Hollister sales rose 2%. All of this action helped the company lift its full-year sales outlook and projected earnings of $13.10 to $13.60 per share<\/strong>.<\/p>\n Understandably, such figures from the retail sector are a rarity these days. It’s why there was an outsized reaction to the results; the stock climbed nearly 30%. But there is an interesting caveat to the results.<\/p>\n Abercrombie received about $100 million in tariff refunds<\/strong>, according to Investopedia<\/a>, adding roughly $1.75 per diluted share<\/strong> to quarterly earnings.<\/p>\n But the bigger story for shoppers is what happened without that refund: People kept buying.<\/p>\n The national retail outlook is not quite rosy. July U.S. retail and food-service sales were $763.6 billion<\/a>, down 0.6% from June but 5% higher than a year ago, the Census Bureau said.<\/p>\n Consumers are also still feeling the effects of inflation. Overall prices were 3.4% higher<\/a> in July than a year earlier, while apparel prices jumped 3.9%<\/strong>.<\/p>\n Clothing is a discretionary purchase, making Abercrombie’s performance all the more astounding. A household struggling with energy, groceries, and rent might easily delay buying another pair of pants.<\/p>\n Related: Abercrombie’s new NFL collection has vintage-inspired game day merch you’ll actually want to wear<\/a><\/strong><\/p>\n Yet consumers continued to shop enough to help Abercrombie reach record sales in the Americas, where revenue climbed 5%. Asia-Pacific revenue increased by 19 percent, while EMEA revenue rose by 2 percent.<\/p>\n Behind the surge in sales, there is subtlety. Independent earnings coverage reported that overall comparable sales were flat and Hollister comparable sales were down.<\/p>\n That indicates some of the increase is coming from expansion, assortment, and other initiatives, rather than an explosion in traffic in existing stores across the board.<\/p>\n Abercrombie posted diluted EPS of $4.17<\/strong>, compared with Wall Street expectations of around $1.98 to $1.99, The Motley Fool<\/a> confirmed.<\/p>\n The $1.75 tariff-refund contribution accounts for much of that discrepancy, Investors.com<\/a> also noted. But even after stripping it out, earnings still came in over forecasts.<\/p>\n More Retail:<\/strong><\/p>\n That’s the difference investors need to see.<\/p>\n The return turned a good quarter into a great quarter, although it did not produce the whole underlying improvement.<\/p>\n Abercrombie expects about $120 million in total tariff-refund benefits<\/strong> for the full year, with roughly another $20 million expected in the current quarter.<\/p>\n The company is also aggressively returning cash to shareholders. It bought back $177 million of stock during Q2<\/strong> and $282 million year to date, which is equivalent to about 7% of the shares outstanding at the beginning of the year. <\/p>\n Management increased the full-year repurchase target to at least $500 million.<\/p>\n M. Suhail \/ Getty Images<\/a><\/p>\n<\/figcaption><\/figure>\n Abercrombie’s quarter is fascinating because the $100 million tariff refund can mask a business that is still growing underneath.<\/p>\n Sales for the second quarter were $1.27 billion, the 15th straight quarter of growth, the company said<\/a>. The Abercrombie brand saw sales up 8%, while comparable sales for the brand increased 4%.<\/p>\n Hollister was softer, with sales up 2% but comparable sales down 3%.<\/p>\n This split tells us something useful about shoppers.<\/p>\n It’s not that Americans suddenly feel flush and Abercrombie is winning because of that. Apparel inflation was running still at 3.9% year on year in July, and broader retail spending has been patchy. <\/p>\n But shoppers are still opting to spend at Abercrombie when clothing is one of the simpler household items to delay.<\/p>\n The company is also growing at a quicker clip outside its primary U.S. market than many investors might think. Asia Pacific sales climbed 19 percent, the Americas surged 5%, and EMEA increased 2%.<\/p>\n And here’s the bit investors should not miss: Even with the $100 million tariff return adding around $1.75 per share to earnings, as Investopedia<\/a> reported, Abercrombie still outperformed estimates after stripping much of that advantage away. <\/p>\n Wall Street had expected about $1.98 to $1.99 per share; the reported EPS was $4.17.<\/p>\n Main Street’s takeaway is that American homes don’t suddenly have money to waste. Personal consumer spending rose just 0.2% in July, according to the Bureau of Economic Analysis<\/a>, and spending on products actually dropped.<\/p>\n Consumers are nervous, but they are not only closing their wallets. They’re being choosy about which brands get their money.<\/p>\n Abercrombie has been able to remain on that list. Still, ANF investors’ job is to find a permanent consumer victory, not a temporary profitability bump.<\/p>\n Abercrombie needs teenagers, 20-somethings, and older shoppers to keep showing up. That’s the number that matters after the tariff refund check clears.<\/p>\nAbercrombie is succeeding against a difficult consumer backdrop<\/h2>\n
Tariff refund makes Abercrombie’s earnings headline tricky<\/h2>\n
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Numbers investors should separate<\/h3>\n
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Abercrombie’s comeback is stronger than the headline suggests<\/h2>\n
What Abercrombie is telling us about shoppers<\/h2>\n