NEW YORK (Reuters) – Shares of Abercrombie & Fitch (ANF) took a sharp hit on Wednesday following the company’s disappointing 2025 guidance, reflecting concerns over rising freight costs and the impact of tariffs on consumer spending.
The retailer now expects net sales growth of 3% to 5% in 2025, significantly below Wall Street’s 6.77% projection and a sharp slowdown from the 14% increase recorded in 2024. Investors reacted swiftly, sending the stock down 9.24% to $87.23 at market close.
Tariffs and Rising Costs Weigh on Outlook
Abercrombie’s CFO, Robert Ball, acknowledged that higher freight costs and shifting inventory dynamics will weigh on performance in the first half of the year. He also noted that the company’s forecast incorporates current tariffs on China, Canada, and Mexico, but does not factor in potential additional tariffs that could further impact costs.
Despite inflationary pressures, Ball emphasized the company’s efforts to avoid significant price increases, though minor adjustments may be necessary. “We are mindful of customers’ value perception,” he said, hinting that slight price hikes could be on the horizon.
Retail Industry Faces Tougher Conditions
Abercrombie sources most of its merchandise from Southeast Asia, relying on approximately 130 vendors across 17 countries. With tariff-related costs rising, analysts warn that passing these expenses onto consumers may not be feasible.
William Blair analyst Dylan Carden noted that apparel prices have already risen by 8.5% over the past three years, and further increases could push consumers toward more affordable options.
“The issue is that apparel has little pricing power—absorbing additional costs without dampening demand will be extremely difficult,” Carden warned.
After strong growth in 2024, the Abercrombie brand is now stabilizing, while its Hollister division is accelerating, according to Telsey Advisory Group’s Dana Telsey. However, broader market trends, such as declining denim sales due to return-to-office mandates, add another layer of complexity.
Retail Stocks Face Volatility
Abercrombie’s stock has declined 43% year to date, despite a 670% gain over the past five years. Investors are now eyeing other retailers, including Macy’s (M), which is set to report earnings on Thursday.
Macy’s, which recently announced plans to close 66 unprofitable stores, is expected to post a 1% increase in same-store sales. Analysts suggest that CEO Tony Spring will focus on store operations and supply chain strategy rather than tariff concerns.
However, tariffs could still impact national brands sold at Macy’s, such as Nike (NKE), Steve Madden (SHOO), and Adidas (ADDYY). Citi analyst Paul Lejuez noted that Macy’s private label makes up only 15% of sales, meaning the retailer could struggle to offset higher costs.
Investors Brace for Weak Guidance Across Retail Sector
With Abercrombie’s warning fresh in investors’ minds, analysts expect weaker-than-expected first-quarter guidance from other major retailers, including Victoria’s Secret (VSCO), Burlington (BURL), Gap (GAP), and American Eagle (AEO).
Retail giants Walmart (WMT), Target (TGT), and Best Buy (BBY) have already seen their stocks slump following lackluster forward guidance.
Telsey cautioned that consumer spending uncertainty and economic volatility could lead to a rough first quarter for many retailers.
“Innovation and fresh product offerings remain key to driving consumer demand, but retail is ultimately a back-end-weighted industry that depends heavily on the holiday season,” she concluded.
With tariffs and macroeconomic challenges looming, investors should prepare for continued volatility across the retail sector.
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