Jefferies maintained a buy rating on Abercrombie & Fitch after meeting the retailer's chief financial officer, citing pricing power, brand momentum and disciplined discounting. The operating trends are constructive, but second-quarter tariff refunds made reported margin expansion look much stronger than the underlying improvement.
Both brands showed progress
According to Proactive Investors, Abercrombie brand sales rose 8% year over year in the second quarter, accelerating from 3% in the first quarter. Hollister sales increased 2% after being flat in the prior quarter, with inventory availability improving around the back-to-school period.
Average unit retail, the average selling value per item, increased by a mid-single-digit percentage. Higher pricing combined with fewer promotions can lift revenue and gross margin without relying entirely on unit growth. That is a healthier signal than sales driven by aggressive discounting.
The company separately said its second quarter marked a 15th consecutive quarter of net sales growth. It raised its full-year sales outlook and increased bottom-line expectations, confirming that management also saw a stronger operating trajectory.
Tariff refunds require an adjustment
The source reported gross-margin expansion of about 850 basis points, or 8.5 percentage points. Approximately 790 basis points came from tariff refunds. Removing that effect leaves about 60 basis points of underlying expansion despite roughly 100 basis points of tariff expense pressure.
This distinction is essential. A refund can increase current-period profit, but it is not the same as recurring pricing power or structural sourcing savings. Management expected another $20 million of tariff refunds in the third quarter, so comparisons may remain noisy.
Growth initiatives add opportunity and execution risk
Abercrombie is expanding footwear and accessories, extending its NFL assortment through Fanatics and working with Target on a Hollister collaboration. These initiatives can broaden reach and increase purchase frequency. They can also require inventory commitments and marketing expense before demand is proven.
Jefferies valued the shares at about 11 times forecast fiscal 2027 earnings and saw room for estimates to rise if pricing and promotional discipline persist. That multiple and the buy rating are analyst estimates, not company guidance.
BTI's conclusion is that Abercrombie's brand momentum and full-price selling support a positive operating view. The next test is whether underlying gross margin, units and repeat demand remain strong after tariff refunds fade.