Episode Details

Abercrombie and Fitch (ANF) Q2 FY2026 — Q2 FY2026 (13 weeks ended August 1, 2026): net sales $1,266.7m, UP 4.81%, a second-quarter record, against a $1,247.9m bar. Diluted EPS $4.17 against a $1.99 bar and $2.32 adjusted a year ago. CONSOLIDATED COMPARABLE SALES: +0%. Shares closed +35.67% at $147.75 on 12.27x median volume. The two brands traded places. Abercrombie brands comped +4% against -11% a year ago; Hollister comped -3% against +19%. A 15-point swing one way, a 22-point swing the other, and the consolidated comparable sales line came out at exactly 0% - so all 4.81% of the net sales growth is square footage and channel. Strip the company's own $1.75 a share of IEEPA tariff refund and net income FELL 5.43%, while EPS still rose 4.31% on a 9.27% smaller share count. THE CALL: HOLD (3/5, A GOOD BUSINESS AT A PRICE THAT ASKS FOR MORE) — base-case value ~$142.18 vs ~$147.75 today. KEY METRICS: - THE HANDOFF: Abercrombie brands comped +4% (from -11%) and Hollister -3% (from +19%) - a +15 and a -22 point swing that cancel, leaving CONSOLIDATED COMPARABLE SALES at exactly +0%. Hollister is the LARGER brand at 52.88% of net sales. - SO THE GROWTH IS SPACE: net sales +4.81% to $1,266.7m with a zero comp, so all 4.81 points are new square footage, channel and currency. Guidance is ~30 net openings (50 openings, 20 closures) plus 80 remodels on roughly 850 stores. - STRIP THE REFUND: ~$100m of IEEPA tariff refunds landed inside cost of sales, worth $1.75 a share after tax on the company's own arithmetic - 41.96% of net income. Ex-refund net income was $106.6m against $112.8m adjusted, DOWN 5.43%. - BUT EPS STILL ROSE 4.31% ($2.42 vs $2.32) because diluted shares fell 9.27% to 44.05m. The 9.74-point wedge between falling profit and rising per-share earnings is entirely the buyback: 3.2m shares retired this year at an average of $88.13. - THE UNDERLYING MARGIN CONTRACTED: on the company's own quarterly tariff table the year-on-year swing was 690bp, so operating margin ex-tariffs was 13.05% against 13.91% adjusted last year - DOWN 86bp. Selling expense rose 18.3% and G&A 16.8% on sales up 4.81%: a 566bp rise in the cost ratio. - THE RAISE, DECOMPOSED: the full-year EPS midpoint went $10.60 to $13.35, a $2.75 raise - of which the company's own full-year refund estimate, inclusive of interest, is $2.10. That is 76.36%. The underlying raise is $10.60 to $11.25, or +6.13%, against a +35.67% day: a 5.82x ratio. - THE PRICE: at $147.75 that is 13.13x the recurring $11.25 against 10.27x paid for the old forecast the day before - a 27.8% re-rating. Net cash is $638.0m with nothing drawn, inventories DOWN 0.2% on sales up 4.81%, and $500m of buyback is ~7.87% of market value. What to watch: UP: Hollister comps turning positive while Abercrombie holds, and the selling and administrative cost ratio - up 566bp this quarter - stopping its climb. DOWN: a second negative Hollister quarter takes the consolidated comp negative, and fiscal 2027 is the first year with no refund in it. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.