ANF's second-quarter earnings beat expectations, with sales mix and margin resilience driving the price target up to $160

Overview

The report reviews ANF's 2Q26 results and reassesses the A&F and Hollister brands, non-comparable sales contributions, tariff impacts, and the margin trajectory. Goldman Sachs believes that despite overall flat comparable sales and weakness at Hollister, the company continued to demonstrate a strong sales mix and margin resilience, prompting it to raise its FY26-FY28 earnings forecasts and price target.

Core views

The key highlight of 2Q26 was profitability that significantly exceeded expectations. ANF's adjusted diluted EPS was $2.42, excluding a $1.75 benefit from tariff refunds, above Goldman Sachs' estimate of $1.99 and the consensus estimate of $1.98; total sales were $1.27 billion, 1% and 2% above Goldman Sachs' and consensus estimates, respectively. Total comparable sales were flat, between Goldman Sachs' forecast of -0.5% and the consensus estimate of +0.5%. Adjusted gross margin reached 63.2%, expanding 60 basis points year over year and exceeding both Goldman Sachs' and consensus estimates by 140 basis points, primarily reflecting reduced discounting and better-than-expected margin leverage. Adjusted operating margin was 12.1%. Although it contracted 180 basis points year over year due to a difficult comparison created by lower compensation and incentive expenses in the prior year, it still exceeded both estimates by nearly 200 basis points; a lower tax rate contributed approximately another $0.03 to EPS. Brand performance diverged. A&F brand sales were $596.8 million, 2.5% and 3.3% above Goldman Sachs' and consensus estimates, respectively, while comparable sales grew 4%, outperforming Goldman Sachs' flat forecast and the consensus estimate of +1.4%. Hollister sales were $669.9 million, broadly in line with expectations, but its comparable sales performance was 100 and 40 basis points below Goldman Sachs' and consensus estimates, respectively, with stronger non-comparable contributions offsetting the shortfall. Goldman Sachs believes Hollister's weakness was at least partly attributable to management's deliberate inventory restraint, intended to preserve greater flexibility for chasing demand entering August. Management observed sequential acceleration quarter-to-date in the third quarter, suggesting that the strategy was beginning to work, and expects third-quarter growth to be driven by a more balanced contribution from average selling prices and unit volumes. Goldman Sachs believes the market's focus on the company is gradually shifting from comparable sales to total revenue. Following several quarters of groundwork, channel and category expansion, store openings, and brand collaborations are beginning to make meaningful contributions to sales and are expected to support sequential revenue improvement in 2H26. More importantly, even with flat comparable sales and a 120-basis-point tariff headwind, the company can maintain a low-double-digit operating margin. Based on this, the report concludes that ANF's margin resilience is partly structural rather than entirely dependent on high comparable-sales growth. For 3Q26, Goldman Sachs lowered its total comparable-sales forecast by 110 basis points to flat, raising its A&F forecast to +2% and lowering Hollister to -1.0%. It expects pressure in Europe, the Middle East, and Africa to persist but moderate, while the US market improves only modestly. At the same time, the total non-comparable sales growth forecast was raised by 210 basis points to 5.5%, comprising 6.0% for A&F and 5.0% for Hollister, reflecting contributions from new stores and brand collaborations. The total sales forecast was raised 1% to $1.37 billion. Gross margin is expected to expand 130 basis points year over year to 63.8%, above the previous forecast of 63.1%; tariffs are expected to provide a 40-basis-point tailwind, a mid-single-digit improvement in average selling prices should contribute 150 basis points, and freight costs should create a 60-basis-point headwind. After factoring in 50 and 40 basis points of deleverage in the selling-expense ratio and general and administrative expense ratio, respectively, operating margin is expected to expand 40 basis points year over year to 12.4%, although this is 40 basis points below the previous forecast; the diluted EPS forecast was raised to $2.80. The company's 3Q26 sales growth guidance is 5%-6%, above Goldman Sachs' previous 5.0% forecast and the consensus estimate of 4.0%. Operating margin guidance is 11.4%-12.4%, excluding a 160-basis-point benefit from tariff refunds, below Goldman Sachs' 12.8% and the consensus estimate of 13.1%; EPS guidance is $2.55-$2.85, excluding a $0.35 benefit from tariff refunds, encompassing Goldman Sachs' $2.78 and the consensus estimate of $2.83. The company also plans to repurchase at least $100 million of stock. Implied by the guidance, 4Q26 sales growth is approximately 7%, above the prior forecast, while EPS is approximately $4.56-$4.76, above Goldman Sachs' previous forecast of $4.27 and encompassing the consensus estimate of $4.54. For the full year, the company raised its FY26 guidance to 5% net sales growth, an operating margin of 12.3%-12.8%, and diluted EPS of $11.00-$11.50; operating margin guidance excludes a 220-basis-point benefit from tariff refunds, while EPS guidance excludes a $2.10 benefit from tariff refunds. Goldman Sachs maintained its forecast of 1% total comparable-sales growth but raised A&F to +2%, lowered Hollister to flat, and increased its non-comparable sales growth forecast to 4.4%. The FY26 sales forecast was raised 1% to $5.53 billion. Based on further strengthening of gross-margin leverage in 4Q, the gross-margin forecast was raised 80 basis points to 62.6%, while the adjusted EPS forecast was increased by $1.00 to $11.45. Goldman Sachs maintained its FY27 and FY28 comparable and non-comparable growth assumptions but carried the higher FY26 sales base into subsequent years, forecasting sales of $5.75 billion and $5.91 billion for FY27 and FY28, respectively. Gross-margin forecasts were raised by 80 and 70 basis points to 62.7% and 62.8%, respectively; operating-margin forecasts were raised by 60 and 70 basis points to 12.8% and 12.9%, respectively; and adjusted EPS forecasts were increased to $12.45 and $13.45, respectively. On valuation, Goldman Sachs maintained its Buy view and raised its 12-month price target from $124 to $160. The new price target is based on the increased Q5-Q8 EPS forecasts, with the target P/E multiple raised from 10.5x to 12.5x. The report believes that more resilient pricing power and underlying margin strength support a two-turn increase in the valuation multiple. Relative to the current price of $147.75 stated in the report, the $160 price target represents 8.3% upside.

Analysis framework

Goldman Sachs first compares 2Q26 sales, comparable performance, brand revenue, margins, and EPS item by item against its own and consensus estimates, and then separates the contributions from A&F, Hollister, and non-comparable channels. It subsequently incorporates management's observations regarding quarter-to-date third-quarter trends, inventory strategy, stores, and brand collaborations to update its 3Q and FY26-FY28 sales, margin, and EPS forecasts, before determining the 12-month price target using future Q5-Q8 EPS and a target P/E multiple.

Methodology notes

• Industry/Sector Analysis FrameworkPrice-Volume Decomposition

  Decomposition of average selling price and unit volume

  The report separates sales growth into contributions from average selling prices and unit volumes and expects 3Q26 to deliver a more balanced mix of price and unit growth; the gross-margin forecast also separately incorporates the effects of average selling price improvement, tariffs, and freight costs.

• Valuation MethodPE/PEG valuation

  Target P/E valuation based on Q5-Q8 EPS

  Goldman Sachs multiplies its increased Q5-Q8 EPS forecast by a 12.5x target P/E multiple to derive a 12-month price target of $160; the previous target P/E multiple was 10.5x.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Abercrombie & Fitch Co. (ANF)

  The report believes a recovery in the A&F brand, non-comparable growth, and margin resilience support improved sales and earnings forecasts for the company.

  Strengths

  Reduced discounting, better-than-expected A&F comparable sales, and contributions from channel and category expansion supported revenue, while the company maintained a low-double-digit operating margin despite flat comparable sales and tariff headwinds.

  Weaknesses

  Hollister's comparable sales were weak, Europe, the Middle East, and Africa remain under pressure, and the selling-expense and general and administrative expense ratios are expected to deleverage in 3Q.

  Comparison

  2Q26 sales, gross margin, operating margin, and EPS were generally above Goldman Sachs' or consensus estimates; A&F outperformed expectations, while Hollister's sales were broadly in line but comparable sales fell short of expectations.

  Risks

  Brand differentiation remains unclear, the store footprint is entering a scale range that has not been sufficiently validated, and comparable-sales momentum may weaken sequentially.

Key data

• 2Q26 adjusted diluted EPS$2.42Excludes a $1.75 benefit from tariff refunds; above Goldman Sachs' estimate of $1.99 and the consensus estimate of $1.98.
• 2Q26 total sales$1.27bil1% and 2% above Goldman Sachs' and consensus estimates, respectively.
• 2Q26 total comparable sales0%Goldman Sachs expected -0.5%, while consensus expected +0.5%.
• 2Q26 adjusted gross margin63.2%Expanded 60 basis points year over year and exceeded both Goldman Sachs' and consensus estimates by 140 basis points.
• 2Q26 adjusted operating margin12.1%Contracted 180 basis points year over year but exceeded Goldman Sachs' and consensus estimates by nearly 200 basis points.
• A&F brand 2Q26 sales and comparable growth$596.8mil; +4%Sales were 2.5% and 3.3% above Goldman Sachs' and consensus estimates, respectively.
• Hollister brand 2Q26 sales$669.9milSales were broadly in line with expectations, as stronger non-comparable contributions offset weaker-than-expected comparable sales.
• Company's 3Q26 sales growth guidance5%-6%Above Goldman Sachs' previous 5.0% forecast and the consensus estimate of 4.0%.
• Company's 3Q26 EPS guidance$2.55-$2.85Excludes a $0.35 benefit from tariff refunds; Goldman Sachs expected $2.78, while consensus expected $2.83.
• Goldman Sachs' 3Q26 sales forecast$1.37bilRaised 1% from the previous forecast.
• Goldman Sachs' 3Q26 gross-margin and operating-margin forecasts63.8%; 12.4%Expected to expand 130 and 40 basis points year over year, respectively.
• Company's FY26 net sales growth guidance5%The company's raised full-year guidance.
• Company's FY26 operating-margin guidance12.3%-12.8%Excludes a 220-basis-point benefit from tariff refunds.
• Company's FY26 diluted EPS guidance$11.00-$11.50Excludes a $2.10 benefit from tariff refunds; Goldman Sachs' and consensus estimates were previously $10.45 and $10.71, respectively.
• Goldman Sachs' FY26 sales and adjusted EPS forecasts$5.53bil; $11.45The sales forecast was raised 1%, while the adjusted EPS forecast was raised by $1.00.
• Goldman Sachs' FY27/FY28 sales forecasts$5.75bil/$5.91bilCarries forward the higher FY26 sales base.
• Goldman Sachs' FY27/FY28 adjusted EPS forecasts$12.45/$13.45Reflects a higher sales and margin base.
• 12-month price target$160Previously $124; based on a 12.5x target P/E multiple, with 8.3% upside stated in the report.

Impact & implications

The report believes ANF is demonstrating that its revenue growth does not depend solely on comparable sales: new stores, channel and category expansion, and brand collaborations can support revenue when comparable sales are subdued, while reduced discounting and pricing power can sustain a low-double-digit operating margin. Accordingly, Goldman Sachs raised its medium-term sales, margin, and EPS forecasts and increased its price target using a higher target P/E multiple.

Risks

• Brand differentiation remains insufficiently clear.
• The store footprint is approaching a scale range that has not been sufficiently validated, although the company has more sophisticated operating tools.
• Comparable-sales momentum may weaken sequentially.