Abercrombie & Fitch Co (NYSE: ANF) Q4 2025 Earnings Call dated Mar. 04, 2026
Corporate Participants:
Operator
Mohit Gupta — Vice President of Investor Relations
Fran Horowitz — Chief Executive Officer
Robert Ball — Executive Vice President, Chief Financial Officer
Scott Lipesky — Executive Vice President and Chief Operating Officer
Analysts:
Dana Telsey — Analyst
Corey Tarlowe — Analyst
Matthew Boss — Analyst
Paul Lejuez — Analyst
Marni Shapiro — Analyst
Mauricio Serna — Analyst
Jonathan Keypour — Analyst
Rick Patel — Analyst
Janine Stichter — Analyst
Presentation:
Operator
Good day, and welcome to the Abercrombie & Fitch Fourth Quarter Fiscal Year 2025 Earnings Call. [Operator Instructions]
I would like now to turn the conference over to Mo Gupta, Vice President of Investor Relations. Please go ahead.
Mohit Gupta — Vice President of Investor Relations
Thank you. Good morning, and welcome to our fourth quarter 2025 earnings call.
Joining me today on the call are Fran Horowitz, Chief Executive Officer; Scott Lipesky, Chief Operating Officer; and Robert Ball, Chief Financial Officer.
Earlier this morning, we issued our fourth quarter earnings release, which is available on our website at corporate.abercrombie.com under the Investors section. Also available on our website is an investor presentation. Please keep in mind that we will make certain forward-looking statements on the call. These statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mentioned today.
These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission. In addition, we’ll be referring to certain non-GAAP financial measures during the call. Additional details and reconciliation of GAAP to adjusted non-GAAP financial measures are included in the release and the investor presentation issued earlier this morning.
With that, I will turn the call over to Fran.
Fran Horowitz — Chief Executive Officer
Thanks, Mo. Good morning, and thanks for joining us today. Before we begin, I do want to acknowledge the situation in the Middle East with associates and stores in the region, our focus continues to be on their safety and well-being.
Returning to our results. I’m happy to report the fourth quarter finished on the higher end of the ranges provided in our early January update. Once again, we accomplished exactly what we set out to do. Holiday product acceptance drove record fourth quarter net sales with balanced growth across regions, brands and channels along with growth in earnings per share. As a company, our goal is to set clear commitments and then deliver on them, leveraging our strong foundation and operating model. We achieved another year of consistent results for 2025 with record sales, growth across regions and channels and leading double-digit operating margins.
Substantial operating cash flows also enabled strong returns of cash to shareholders via share repurchases. Looking forward to 2026, we expect to continue on the path of global growth and add to our track record of consistent, strong profitability. For the fourth quarter, we delivered net sales growth of 5%, which was balanced across regions, brands and channels. It was particularly great to see both brands deliver record fourth quarter net sales. At Abercrombie brands, we achieved our goal of returning the brand to growth with 4% net sales growth on top of a record last year.
Hollister brand continues to deliver for the teen customer, producing an 11th consecutive quarter of net sales growth at up 6%. With balanced top line growth and continued financial discipline, we delivered an operating margin of 14.1%, including 360 basis points of tariff pressure. I have to recognize the team’s incredible efforts here to meaningfully reduce the impact of these costs. On the bottom line, earnings per share of $3.68 improved 3% on last year’s record quarterly results, demonstrating our ability to create value through a balanced combination of global growth, operational excellence and disciplined capital allocation.
Recapping the year, fiscal 2025 net sales were a record $5.3 billion, surpassing $5 billion for the first time in Company history. We grew over 6%, exceeding our beginning of the year growth projections provided last March. For the third consecutive year, our customers responded to the team’s compelling product and engaging marketing, delivering net sales growth across regions, led by the Americas, up 7%. Sales also grew across channels for the third year in a row. We continue to see great traffic on digital and in-store. And importantly, we continue to see our highest value customers shopping across channels. We delivered an operating margin of 13.3% or 12.5% adjusting for a onetime litigation benefit, a double-digit result for the third straight year despite 170 basis points of tariff pressure. On the bottom line, we delivered full year earnings per share of $10.46, our second consecutive year of EPS over $10, by far, the strongest back-to-back performance in our 30-year history as a public company.
We also remain committed to shareholder return. The $619 million of operating cash flow after investing back into the business, we returned $450 million to shareholders via share repurchases totaling 11% of shares outstanding at the beginning of 2025. The team worked hard all year. Things fully committed to our customer and our playbooks and I’m proud of the consistency of these results as a clear demonstration of our leading operating model and culture of financial discipline. From a regional perspective, 2025 was another year of progress. In the Americas, we grew net sales 7% on strong cross-channel traffic driven by compelling marketing across brands and continued store expansion. In EMEA, net sales growth of 6% was driven by double-digit growth in the U.K. along with good growth in the Middle East. APAC grew 5% this year, led by solid performance across our digital platforms.
Moving on to brand performance. I’ll start with Hollister brands, where we set records across the business. I am so proud of what the team has achieved with the global team consumer. With two consecutive years of 15% growth, driven by increases in unit selling and AUR and product, we delivered growth across genders and key categories, showing improved balance on both.
We saw a great response from a variety of exciting marketing campaigns supporting key product drops like our collegiate collection, the grand shop, and engage in collaboration with Taco Bell. We added millions of new customers in 2025. And importantly, we also saw improved retention. Simply put, Hollister’s growth and scale stand out in the team space and we are excited about what is ahead. At Abercrombie brands, after a challenging start to 2025, up against a near perfect 2024, the team rallied and committed to getting back — getting the brand back to growth for by end of the year, we did just that, achieving a return to net sales growth for the fourth quarter. As we have shared throughout the year, we believe Abercrombie remains a leader for our target customer. We continue to see strong traffic along with growth in customer counts and good retention trends.
Reflecting our confidence we invested across stores, digital and marketing to bring the brand to life in new ways throughout 2025. Most recently, the brand hosted several amazing activations leading up to the Super Bowl. As an official fashion partner of the NFL, the first-of-its-kind, we have players and their families, several celebrities and league figures as well as our target customers in a series of events. I was there, and it was incredible to see Abercrombie at the intersection of fashion, sports and culture, a great finish to our 2025 season and the perfect kickoff to 2026.
Our ongoing investments across channels continue to pay off in 2025. We saw growth in the stores and digital direct channels for a third consecutive year and both remained nicely profitable. In digital, we continue to see strong performance, finishing the year with that channel delivering 44% of total sales. We also surpassed 1 billion visits across our platform for the first time, demonstrating the scale and direct reach we have with our customers. Stores matter to them, too, and we were net openers for a fourth consecutive year leveraging our digital demand to help us determine where we can better serve Hollister and Abercrombie customers with a physical location. At the center of all these excellent brand, channel and regional cost accomplishments, was our Read and React inventory model.
For the third consecutive year, we chased millions of units to support product demand at healthy AURs, helping to drive top line growth. Inventories remain tightly controlled, and we finished the year with units up in the mid-single digits. I can’t overemphasize how hard our team works at this, coordinating product across functions, geographies, channels and partners, all while tariffs were changing the global supply chain landscape week-to-week.
So looking forward, we are very excited for 2026. We entered the year with a strong foundation, which includes two globally relevant brands, a proven operating model and a strong balance sheet, all managed by a world-class team. For the year, our goals for the Company are as follows. First, to grow sales across brands with continued investments in owned and operated stores and digital businesses while adding growth from partnerships and new product categories like our recent launch of Baby & Toddler and Abercrombie Kids. Second, to stabilize gross margins as we progress through the year by mitigating as much of the tariff impact as possible. Third, to continue to invest in tools and technologies to improve our speed and efficiency across the product and customer journeys.
A good example of this is the go-live of our new merchandising ERP system this month. We’re also moving quickly to leverage AI to benefit the customer and we’re modernizing systems to help us. And finally, to maintain our strong profitability by delivering another year of double-digit operating margins and expansion in earnings per share. We also expect to continue our track record of returning excess cash to shareholders through share repurchases. After closing another record year in 2025, we are off and running on these growth objectives for 2026. We have the team, the experience and the track record of delivering for our customers and our shareholders. Many thanks to the entire organization that makes it happen every single day. The work continues and always forward.
And with that, I’ll hand it over to Robert.
Robert Ball — Executive Vice President, Chief Financial Officer
Thanks, Fran, and good morning, everyone. I’d like to add my thanks to our associates around the world for staying agile and executing consistently throughout 2025. We’re really proud of what we’ve achieved and we have so much further to go.
Starting with Q4 results. We delivered net sales of $1.67 billion, up 5% to last year on a reported basis. Comparable sales for the quarter were up 1%, with approximately 100 basis points of benefit from foreign currency. By region, fourth quarter net sales increased 5% in the Americas, 8% in EMEA and 9% in APAC. On a comparable sales basis, Americas was up 2%, EMEA was down 3% and APAC was approximately flat. Within the brands, both Abercrombie and Hollister delivered record fourth quarter net sales. Abercrombie brands returned to net sales growth, up 4% over last year on a comparable sales decline of 1%. Hollister brands net sales grew 6% on comparable sales growth of 3%.
Across the business, we saw mid-single-digit AUR growth and low single-digit unit growth on increased traffic. Across regions and brands, the spread from net sales to comparable sales was driven by net new store openings, third-party channel performance and favorable foreign currency. Operating margin was 14.1% of sales coming in at the high end of the outlook we provided in early January, delivering operating income of $236 million compared to $256 million last year. Adjusted EBITDA margin for the quarter was 16.6% of sales on adjusted EBITDA of $276 million compared to $293 million last year. The 210 basis point year-over-year decline in operating margin was driven primarily by 360 basis points of tariff expense which was partially offset in gross margin by 140 basis points of freight cost favorability, both included in cost of sales.
Total operating expenses were in line with last year as a percentage of sales with investments in stores, offset by leverage in general and administrative expenses. Marketing was in line with last year as a percentage of sales. The tax rate for the fourth quarter was 28%. Net income per diluted share was above our outlook at $3.68 compared to $3.57 last year. We ended the quarter with inventory at cost up 5% with approximately three points related to tariffs. Inventory units were also up 5%, including approximately three points related to strategically building receipts ahead of our planned ERP implementation this month.
I’ll cover the rest of our results on an adjusted non-GAAP basis. For the year, we delivered net sales growth of 6%, reaching a record $5.27 billion. Growth was balanced across regions and channels, supported by mid-single-digit unit growth and low single-digit AUR growth on increased traffic. On a regional basis, net sales were up 7% in the Americas, 6% in EMEA and 5% in APAC. Across the business, we saw 70 basis points of favorable impact from foreign currency. Comparable sales for the year were up 3%, led by the Americas at 4% with EMEA approximately flat and a 3% decline in APAC. For EMEA and APAC, the favorable spread between net sales and comparable sales was driven by net store openings and third-party channel performance.
EMEA also benefited from favorable foreign currency. By brand, Hollister brands delivered net sales growth of 15% and comparable sales growth of 13%. At Abercrombie brands, net sales declined 1% on comparable sales decline of 7%, with the six-point favorable spread between net sales and comparable sales driven primarily by store openings and third-party channel volume. Operating income for the year was $661 million, an $80 million decline from 2024’s record result, driven by approximately $90 million in tariff expense included in cost of sales. Operating margin was 12.5% of sales, a 250 basis point decline from 2024, also driven by tariff expense, totaling around 170 basis points of sales with additional cost of sales increase driven by product mix.
Operating expense as a percentage of sales leveraged slightly with investments in marketing and store occupancy more than offset by leverage on general and administrative expenses. Adjusted EBITDA margin for 2025 was 15.5% of sales on adjusted EBITDA of $816 million compared to $895 million last year. The effective tax rate for the year was 29%. Net income per diluted share was $9.86 compared to $10.69 in 2024.
Moving to the balance sheet. We exited the year with cash and cash equivalents of $760 million and liquidity of approximately $1.2 billion. We also ended the year with current investments of $25 million. For the year, we drove operating cash flow of $619 million and free cash flow of $378 million. For the year, we used $450 million of cash to repurchase a total of 5.4 million shares of stock or 11% of shares outstanding at the beginning of the year. From a direct channel perspective, both stores and digital grew nicely for the third straight year. For the year, 44% of total sales were digital with Hollister around 31% and Abercrombie around 59%. On the store fleet, we delivered 120 new store experiences, including 62 new stores, 11 rightsizes and 47 remodels.
We also closed 22 stores, finishing as a net store opener for the fourth consecutive year. We ended the year with 829 stores, 523 Hollister and 306 A&F across 5.3 million gross square feet, growing square footage by 4% to last year. Both the stores and the digital business remain highly profitable with four-wall store operating margins around 30% in aggregate.
Shifting to our 2026 outlook. For the full year, we expect net sales growth in the range of 3% to 5% from $5.27 billion in 2025, with full year net sales growth expected across brands. We are investing for continued growth in the Americas and EMEA from both owned and operated stores and digital channels as well as from wholesale and licensing partnerships. In APAC, while our business has delivered sales growth in recent years, we do not believe returns have fully reflected the level of investment. Consistent with our commitment to financial discipline, we are undertaking a review of potential strategic alternatives for the region, including the evaluation of options such as partnerships, franchising and licensing with the goal of enhanced profitability, optimized capital deployment and a maintained focus on shareholder value creation.
We currently anticipate 40 basis points of favorable impact to net sales from foreign currency. We have assumed modest AUR improvement for the full year as we’ve taken some revised ticket pricing across brands, largely focused on fashion elements of the assortment. We expect full year operating margin in the range of 12% to 12.5%. At the midpoint, the year-over-year change reflects approximately 70 basis points of incremental tariff expense or around $40 million incrementally from 2025 net of product mitigation. Our outlook assumes the 15% global tariffs announced by the administration are effective beginning February 24 and are assumed to remain in effect throughout the end of the fiscal year.
No tariff refunds or recoveries are assumed for fiscal 2026. We also expect the first half will be favorably impacted by lower year-over-year freight costs normalizing in the back half of the year. We’re forecasting a tax rate of around 29%. For earnings per share, we expect diluted weighted average shares of around 45 million, which incorporates the impact of 2025 share repurchases as well as anticipated 2026 share repurchases. Combined with the tax rate, we expect earnings per share in the range of $10.20 to $11. For capital allocation, we expect capital expenditures in the range of $200 million to $225 million. On stores, we expect to deliver around 125 new experiences, including 55 new stores and 70 rightsizes or remodels. We also expect to be net store openers with our 55 new stores outpacing around 25 anticipated closures.
We do expect net store openings to be relatively balanced across brands but tilted to the Americas. The Company has a strong balance sheet and cash flows, and we continue to expect share repurchases will be the primary use of free cash flow. For 2026, we are targeting share repurchases of around $450 million.
Turning to the first quarter of 2026. We will go live with a new merchandising ERP this month which will temporarily impact operations for approximately two weeks. During this time, we will limit inventory receipts and movement across the business, creating a temporary headwind of approximately one percentage point to two percentage points of growth for the quarter. We also have some incremental implementation costs in the quarter. So in aggregate, we expect the ERP project will have over 100 basis points of unfavorable operating margin impact, which is factored into our Q1 outlook. Including those impacts, we expect net sales growth in the range of 1% to 3% from the Q1 2025 level of $1.1 billion with net sales growth expected across brands. We also expect slight AUR expansion for the quarter.
On the evolving Middle East conflict, we currently anticipate a slight sales headwind, and we’ll continue to actively monitor the situation alongside our end-market franchise and joint venture partner with safety as our highest priority. We expect operating margin to be around 7%. In addition to over 100 basis points of impact from the ERP implementation, we expect tariffs will drive approximately 290 basis points of decline or $30 million net of product mitigation. This will be partially offset by an expected freight tailwind of approximately 160 basis points for the quarter. Marketing investments will also be up around 50 basis points as a percentage of sales, with the remainder of expense in line to Q1 last year in total.
We expect the Q1 tax rate around 26%. We expect earnings per share in the range of $1.20 to $1.30 with diluted weighted average shares expected to be around 46 million, including the anticipated impact of at least $100 million in share repurchases for the quarter.
In closing, 2026 is underway, and we’re exciting — we’re executing from a position of strength, supported by a proven model, strong cash flows and disciplined capital allocation. Our outlook is informed by a multiyear track record of delivering on our commitments and reflects our confidence in executing in 2026 and continuing to build towards the long-term opportunities ahead.
And with that, operator, we are ready for questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] The first question comes from Dana Telsey from Telsey Advisory Group. Your line is open.
Dana Telsey
Hi. Good morning everyone. And certainly nice to see the progress. Fran, after the building blocks that you put in place for ’24 for ’25, the collaborations that you did with the businesses and frankly, returning to growth in the Abercrombie brand and certainly saw what you saw with the Super Bowl in being the fashion partner, how do you think of the merchandising drivers of 2026 and what you’re most excited about to drive growth? And then, Rob, as you think about the building blocks for margins in 2026, how do you think of AUR growth relative to price increases from tariffs and the impact of tariffs on margins going forward? Thank you.
Fran Horowitz
Hey, Dana, good morning. So excited about what we just delivered for both the fourth quarter as well as the year, most excited that, that was delivered with balance across regions, brands and channels. And what’s driving our confidence as we head into 2026 is that it’s the first time the Company has ever done more than $5 billion in revenue. It’s proof that our model is working. We delivered all of that, to your point, the last three years, actually double-digit margins, operating margins. So our playbook is working. Our model of chasing, we didn’t start the year with an expectation of Hollister to drive 15%. But with that model, we were able to chase millions of units to hit another 15% for Hollister. So I’m excited about the opportunities ahead, and I’m really looking forward to 2026.
Robert Ball
Yeah, Dana. So — excuse me, so on the tariff impact here, so our outlook does reflect that 15% being kind of held all the way throughout the balance of the year, obviously, Section 122 here, in the front half of the year, and then we’re making the assumption of something pretty substantially similar to that carries us through the back half of the year. How that kind of cadences out. So Q1, we talked about this 290 basis point of impact on operating margins, that will be fully incremental year-over-year.
We’ll start to lap small amounts of tariffs in Q2, really towards the back end of Q2. We talked about about $5 million of tariff impact in Q2 of 2025. So we’ll start to lap a little bit of that, but again, largely incremental in Q2 before kind of neutralizing in Q3 and then flipping to a bit of a tailwind for us for Q4. So that’s kind of the cadence throughout the year. Total impact, incremental impact of about $40 million here for tariffs on a year-over-year basis. So that’s roughly 70 basis points. Feel good about the mitigation strategies that we put in place here as it relates to country of origin changes, supplier negotiations, product costing and then to your last point around pricing.
We did take that pricing on spring products, starting kind of late Q4. That will ramp as we move through Q1. So really only expecting some slight AUR improvement here in Q1 and then kind of that will build throughout the balance of the year. So give us some modest AUR growth on the full year. So we feel good about the mitigation strategies we put in place. We’re tracking to another year of double-digit profitability. So excited to take that into 2026.
Dana Telsey
Thank you.
Operator
Thank you. And the next question is going to come from Corey Tarlowe with Jefferies. Your line is open.
Corey Tarlowe
Great, thanks. And good morning everybody. I wanted to ask first on Hollister. How you think about the sort of the right growth algorithm, if you will, for that segment, areas of success from Q4 and then areas of opportunity in 2026? And then I have a follow-up.
Fran Horowitz
Hey, Corey, good morning. Super excited, big shout out to the Hollister team. I mean, congrats to them on the best year ever, the 11th consecutive quarter of growth. And what’s driving that is really being dialed into that teen consumer for holiday specifically. We saw winners in categories like fleece and graphics and outerwear. We’ve invested nicely into that business. We opened lots of new stores this year. We’ve furbished a bunch of stores, spent money on marketing. Our Taco Bell collaboration on Cyber Monday was a terrific success. So I’m excited about the team staying dialed into that customer, staying close to that customer. Spring, we’re already seeing some nice response from the consumer. So we’re excited to see another year of growth.
Corey Tarlowe
That’s great. And then just more for Scott and Robert. There have been periods throughout, I guess, the last five-plus years where Abercrombie has invested in ERP systems, and you haven’t called out impacts. What’s different about this implementation specifically? What does it allow you to do going forward? And then how should we be thinking about, again, that impact? Is it acute? Or will it be — will there be any longer-lasting impacts from it? Thanks so much.
Robert Ball
Yeah, great question, Corey. As you noted, this has been a multiyear undertaking for us and it’s great to have go-live in sight here. So the system that we’ve been — that we’re replacing was originally built and released about 15 years ago, and it was really architected for a very different business than what we’re running today. This new ERP system allows us to support both the owned and operated omni business that we have as well as the expectations of growth that we have across channels and categories in a more efficient way.
In terms of what you’re seeing here in Q1 and the reason we haven’t called out any sales impact in the past is really, it’s been building, right? This has been building the system, getting ready for this go-live. What you’re seeing here in Q1, we’ve been running parallel with this nonproduction instance for quite a while now. We’ve completed all the testing, final development, and now we’re ready to go live. And that’s what’s coming up here in the next days and weeks. We feel like we’ve done the right work to ensure that we’ve got the units in the stores to support the sales during this transition, but the risk that we’re calling out here and the outlook is primarily related to some temporary interruptions in third-party and some product interruptions in chase over the next couple of weeks.
In the end, it’s all about making us faster as we think about new growth opportunities. So we’re really excited to get this new system in place, and we feel like any sort of disruptions kind of contains to this couple of week period here, middle of Q1, and we’ll be in good shape as we head into Q2.
Corey Tarlowe
Okay, great, thanks so much and best of luck.
Operator
Thank you. And our next question will come from Matthew Boss with JPMorgan. Your line is open.
Matthew Boss
Great, thanks. So Fran, on your target for sales growth at both brands this year, how are you managing the intersection between Abercrombie’s return to growth and the moderation at Hollister relative to last year? What do you see as normalized growth for the two concepts?
Fran Horowitz
Hey Matt, good morning. I mean, our goal is obviously to grow both brands each year. Mid-single digits would be a definition of success for us. We’re excited to see our model working. I mean to come out of a fourth quarter where we grew the business again on top of a record and actually having another record year on top of 2024 is certainly proof that our operating model is working. I’m excited that we’re already seeing confidence in the consumer about some of our — the increases in prices that Robert talked about a little while ago.
Those are ramping up in our assortment, but the acceptance of spring has been good so far. So excited. I think Q4, what it defines honestly, Matt, is a balanced performance, which is growth across brands, regions and channels. And that is definitely our objective in 2026.
Matthew Boss
Great. And then maybe a follow-up for Robert. Could you just break apart the drivers by brand that supports the embedded revenue improvement in the back half of the year?
Robert Ball
In the back half of the year in terms of sales, Matt, is that what you’re looking at?
Matthew Boss
Yeah, yeah, top line improvement, first quarter relative for the year.
Robert Ball
Yeah. So again, if you think about where we came out of Q4 around that plus 5% and again, to Fran’s point, really balanced across brands, regions, channels, that’s kind of what we’re carrying into 2026. The big difference in what you’re seeing in kind of that step down from Q4 into Q1 with that 1% to 3% guide is really just that ERP impact that we’re talking about. It’s a couple of points here.
But otherwise, it’s a pretty consistent build as we kind of think about the full year 2026, and that’s how we’re running this business. We’re setting these clear expectations. We’re going to control what we can control, and we’ve got the operating model that allows us to chase into revenue as we see those trends develop. So feel like we’re in a really good place, driving growth on growth and excited to continue that trend here into 2026 and Q1.
Scott Lipesky
Yeah, Matt, it’s Scott. Just want to add towards the end there. As we think about store growth, as Robert noted, we’re net store growers here for the fourth year in a row, we’ll do that again in 2026. And that store growth really ramps up towards the back half [Phonetic]. That’s nice fuel to the fire there as we get into the back half of the year.
Matthew Boss
Great color. Best of luck.
Robert Ball
Thank you.
Operator
Thank you. And the next question will come from Paul Lejuez with Citi. Your line is open.
Paul Lejuez
Hey, thanks, guys. Robert, just a clarification on the ERP system impact. Is that something that we are going to see throughout the entire quarter? Or is that still in front of us? And maybe if you can talk about what you’re running quarter-to-date versus what you expect the next two months to be? I just want to understand the cadence of that impact. That’s just the first question.
Robert Ball
Yeah, I’d say cadence is relatively consistent. Again, great end to fiscal ’25 with Q4 carrying that into Q1. The ERP timing is really kind of a two-week period. We’re kind of right in the — right at the start of it here with the go-live. So it’s really contained to that a couple of weeks. We’ve gotten the inventory to our stores to support the Easter peak and the spring break time line. So we feel good about providing and supporting our stores through there. It’s really just a function of this third-party impact here over the course of the next two weeks.
Paul Lejuez
So is the right way to think about it that you’re running up, let’s say, 3% to 5% outside of that two-week period and the two-week period is got to be down significantly to have a 100 basis point to 200 basis point impact on the whole quarter. Is that the right way to think about it?
Robert Ball
Yeah, I don’t know it’s down significantly. It’s really — it actually is more of a — because of the way the third-party flows through, it’s really more of a comp to noncomp compression that you’ll see here over the course of the next couple of weeks.
Paul Lejuez
Got it. And then can you just give us an update on your sourcing base, how you’ve made changes, where you sit as we look out to F ’26, just so we can monitor if there are any changes in tariffs by country that we might be able to keep tabs on that?
Robert Ball
Yeah. So obviously, we’ve talked a lot about our sourcing footprint over the course of the last year or so. Really proud of that diversified network that we have in place, and it’s taken us years to build. We currently source from over 16 different countries. That’s been obviously a core enabler for us and our Read and React model here. Our approach isn’t changing, Paul. We’re always evolving this network to make sure that we can service our brands, help with speed, optimize costs. To your point, the tariffs have clearly introduced some complexity to the supply chain, but our position here has been pretty consistent and changes here take time, and you obviously want to get them right and maintain quality levels.
So we’re focused on building the right partnerships for the longer term. I think as it relates to some of the more near-term news in the Middle East, we do have some sourcing operations there in the region, haven’t experienced any disruptions that would have any sort of meaningful impact to the receipt plans here that underpin our outlook. And so we’ll keep monitoring that, and we’ll keep agile with our sourcing base in total.
Paul Lejuez
Got it. And then last one, just on the APAC strategic review. What — just what prompted that? And when should we expect to hear something from you on the outcome of that review?
Fran Horowitz
I’ll jump in on this one. So we have just finished our third year of growth in that region, and we really do believe in the long-term opportunity there. I’ll tell you, it’s just a matter of assessing our go-to-market strategy within that region. We currently go to market several different ways there. And it’s our responsibility to make sure that we are doing that in the most profitable way for our shareholders. And so that’s what the announcement was about.
Paul Lejuez
Any timing on that, Fran?
Robert Ball
Early days, I would say. The process is just getting started. So we’ll provide updates as we do — can go forward here as appropriate.
Operator
Thank you. And the next question will come from Marni Shapiro with The Retail Tracker. Your line is open.
Marni Shapiro
Hey, guys, I’m curious if you can give us a little bit of an update on some of your licensing efforts, particularly in kids and what that looks like? And then also just also on international, you’ve had some wholesale efforts. I know, I think you’re on ASOS, for example. I’m curious if your go-to-market in maybe in EMEA and APAC would include more wholesale opportunities like that to sort of build your brand regionally alongside your own efforts?
Fran Horowitz
Hey, Marni, good morning. I’ll take that one off. So yes, to your point, we’ve launched a global licensing opportunity this year with our kids brand, and we’re very pleased with the results. In fact, we think it’s actually created a halo for many people who didn’t even know. Many consumers that didn’t know, we carry a kids brand. So we saw some nice growth in both our owned and operated as well as for our license partner. We recently launched Baby & Toddler, which is also very exciting, so we can now capture that customer from age zero and carry them all the way through their — for lifetime value. Regarding your second question, I would say we are entertaining all concepts, licensing, wholesaling, franchising. It’s what we’re doing as we keep talking about diversifying our operating model. So all of those are opportunities.
Robert Ball
Yeah, Marni, as you know, the Europe business is — Europe retail business is very different than here in the United States. So all of those different opportunities are available to us. We have done a few of them in the past, mainly the digital players that you called out. But there are opportunities in the future in each country to be in department stores, run wholesale businesses, potential concessions way down the line. So we’re looking at all of that as we think about how we go to market in Europe.
Fran Horowitz
Yeah, if you think about it, it’s actually a very exciting time for us. We’re getting lots of reach-outs, the health and strength of both of our brands. There’s a lot of interest out there. So more to come on that.
Marni Shapiro
Fantastic. And I can just ask you one follow-up on the tariffs. Once we get to sort of the back half of the year, we anniversary all the noise from ’25. And I guess we’re more in a steady state as you think forward into, say, ’27, even after ’28. Should you be able to rebuild a product margins? Or is this kind of the new normal for you guys and for the world?
Robert Ball
Yeah. I mean, I think we’ll see. We have a fantastic sourcing network. We’ve got a great sourcing team. We’ve been able to maintain these double-digit operating margins despite all of these different headwinds that we have, we face, whether that be supply chain disruptions, input cost inflation, inflation across all of operating expenses and now tariffs. So we’re working hard. We feel like as long as we put great product out there, connect with our customers, continue to give them a great experience, we’ve got an opportunity to grow AURs and continue to grow this business and provide a really healthy operating margin. So the goal would be, obviously, to try and offset as much of it as possible longer term, but that’s a process, and that’s what we’re kind of working towards here in 2026 with some of the modest AUR growth, and we’ll see how all that goes.
Marni Shapiro
Great. Thanks you, guys.
Operator
Thank you. And the next question will come from Mauricio Serna with UBS. Your line is open.
Mauricio Serna
Great. Good morning. Thanks for taking my questions. First, I just wanted to ask, I mean, what have you seen so far in terms of consumers’ reaction to your ticket increases? And I just wanted also to make sure I understood like just by quarter-to-date, it sounds that the growth has continued to be consistent versus what you were seeing in Q4. I just wanted to get that clarification. Thank you.
Fran Horowitz
Hey, good morning, Mauricio. So first on the ticket prices. So we mentioned during our last call that our strategy was to start to see some of these ticket increases for our spring product. So as a reminder, we delivered spring around December week 4, January week 1, and it was going to be very judicious and things in categories like fashion, for example, and we’re holding our commitment to our consumer. We did not raise prices in key categories like Denim and opening price point t-shirts. So we are ramping up. It’s a portion of our inventory today. The initial response has been good, and we’re going to continue with this strategy, and we’re going to continue to test and learn as we head through 2026.
Robert Ball
Yeah. On your quarter-to-date trends here, Mauricio, so obviously, very encouraged here coming off of a record fourth quarter with balanced performance across brands and regions, off to a good start here across both brands and regions for the first quarter, end of January and the start of February was a little bit choppy with the winter storms that we saw in the U.S., but as we’ve seen things pick up here once we’ve kind of gotten out of that disruption period. Most of the volume for the quarter is still ahead of us, and we’re expecting growth in Q1 across brands.
And again, the only other piece of disruption would be this ERP implementation that we’ve got going live here in the next couple of weeks. So that will provide a little bit of a onetime headwind for us. But by and large, happy with where we are and excited about how the quarter started.
Mauricio Serna
Got it. And just a couple of follow-ups on the Q1 guide. On the freight, you called out a tailwind for the quarter. Is that based on contracted rate? And does that remain a tailwind for the year? Or is that like Q1 peak? And then the other point on SG&A, excluding the marketing deleverage, should it be in line with last year in terms of like dollars or percentage of sales? Just trying to get that point of clarification.
Robert Ball
Yeah. So I’ll give you some of the building blocks here for Q1. So you called it out. So we’ve got this 290 basis points of tariff headwind that’s all incremental to last year. We do have offsetting tailwinds here. So we’ve got freight. That’s about 160 basis points of tailwind. That has to do with how we’ve shipped product and our contract rates are in place. So that’s a yes on that answer. We do have some slight AUR improvements as well that will help offset some of that tariff headwind.
And then we’ve got this 100 basis points of headwind from the ERP go-live this month on the — really kind of flowing through on the expense side. You called out marketing. It’s about a 50 basis point headwind for us in Q1. That’s really just timing on the year, marketing will be around flattish to last year as a percentage of sales, and then the rest of the expense base should be largely in line with last year’s Q1 as a percentage of sales.
Operator
Thank you. And the next question comes from Jon Keypour with Goldman Sachs. Your line is open.
Jonathan Keypour
Hi, everybody. Good morning. Thanks for the question. Just one more thing on the Q1 gross margin. Last year, you guys were lapping carryover inventory drag. It sounds like you won’t be — there won’t be any benefit from lapping that. Just wondering how that factors in? And then as a follow-on, what does that sort of imply about your promotional levels going into 1Q? And I guess, if you could give a forward-looking statement about where you think promo may or may not be going for the rest of the year? Thank you.
Robert Ball
Yeah, Jon, so you’re right, we’ve talked about this lapping of carryover. So that’s really a 2024 Q1 dynamic. Q1 of 2025, it was kind of normal. That’s the more normal base. So as you think about where we are coming into 2026, nothing that’s like a major mover up or down related to carryover levels or anything like that. In terms of promos for Q1, we feel great about where our inventory sits coming into the quarter. Again, once you pull out the kind of front-loading of the inventory that we had to execute here for the ERP, we’re up 2% on units. That’s a great place to be for us.
Both brands are really in chase position now. And that obviously gives us the best opportunity to kind of grow the AURs here. So from a promo standpoint, we feel good about it, all baked into that slight AUR improvement that we’re expecting here for the first quarter. And we’re in a good position to kind of eat that up and get units flowing and inch that AUR up as we move through the quarter.
Jonathan Keypour
Great. And then just one more follow-up, if I can. Could you guys bracket out what I guess, the difference in your expectations between for the full year between the low end and the high end of the guide? So what has to happen to hit the low end, what are you guys baking in to hit the high end?
Robert Ball
I mean at the end of the day, Jon, it’s all going to be about product execution, right? We’ve got to put the right product out there, which we’re off to a great start. We feel good about our assortments here in the first quarter. We got to keep doing it and keep executing as we move throughout the balance of the year. We’ve got to make sure that our marketing is resonating. We’ve consistently driven positive traffic to these brands. We’ve got millions of customers coming into these brands, and we got to keep that going here, and we’ll do that with consistent marketing spend here. And then we’ve got to provide a great experience in our stores. And all of those things kind of that 3% to 5% range, it’s all just ranges of outcomes in terms of how we’re executing here as we move throughout the year.
Fran Horowitz
The exciting thing, though, Jon, is the operating model that we’ve created and our ability to chase and stay very agile is key to winning for us and the example with Hollister last year, we certainly didn’t set out expecting to pick up 15%, but our ability to chase millions of units and respond to the customer in real time has enabled us to do that. So we’re approaching this year the same way with the expectation for both brands obviously to grow in 2026.
Jonathan Keypour
Thanks very much. Good luck.
Robert Ball
Thanks, Jon.
Operator
Thank you. And the next question comes from Rick Patel with Raymond James. Your line is open.
Rick Patel
Thanks. Good morning. Looking for more color on the building blocks of growth at A&F. Nice to see the expectation for growth. Do you anticipate growth in every quarter? And how do we think about the time line for a return to positive comps?
Fran Horowitz
Hey, Rick, good morning. So yeah, excited the team was hard at work last year. Excited to see that the commitment that we made to returning to growth for the fourth quarter came to be. As a reminder, being down one [Phonetic] of the full year top line was up against our best year ever in 2024. It’s just proof that the brand is healthy. We’re going to continue to invest in stores and in marketing. Some of the strength that we saw in the fourth quarter were key categories: fleece, outerwear, YPD, and we’re seeing nice acceptance already for spring. So our expectation is to continue to grow throughout 2026.
Rick Patel
And just a follow-up on inventory. I appreciate that you’re in chase mode, but how do we think about how you’re planning units as we think about the price changes that are happening and the potential for demand elasticity?
Robert Ball
Yeah. So thanks, Rick. Units in control, nice, clean, up 5% on the print, again, up 2% once you exclude that ERP. You know how we operate here. We’ll keep units tight and aligned with our forward growth expectations for the brands. We’re in good shape here leaving 2025 and heading into 2026. We’ll continue to flex that muscle and make sure that we’re ready to chase across both of the brands.
Rick Patel
Thanks very much.
Operator
Thank you. And the next question will come from Janine Stichter with BTIG. Your line is open.
Janine Stichter
Hi, good morning. So on the product execution, can you speak to what you’ve been seeing on conversion particularly at the Abercrombie brand, I think it was down a bit in ’25, but you did see some improvement as the year went on. What did you see in Q4 into Q1 and then maybe some comments on Hollister conversion as well? Thank you.
Robert Ball
Yeah, I would say it’s more of the same, Janine. We were making progress. The team’s leaned in on the A&F side, stayed focused on that consumer, executed against key learnings all the way throughout the year. And at the same time, again, going back to kind of Rick’s point here, we kept units in control all the way through, and that allowed us to kind of chase through. That drove improvements in conversion as we move throughout the year, and we kind of saw more of the same headed into Q4.
And similar story there with Hollister, conversion been a nice — it’s been something that’s kind of built as we move throughout the year. So it reflects the confidence that we have in the assortments that we’re putting out there for our consumers and we’re kind of looking to do more of the same here as we move into ’26.
Janine Stichter
Okay. Great. And maybe just a follow-up to Marni’s question. It’s been a while since you issued a long-range margin target, a lot changed, 12% to 12.5% this year. Is that kind of the right level for the business? And if we were to see upside to that, excluding changes to tariffs, where would that come from?
Robert Ball
Yeah, great question. Not going to provide guidance beyond ’26 today, but I think we can talk through some of the underpinnings of the margin constructs that we’re talking about, which I think addresses both your’s and Marni’s questions. I think it’s important for us to anchor ourselves that over the past few years, this operating model has delivered double-digit operating margins across all different kinds of environments. So the last three years, we’ve gone through freight changes. We’ve had inflation. Input cost from a product standpoint have fluctuated all over the board and obviously, tariffs here for the last bit.
And as you think about what underpins this business, it’s highly cash generative. We’ve got highly profitable stores and digital businesses. and we’re building capabilities in third-party to really accelerate that growth in more of a capital-light way. Our balance sheet is in great shape and it allows us to kind of fund into all of these things and invest in these brands and still return hundreds of million dollars to our shareholders through share repurchases, which I think, is kind of in our track record. We’ve delivered over $1.2 billion back to shareholders through cash since 2021 here through share repurchases, and we’re looking to do more of the same here.
So all of that really gives us a lot of confidence as it relates to the durability of this model. So while I’m not going to sit here and extend any sort of guidance beyond ’26 today, we do think that the fundamentals of this business are incredibly strong and they position us well to maintain these healthy earnings growth as we continue to build here in the long term.
Janine Stichter
Perfect. Thanks for the color.
Operator
Thank you. I show no further questions in the queue at this time. I would now like to turn the call back over to Fran for closing remarks.
Fran Horowitz
I just want to thank everyone for joining the call today, and we look forward to updating you all on our progress soon.
Operator
[Operator Closing Remarks]