The news: Abercrombie & Fitch lifted its full-year outlook following solid sales and profit growth in Q2.

• Sales rose 4.8% YoY to $1.27 billion, beating expectations for $1.25 billion.
• Earnings per share of $4.17 were well ahead of the $1.99 consensus estimate, helped in part by $100 million in tariff refunds received during the quarter.
• The company now expects net sales to rise 5%, the high end of its prior guidance, while net income is forecast at $13.10 to $13.60 per share, above the average analyst estimate of $10.72.

Behind the numbers: Abercrombie’s better-than-expected quarter is an encouraging, albeit nuanced, indication of continued demand for discretionary spending. Interest in Abercrombie’s namesake brand, which caters to older Gen Z and millennial audiences, is back on the upswing, with comparable sales returning to growth for the first time in six quarters. But Hollister, which primarily targets teens, reported its second consecutive quarter of declining comparable sales, a possible sign of softening engagement despite initiatives like a home and décor partnership with Target.

Still, CEO Fran Horowitz is confident that the company has the right strategy for extending its 15-quarter growth streak, noting healthy demand across categories and geographies. But that strategy increasingly relies on external partners, from wholesale relationships with Macy’s and Fanatics to brand partnerships with Puma and Sperry.

• Hollister’s partnership with Target marked its “first meaningful wholesale and category expansion in the US,” enabling the brand to establish a toehold in décor while expanding its reach to include over 1,500 Target stores.
• Abercrombie, meanwhile, noted positive results from its experiments with third-party footwear and accessories sales, which could help capture a larger share of consumers’ baskets.
• Abercrombie will also begin selling its NFL products on the league’s ecommerce site, at NFL stadiums, and on Fanatics’ website as it looks to attract new customers.

Implications for retail: Abercrombie’s sustained top-line growth speaks to the success of its core strategic priorities, which include having a strong assortment, lean inventory, and a deep understanding of its customers’ wants and needs. Partnerships could become an incremental growth lever, giving its brands access to new categories, distribution channels, and customers.

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