By Aatrayee Chatterjee

(Reuters) – Abercrombie & Fitch raised its annual sales target on Wednesday after reporting better-than-expected quarterly revenue. However, shares of the company fell 14% as investors anticipated a larger forecast adjustment from the high-performing retailer.

The stock has surged about 89% so far this year after nearly quadrupling in 2023.

“While the market may have been looking for a stronger guidance lift for the year, given momentum across the business, we see a beat and raise as impressive given a moderating top line outlook in response to a choppy macro environment across many of Abercrombie’s specialty retail peers,” said Dana Telsey, analyst at Telsey Advisory Group.

Abercrombie has been revamping its merchandise with new styles, featuring dressier apparel and cargo pants, while tapping into growing demand for wide-legged jeans, helping it attract fashion-savvy shoppers.

Retailers, ranging from department store chains Macy’s (NYSE:M) to home improvement chain Home Depot (NYSE:HD), struck a cautious note and trimmed their annual sales forecasts, citing weak discretionary demand. However, strong results from Target and Walmart (NYSE:WMT) reflected that shoppers were looking for bargains amid budget constraints.

Sales at the Abercrombie brand jumped 26% in the quarter ending Aug. 3, while its Hollister division reported a 17% rise due to better-than-expected back-to-school selling.

The company now expects net sales to rise between 12% and 13% in fiscal 2024, compared to its prior forecast of around 10% growth. Abercrombie CEO Fran Horowitz stated that the forecast increase came despite “an increasingly uncertain environment”.

The company benefited from lower promotions and decreased cotton costs, helping it improve its gross profit rate by 240 basis points to 64.9%. However, it anticipates pressure from freight costs in the latter half of the year.

In the second quarter, Abercrombie reported a profit of $2.50 per share, beating an estimate of $2.22, according to LSEG data. Net sales rose 21% to $1.13 billion in the second quarter, compared to analysts’ estimate of $1.10 billion.