Investors are grappling with the potential seismic shift in the retail landscape. 

After two years of robust growth at Abercrombie & Fitch (ANF), shares plunged on Wednesday after the company posted weaker-than-expected 2025 guidance partially due to tariffs' impact on freight costs and consumer spending.

The retailer now expect net sales to grow by 3% to 5% in 2025, compared with the 6.77% jump the Street expected, and a stark drop from the 14% increase in net sales it clocked in 2024. 

Abercrombie also expects operating margin of 8% to 9% for the quarter and 15% for the year.

"We expect the first half will be adversely impacted by higher year-over-year freight costs and more normalized carryover inventory selling, and the second half will benefit from expected lower freight than last year," CFO Robert Ball told investors on a call, adding that the company's outlook includes current tariffs on China, Canada, and Mexico but not "other potential incremental tariffs." 

Read more: What Trump's tariffs mean for the economy and your wallet

Ball later added the team has taken action to "avoid meaningfully taking prices [up]" and is "mindful" of customers' value perception. He said the company won't make "significant changes" but hinted a slight price hike could be on the table. 

Per its 2023 annual report, Abercrombie sources the majority of its merchandise outside of the US, with around 130 vendors in 17 countries "primarily located in Southeast Asia." 

William Blair analyst Dylan Carden told Yahoo Finance while tariffs are not an "existential threat," CPI data over the last three years has shown apparel inflation of roughly 8.5%. Any more rises in price could be hard for shoppers to swallow. 

"You're talking about a category that has no pricing power, having to absorb these incremental costs ... I don't think they're going to have the capacity to do that truthfully, without really hitting demand," he said.

Just a year ago, the company reported a 29% increase in same-store sales at its namesake Abercrombie brand. The clear slowdown has spooked investors, per Carden. 

"The risk was always that the music was going to stop," he said.

Telsey Advisory Group's Dana Telsey also told Yahoo Finance, "What's different in 2025 than 2024 is now you have the Hollister business accelerating while the Abercrombie brand is normalizing" after significant improvement. 

Kevin Carter via Getty Images

On top of that, Abercrombie & Fitch is now facing larger headwinds, such as the slowdown of denim sales due to return-to-work mandates, Carden said. 

Forrester analyst Sucharita Kodali told Yahoo Finance, "What we may see in 2025 is actually some decline, particularly if consumers start to trade down or they choose not to spend because they want to save altogether."

Abercrombie shares are down 43% year to date, though it's still up over 670% in the past five years. 

Now, investors are turning their attention to other retailers like Macy's (M), which is set to report its earnings Thursday before market open. 

The Street expects the company to report a roughly 1% increase in same-store sales. In early January, the company posted preliminary results that showed same-store sales were roughly flat quarter to date.

Macy's plans to close 66 unprofitable stores this year as a part of a plan to shutter a total of 150 in the coming years. Morningstar analyst David Swartz said CEO Tony Spring will likely aim to focus on "his plans ... for the store operations and the supply chain" rather than the issue of tariffs.

Citi analyst Paul Lejuez wrote in a note to clients that private label only makes up about 15% of Macy's sales, but "tariffs affecting national brands" like Nike (NKE), Steve Madden (SHOO), or Adidas (ADDYY) could also impact Macy's costs and pricing.

"Management has indicated in the past that its consumer is focused on value, and it will be interesting to hear management’s view of whether they would try to pass higher costs through to consumers," Lejuez wrote. 

Telsey said investors can expect weaker-than-consensus guidance for the first quarter from most retailers that are expected to report earnings over the next week, like Victoria's Secret (VSCO), Burlington (BURL), Gap (GAP), and American Eagle (AEO).

This means investors may need to buckle up for more volatility, as lackluster guidance has recently hammered the stocks of Walmart (WMT), Target (TGT), and Best Buy (BBY). 

"Everyone's guidance for the first quarter is weaker than consensus ... whether it's the macro volatility that's going on leading to the consumer delaying their spending, it could be a little bit of all," Telsey said. 

Newness and innovation is still key to getting consumers to spend, and the retail industry is "always a backend-weighted industry" with the holidays. 

"It's more so than ever this year than we've seen in the past," she added. 

—

Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

Click here for all of the latest retail stock news and events to better inform your investing strategy