Apparel brands share concerns about tariffs and consumer demand in earnings reports

Apparel brands already have a tough go in times of economic instability; considered discretionary goods, they often come second to other consumer purchases, like groceries and gas. What’s more, many apparel brands manufacture outside of the U.S., particularly in China, where recent tariffs hit a high of 145% in April before dipping temporarily to 30% in May. Apparel brands of all sizes have told Modern Retail that they are struggling on various fronts, from making inventory projections to weighing whether to move manufacturing.

Here are three main trends that apparel brands highlighted in earnings reports and earnings calls over the last few weeks.

Tariff turmoil

Tariffs continue to send shockwaves through the apparel industry, especially for brands manufacturing in China. Now, some of the biggest names in the apparel industry are getting candid about how much damage tariffs are doing to their businesses.

Gap Inc., which owns Gap and Old Navy, said tariffs could add $200 million to $300 million to the company’s gross incremental cost this year. The company also assured investors it is taking measures to “mitigate more than half of that amount.” On a first-quarter earnings call on May 29, Gap Inc. CEO Richard Dickson said the company is lowering its sourcing in China from “less than 10%” in 2024 to “less than 3%” by the end of 2025.

Dickson added that Gap Inc. wants “no country to account for more than 25% [of sourcing] by the end of 2026” and said the company is “planning to double [its] vendor sourcing of American-grown cotton in 2026.” “While tariffs have the potential to impose new costs, we remain focused on controlling the controllables and executing our strategic priorities, which are driving results,” Dickson said.

Meanwhile, Abercrombie & Fitch warned that tariffs could slash this year’s profits by as much as $50 million, “impacting our full-year operating margin outlook by 100 basis points,” CEO Robert Ball said on an earnings call on May 28. The company made this projection based on the following tariff rates: a 10% tariff on all global imports into the U.S., as well as a 30% tariff on imports from China. Ball added that, for the second quarter, Abercrombie & Fitch expects “around $5 million of tariff impact, net of mitigation efforts.”

Like Gap Inc., Abercrombie & Fitch laid out plans to try and reduce a hit from tariffs. Ball mentioned that the company remains “nicely diversified” across 16 countries. Abercrombie & Fitch sourced about 30% of its products from China before the pandemic, but this year’s volume will now be in the “low single digits,” Ball said.

American Eagle Outfitters said on an earnings call on May 29 that it expects a $40 million annual impact from tariffs — although it says it is taking steps to mitigate this, including partnering with vendors to reduce costs. It’s also diversifying its supply chain to reduce its reliance on China to under 10% this year. Mike Mathias, CFO at AEO, mentioned this number could lower to the “low single digits” for the fall and holiday season.

A pullback in guidance

In addition to warning about tariffs specifically, apparel brands are also slashing their guidance for the year. Many are citing economic disruptions like lower consumer confidence and larger macroeconomic uncertainty.

On June 5, Lululemon said it was cutting its full-year guidance as it navigated a “dynamic macroenvironment.” The brand’s CFO, Meghan Frank, stated, “We did lower our op margin for the full year from a 100 basis points decline year over year to 160.”

The company pointed to contributing factors such as tariffs, higher markdowns and foreign exchange rates. It’s also suffering a decline in visits to its U.S. stores. Overall, the brand is “definitely not happy where the growth is in the U.S.,” CEO Calvin McDonald said on an earnings call.

Notably, on June 6, G-III Apparel — home to Calvin Klein, Tommy Hilfiger and DKNY — maintained its full-year sales outlook for fiscal 2026. It did, however, pull other guidance for the year (including net income, non-GAAP net income and adjusted EBITDA), due to uncertainty around tariffs. G-III executives likewise highlighted “supply chain disruptions” and said that “ordering demand is slightly slower this year,” compared to last year.

Earlier in May, American Eagle Outfitters pulled its guidance for the fiscal year, citing “macro uncertainty.” During its official earnings call a couple weeks later, CEO Jay Schottenstein said the company is retracting its guidance “until we have greater visibility.” He also mentioned cold spring weather and “product misses” in merchandise. “We did not execute to our potential,” he said.

Abercrombie & Fitch, for its part, reduced its outlook for operating margins in the full fiscal year, going from its previous range of “14% to 15%” to a new range of “12.5% to 13.5%.” However, it said store openings remain on track and noted that sales reached a record high of $1.1 billion in the first quarter. “Global growth remains our highest priority,” Ball said.

Pricing updates

Apparel companies also used their latest earnings calls to give updates on pricing. Many brands, strapped with the burden of tariffs, have had to weigh whether to pass additional costs onto consumers.

During an earnings call, Neil Nachman, CFO of G-III Apparel Group, said, “On pricing, we’re actively negotiating with retailers and will selectively raise prices.” He added, “Consumers are willing to pay more when quality and value are clear.” He mentioned the “strong AURs” and “growing demand” for Donna Karan and Karl Lagerfeld, “whose distribution is extremely limited in the off-price channel.” “Because these brands, along with our new licensed initiatives, are new to the market, this gives us the opportunity to set higher initial price points,” Nachman said.

Meanwhile, at Lululemon, Frank mentioned that the brand is using pricing as a tool for tariff mitigation. “We are planning to take strategic price increases, looking item by item across our assortment as we typically do,” she said during the question-and-answer session of the earnings call. “It will be price increases on a small portion of our assortment, and they will be modest in nature.”

Lastly, Urban Outfitters Inc., which posted better-than-expected earnings, announced it will be “gently and sparingly raising some prices.” On an earnings call on May 22, its co-president and COO, Frank Conforti, said, “Please note that any price increases will be very strategic, protecting opening price points and only targeting areas where we believe we could raise prices without affecting the overall customer experience.”