Abercrombie & Fitch (NYSE:ANF) reported better-than-expected second quarter results, reported comparable sales growth of 18%, and raised full year guidance, indicating the company continues to outperform rivals in a challenging economic environment.

But shares are down more than 12% in premarket trading as the company’s gross margin of 64.9% was below expectations of 65.4%, and Wall Street’s outsized expectations for the retailer were not met.

“Although we continue to operate in an increasingly uncertain environment, we remain steadfast in executing our global playbook and maintaining discipline over inventory and expenses,” CEO Fran Horowitz said. “We are on track and confident in our goal to deliver sustainable, profitable growth this year,” she added.

So, while the company expects to remain profitable, the pace appears to be slowing as ANF projects an operating margin of 13% to 14% in Q3 versus 13.1% in the same quarter last year and 15.5% in the currently reported quarter.

For FY24, ANF increased its net sales growth to 12-13% from initial guidance of +10%, and operating margin in the range of 14% to 15% versus initial guidance of +14%.

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