Apparel and Accessories Sector Shows Divergent Performance in Latest Earnings Reports
## VF Corp Exceeds Expectations Amidst Transformation Efforts
**VF Corporation (NYSE:VFC)** reported first-quarter fiscal 2026 results that surpassed analyst projections, signaling progress in its ongoing transformation. The company's shares advanced **16.94%** in pre-market trading following the announcement, and have since risen **19.1%** since its latest earnings report. The apparel and footwear conglomerate posted an adjusted loss of **$0.24 per share**, significantly better than the estimated **$0.33 loss**. Revenue reached **$1.76 billion**, exceeding the consensus estimate of **$1.7 billion** and remaining flat year-over-year, though a **2%** decline on a constant currency basis. Excluding the **Vans** brand, which experienced a **14%** year-over-year sales decline due to channel rationalization, total revenue increased **6%** or **5%** in constant currency compared to the prior year. Brands such as **The North Face** and **Timberland** maintained positive momentum, with **Altra** demonstrating strong growth.
**Bracken Darrell**, President and CEO of **VF Corp**, stated,
> "We performed ahead of our expectations and guidance in Q1’26, improving our top-line trend versus last year to flat while delivering a much stronger bottom line...As I pass the two-year mark in my role as CEO, we are on track with VF’s transformation. We are lowering costs, improving margins, reducing debt and transforming the organization."
The company reported an adjusted operating loss of **$56 million**, a notable improvement over its guidance range of **$110 million** to **$125 million**. Gross margin improved **290 basis points** on an adjusted basis. For the second quarter of fiscal 2026, **VF Corp** anticipates revenue to decline **2% to 4%** on a constant currency basis, with adjusted operating income projected between **$260 million** and **$290 million**. The company also expects higher free cash flow, adjusted operating income, and operating cash flow for the full fiscal year compared to the previous year.
## Carter's Faces Headwinds with Significant Earnings Miss
Conversely, **Carter's (NYSE:CRI)**, a prominent American designer and marketer of children's apparel, reported a challenging second quarter. The company posted revenues of **$585.3 million**, an increase of **3.7%** year-on-year, yet registered a significant miss on analysts’ **EBITDA** estimates. This performance led to a **9.5%** decline in its stock price since the results were announced, with shares currently trading at **$29.60**.
The earnings miss was primarily driven by a confluence of factors that compressed the company's operating margin to **0.7%** from **7.0%** in the prior year. Key headwinds included **tariff-driven costs**, adding approximately **$110 million** in expenses in 2024 with a projected **$125–150 million** annualized impact under current trade policies. Additionally, increased operational costs, unfavorable foreign currency exchange rates impacting sales by **$3.1 million**, and strategic pricing investments to drive market share contributed to the pressure. The company faces a **4.5x EBITDA valuation discount** but its **$300 million debt** limits financial flexibility. **Carter's** has suspended its 2025 guidance, reflecting uncertainty surrounding tariffs and leadership changes.
## Figs Delivers Strong Q2 Performance in Healthcare Apparel
**Figs (NYSE:FIGS)**, a healthcare apparel company, demonstrated robust performance in its second quarter of calendar year 2025. The company surpassed Wall Street’s revenue expectations, with sales rising **5.8%** year-on-year to **$152.6 million**, beating analyst estimates of **$144.7 million** by **5.5%**. **Figs** also reported a GAAP profit of **$0.04 per share**, exceeding consensus estimates of **$0.02**. Adjusted **EBITDA** reached **$19.73 million**, significantly outperforming analyst estimates of **$12.6 million** and achieving a **12.9% margin**, representing a **56.5%** beat. Following the announcement, **Figs’** stock jumped **12%**.
Operational details highlight an improved operating margin of **6.5%**, up from **1.1%** in the same quarter last year. Despite a decrease in Free Cash Flow to **-$13.52 million** from **$7.55 million** in Q2 2024, the company's active customer base grew to **2.74 million**, and its market capitalization stood at **$1.06 billion**. Net revenues increased **6%** year-over-year, propelled by an **8%** rise in scrubwear sales, which account for **83%** of total revenue. The average order value (**AOV**) increased **4%** to **$117**. The company maintains a strong balance sheet with **$238.8 million** in cash and equivalents and has raised its full-year 2025 guidance, signaling confidence in its growth strategy. International revenue saw significant growth of **19.8%** year-over-year, with plans for market expansion into Japan and South Korea later in 2025.
## Divergent Performance Highlights Sector-Specific Challenges and Opportunities
The varied earnings reports from **VF Corp**, **Carter's**, and **Figs** underscore a complex and selective environment within the broader **Apparel and Accessories Sector**. The industry continues to contend with persistent inflation, supply-chain disruptions, elevated selling, general, and administrative (SG&A) expenses, and rising input and labor costs. Tariff volatility further strains margins in an already cautious consumer landscape where demand for discretionary purchases is muted. The **Zacks Textile – Apparel industry** has underperformed both the **Zacks Consumer Discretionary sector** and the **S&P 500 Composite** over the past year, declining **16.6%** against gains of **23.9%** and **19.8%**, respectively.
Despite these macro headwinds, companies demonstrating strategic agility and operational efficiency are finding success. **VF Corp's** "Reinvent" program, focusing on cost reduction, margin improvement, and debt reduction, appears to be yielding positive results. Similarly, **Figs'** strong performance is attributed to product innovation, operational efficiency, and international expansion. Conversely, **Carter's** experience highlights the vulnerability of companies to external factors like tariffs and internal pressures such as operational costs and pricing strategies that impact profitability. The market is increasingly rewarding companies that can effectively manage these challenges through digital and AI-driven transformation, omnichannel strategies, and robust brand building.
## Looking Ahead: Navigating Macroeconomic Factors and Strategic Adjustments
The immediate future for the **Apparel and Accessories Sector** will likely remain influenced by ongoing macroeconomic factors. Investors will closely monitor consumer spending patterns, inflation trajectories, and potential shifts in global trade policies, particularly concerning tariffs. For companies like **VF Corp** and **Figs**, continued execution of their strategic initiatives, including brand momentum and international growth, will be crucial for sustained positive performance. Their ability to innovate and adapt to evolving consumer preferences and market dynamics will likely distinguish them from competitors.
For companies like **Carter's**, the path forward involves significant strategic adjustments to address margin compression and regain investor confidence. This may include domestic sourcing shifts, vendor cost-sharing agreements, and considered price increases, alongside resolving uncertainties around leadership and guidance. The bifurcated nature of the recent earnings reports suggests that while the overall sector faces structural challenges, well-managed and adaptable companies can still achieve growth and attract investment, indicating a market increasingly selective in its allocation of capital.