Advertisement
Advertisement

Abercrombie shares drop 30% as high costs dent margin forecast

By:
Reuters
Updated: May 24, 2022, 15:22 UTC

(Reuters) - Abercrombie & Fitch Co trimmed its full-year sales forecast on Tuesday as record-high inflation hits demand for the retailer's jeans, tops and dresses, sending its shares down 18% in premarket trade.

Abercrombie & Fitch at the Woodbury Common Premium Outlets in Central Valley, New York

By Deborah Mary Sophia

(Reuters) -Abercrombie & Fitch Co on Tuesday lost nearly a third of its market value after the retailer cut its annual forecasts for sales and margins and posted a surprise quarterly loss due to a surge in freight and raw material costs.

Decades-high inflation has pushed consumers to cut spending on discretionary goods such as apparel, while persistent supply chain issues, worsened by the war in Ukraine, have dented profits.

Abercrombie, which had airfreighted goods to push its products through a clogged supply chain for the key holiday season, was left with excess inventory in the quarter after the festive period.

To clear the stock, the company offered more discounts and clearance sales, which further crimped its margins in the quarter to 55.3% from 63.4% last year.

“We are in an extremely inflationary period (where)everything from food to gas is costing more and we expect those pressures to weigh on consumer confidence,” Chief Executive Fran Horowitz said.

In contrast, high-end players including Ralph Lauren and French brand Chanel on Tuesday forecast upbeat 2022, as the companies cushion the impact of inflation through price increases.

Including Tuesday’s losses, Abercrombie shares have fallen nearly 44% this year, extending last week’s declines after major retailers including Walmart Inc and Kohl’s Corp flagged weakening demand for discretionary goods.

“Without a clearer outlook on the year, let alone 2023, we believe it will be hard for share to recapture these losses,” William Blair analyst Dylan Carden wrote in a note, with Abercrombie executives saying they expect things to stay the same in the current quarter.

The millennial-focused retailer expects net sales to be flat to up 2% in fiscal 2022, compared with its earlier forecast of a 2% to 4% growth. Analysts on average expect sales to increase 3.5% to $3.84 billion, according to Refinitiv IBES data.

(Reporting by Deborah Sophia in Bengaluru; Editing by Vinay Dwivedi)

About the Author

Reuterscontributor

Reuters, the news and media division of Thomson Reuters, is the world’s largest international multimedia news provider reaching more than one billion people every day. Reuters provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world's media organizations, and directly to consumers at Reuters.com and via Reuters TV. Learn more about Thomson Reuters products:

Did you find this article useful?

Advertisement