Abercrombie & Fitch Co on Tuesday cut its annual sales and margin forecasts after posting a surprise quarterly loss amid rising freight and raw material costs, sending its shares down 30% in premarket trading.
High inflation in recent decades has pushed consumers to cut spending on discretionary goods such as clothing, while persistent supply chain problems, exacerbated by the war in Ukraine, have dented profits.
Abercrombie shares fell nearly 14% last week after major U.S. retailers Walmart Inc, Target Corp and department store chain Kohl’s Corp pointed to weakening demand for apparel and non-essential items and reported dismal quarterly earnings.
«We expect higher costs to remain a headwind at least through the end of the year,» Abercrombie CEO Fran Horowitz argued, as the company struggled to offset higher-than-expected expenses despite offering fewer and smaller discounts.
Known for brands such as Hollister and Gilly Hicks, the Ohio-based retailer reported an 810 basis point drop in first-quarter margins as it spent $80 million more on transportation.
The company also cut its full-year operating margin to between 5% and 6%, from 7% to 8% previously forecast.
The millennial-focused retailer expects net sales to be flat to up 2% in fiscal 2022, versus its previous forecast of 2% to 4% growth. Analysts, on average, expect sales to rise 3.5% to $3840 million, according to IBES data from Refinitiv.
For the three months ended April 30, Abercrombie posted an adjusted loss per share of 27 cents, while analysts had expected a profit of 2 cents.