Abercrombie & Fitch Co.’s shares nosedived Tuesday as the retailer reduced its outlook for the year after higher costs cut into its bottom line in the first quarter.
Shares closed down 28.9 percent, or $7.64, to $19.09 on Tuesday.
The decline came even though first-quarter sales were better than expected. Abercrombie, operator of the Abercrombie & Fitch, Abercrombie Kids, Hollister, Social Tourist and Gilly Hicks brands, is the latest in the growing list of major retailers — Walmart, Target and Kohl’s among them — calling out the higher costs of freight and raw materials, as well as the nation’s highest rate of inflation in four decades for forcing consumers to hold back on spending. The volatile stock market and the war in Ukraine have also cut consumers’ willingness to spend, though A&F executives said their company’s sales beat expectations.
For the quarter ended April 30, Abercrombie reported a net loss of $16.47 million, compared to net profit of $41.78 million in the year-ago period.
There was also an operating loss of $10 million and $6 million on a reported and adjusted non-GAAP basis, respectively, as compared to operating income of $57 million and $60 million last year, on a reported and adjusted non-GAAP basis, respectively.
Net sales rose 4 percent to $813 million from $781 million in the year-ago quarter. Abercrombie sales rose 4 percent to $383.9 million from $339 million, while Hollister’s sales dropped 3 percent to $428.8 million from $442.4 million.
Operating margin is seen in the range of 5 to 6 percent, down from previous outlook of 7 to 8 percent reflecting a combined 200 basis point adverse impact from higher freight and raw material costs, foreign currency, and lower sales due to an assumed inflationary impact on consumer spending. Mitigating these factors will be actions to drive AUR growth, reduce certain expenses and adjust inventory flows by region in response to current market forces.
“Looking forward, we expect higher costs to remain a headwind through at least yearend,” Horowitz added. “We expect freight relief in the fourth quarter as we anniversary increased air usage last year due to the Vietnam shutdown. We will continue to manage expenses tightly and are committed to finding opportunities to offset these costs while protecting strategic investments in marketing, technology and our customer experience, which should drive sustained, long-term sales growth.”
A&F will hold an investors’ day on June 14 to discuss plans.