Macro headwinds pushed Abercrombie & Fitch Co. into the red for the second quarter, triggering the company to reduce its outlook for the third quarter and 2022 overall.
The New Albany, Ohio-based specialty retailer reported a net loss of $16.8 million, or $0.33 cents a share, for the quarter ended July 30, compared to a profit of $110.5 million, or $1.77 a share, in the year-ago period.
The retailer also reported an operating loss of $2 million compared to operating income of $115 million last year.
Net sales of $805 million were down 7 percent compared to last year on a reported basis and down 4 percent on a constant currency basis.
The company joined the growing list of U.S. retailers lowering forecasts and experiencing headwinds from inflation, reduced consumer demand and supply chain issues, including Macy’s, Kohl’s and Target.
Fran Horowitz, chief executive officer, said, “As the global macro environment deteriorated in the second quarter, we experienced a divergence in brand performance. Abercrombie delivered its highest Q2 sales since 2015 and its ninth consecutive quarter of average unit retail (‘AUR’) growth. This was more than offset by Hollister, where we saw a greater than anticipated impact from inflation and a shift away from core categories to more fashion-driven product, contributing to lower-than-expected conversion and basket size.
“We expect macro headwinds to persist and have taken action to adjust receipts across brands to fuel winning categories for late fall and holiday,” Horowitz added. “In addition, we have right-sized the Hollister inventory receipt plan for holiday and beyond. Looking ahead, we will continue to monitor sales volumes and react with agility to ensure inventory turns appropriately, and we expect year-over-year inventory growth to have peaked in Q2 and to moderate significantly in the back half as we lap late receipts from last year.
Hollister sales fell 15 percent to $436.9 million in the last quarter from $514.5 million in the year ago quarter.
Abercrombie sales were up 5 percent to $368.2 million from $350.4 million in the year-ago period.
The company is now forecasting net sales to be down mid-single-digits from $3.7 billion in 2021 compared to the previous outlook of flat to up 2 percent, driven by an assumed ongoing inflationary impact on consumer demand. The outlook also includes an estimated adverse impact of about 200 basis points from foreign currency.
Operating margin is projected to be in the range of 1 to 3 percent, down from the previous outlook of 5 to 6 percent primarily reflecting lower sales due to an assumption of lower AURs (average unit retail price) needed to keep inventory current.
For the third quarter, net sales are projected to be down high-single-digits to fiscal third quarter 2021 level of $905 million. The level assumes a continuation of recent trends for the rest of the quarter and includes an estimated adverse impact of about 220 basis points from foreign currency.
Operating income in the third quarter is projected to be around break-even with the year-over-year decline driven by lower sales and an assumption of lower AURs needed to keep inventory current.
“Thus far in August, we have experienced a steady improvement in weekly sales trend, although total quarter-to-date remains in line with Q2,” Horowitz said. “Our revised outlook reflects the uncertain environment for the back half. As we have successfully done over the last several years, we will continue to navigate near-term challenges and reduce spend where appropriate while executing to our long-term goals. We remain confident that we have the balance sheet and strategies in place to drive continued progress towards our 2025 ‘Always Forward Plan’ introduced at our June 2022 Investor Day.”