Abercrombie & Fitch products are seen in their store at Woodbury Common Premium Stores in Central Valley, New York, U.S., February 15, 2022. REUTERS/Andrew Kelly/File Photo
Aug 25 (Reuters) – Abercrombie & Fitch Co on Thursday cut its full sales and margin forecasts after reporting a surprise quarterly loss, underscoring increasing competition for consumer dollars amid rising inflation.
Shares of the Ohio-based retailer fell about 5% in morning trading.
Rising inflation is eroding consumer spending power at a rate greater than seen in decades, prompting Americans to hold back on clothing spending, especially on styles favored during the height of the pandemic, and prioritize essential.
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Abercrombie said it will now revamp its inventory by getting rid of out-of-trend casual and sportswear and bringing in more dressier styles ahead of the key holiday season.
Sales at the California-based company’s Hollister casual brand, which accounts for more than 50% of the business, fell 15% in the second quarter, while its best-known Abercrombie label posted a 5% increase in sales.
“(Abercrombie’s) second-quarter earnings were disappointed by the weakness of Hollister, which is more exposed to a younger, less affluent customer base and international disruptions,” said Telsey Advisory Group analyst Dana Telsey.
“A shift away from basics to a more fashion-driven product also contributed to below-plan performance for the brand,” added Telsey.
Falling demand for Hollister clothing worsened as the prime back-to-school shopping season got under way, Abercrombie Chief Executive Fran Horowitz said, adding that the company will need to offer deep discounts to get rid of overstocks of casual wear. .
The company joins several other major U.S. retailers, including department store chains Macy’s and Nordstrom ( JWN.N ), in warning that profits will be squeezed by the need to increase discounts. Read more
Abercrombie now expects net sales to decline by a mid-point in fiscal 2022, compared to its previous forecast of a 2% increase.
It also forecast full-year operating margin in the range of 1% to 3%, lower than previously estimated at 5% to 6%.
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Reporting by Mehr Bedi in Bengaluru; Editing by Shailesh Kuber
Our Standards: The Thomson Reuters Trust Principles.
