Abercrombie & Fitch swings to loss; lowers outlook amid ‘macro headwinds’
Abercrombie & Fitch Co. reported a loss for the second quarter, dragged down by ongoing challenges at its Hollister banner and inflation headwinds.
The apparel retailer also joined the growing list of U.S. retailers — ranging from Victoria’s Secret to Kohl’s and Macy’s — that have cut their outlooks amid economic uncertainty, softening consumer demand and continuing supply chain problems.
The specialty apparel retailer reported a loss of $16.83 million, or $0.33 a share, in the quarter ended July 30, compared to a net income of $108.5 million, or $1.69 a share, in the year-ago quarter. Its adjusted loss came to $0. 30 a share, compared with adjusted earnings of $1.61 a share in the year-ago quarter.
Analysts had expected earnings of $0.22 per share.
The retailer also reported an operating loss of $2 million compared to operating income of $115 million in the prior year quarter.
Net sales dropped 7% to $805.09 million, missing analysts’ estimates of $843.6 million. By banner, sales at Abercrombie rose 5% to $368.157, while sales at Hollister fell 15% to $436,934 million.
“As the global macro environment deteriorated in the second quarter, we experienced a divergence in brand performance,” said CEO Fran Horowitz. “Abercrombie delivered its highest Q2 sales since 2015 and its ninth consecutive quarter of average unit retail growth.”
Abercrombie’s growth was more than offset by Hollister, Horowitz added, where there was a greater than anticipated impact from inflation and a shift away from core categories to more fashion-driven product, which contributed 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 said. “In addition, we have right-sized the Hollister inventory receipt plan for holiday and beyond.”
The company said it expects year-over-year inventory growth to have peaked in the second quarter and to moderate significantly in the back half as it laps late receipts from last year.
Abercrombie now expects 2022 net sales to be down mid-single-digits from $3.7 billion in 2021 compared to its previous outlook of flat to up 2%, driven by an assumed ongoing inflationary impact on consumer demand.
“Our revised outlook reflects the uncertain environment for the back half,” Horowitz said. “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.”
The company expects third-quarter sales to be down high-single-digits compared to the year-ago quarter result of $905 million. Operating income is expected to be around break-even with the year-over-year decline driven by lower sales and an assumption of lower average unit retail needed to keep inventory current, the company said.
Earlier this month, Abercrombie debuted its new “getaway” inspired design concept with a store at Del Amo Fashion Center in Los Angeles, and another at Il Centro Shopping Center, outside of Milan (Italy).