Abercrombie & Fitch joined other US retailers in forecasting weak annual sales growth and warned of softer demand heading into spring for its namesake brand, sending its shares down 14 percent on Wednesday.
The apparel maker said margins would take a hit from higher freight costs and more promotions at the start of the year to clear excess inventory. It also flagged a $5 million impact from US tariffs.
The transition into spring demand was “more normalised” this year, including a drop in sales for the A&F label, CEO Fran Horowitz said during a post-earnings call, echoing big-box retailer Target’s comments on weak apparel sales in February.
“The initial print does not sow confidence,” William Blair analyst Dylan Carden said, adding that A&F brand sales, which rose 2 percent in the holiday quarter, could be headed for a drop in the future, putting Abercrombie’s full-year target at risk.
The company expects annual net sales growth of 3 percent to 5 percent, below expectations for a 6.77 percent rise, according to data compiled by LSEG.
Retailers from Walmart to Home Depot have set their annual targets with caution as still-high inflation forces Americans to spend less on apparel, home furnishing and electronics. Uncertainty around the potential fallout from President Donald Trump’s tariffs on goods imported into the US is also keeping shoppers on the back foot.
Abercrombie expects fiscal 2025 operating margin of 14 percent to 15 percent, including the impact from tariffs on China, Canada and Mexico. In comparison, operating margin was 15 percent for the year ended Feb. 1.
The company imports about 5 percent to 6 percent of its goods from China and exposure to Mexico is “immaterial,” company executives had said in November.
It imports 34 percent of its merchandise from Vietnam, with Cambodia and India rounding off the top three supplier countries, according to Abercrombie’s 2023 annual report.
For the holiday quarter, the company’s net sales of $1.58 billion edged past market expectations thanks to a 16 percent rise in sales at its teen-focused Hollister brand.
Its adjusted profit per share of $3.57 beat estimates of $3.54, while its annual target of $10.40 to $11.40 was slightly above estimates.
The Ohio-based company also announced a new $1.3 billion stock buyback programme.
By Juveria Tabassum; Editing by Devika Syamnath
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