Abercrombie Says Vietnam Factory Upheaval ‘Out of Our Control’

(Bloomberg) -- Abercrombie & Fitch Co. shares plunged the most since the start of the pandemic as the apparel retailer missed Wall Street’s sales expectations, citing pressure from ongoing factory shutdowns in Vietnam and shipping delays.

The plant issues will likely last at least into the beginning of September, executives said Thursday. The New Albany, Ohio-based company is seeing one to three weeks of delivery delays on average and has been using air deliveries to bypass some of the port congestion.

“We’re trying not to have any impact on the holiday season,” Chief Financial Officer Scott Lipesky said in an interview. While the company is optimistic that steps are being taken in Vietnam to reopen, “it’s out of our control at this point. What you can do is line up plans of getting the product out of there.”

The situation underscores the challenge for apparel retailers -- particularly mall-based ones -- to recover from a deep slump early in the pandemic. And as e-commerce demand grows, retailers face pressure to efficiently move merchandise from overseas factories to distribution centers to customers.

The stock tumbled as much as 15% Thursday in New York, the biggest intraday slide since March 2020.

Vietnam is the second-biggest supplier of clothing and footwear to the U.S., with factories that make goods for major brands including Nike Inc. and Adidas AG. The rapid spread of the delta variant has prompted a number of plant shutdowns in recent weeks, just as supply chains are gearing up for the holiday shopping season.

Abercrombie produces in 17 countries around the world, and executives said they have shifted production as factory shutdowns in Vietnam persist. Lipesky said it’s using the model of “planes, trains and automobiles” as it seeks ways around snarled shipping lines.

“It’s tough out there,” Lipesky said on a call with analysts. Higher inventory costs impacted Abercrombie’s second-quarter results and will continue to weigh in the second half of the year, he said.

Abercrombie said it sees net sales up low to mid-single digits compared to 2019, which many retailers are comparing sales against. Operating expense is expected to be down 3% to 4% compared to 2019 levels.

‘More Challenging’

“Last year was the warmup to this year,” Chief Executive Officer Fran Horowitz said. “When we were in it last year it was the first ever and we did a lot of Covid playbook and we came up with all sorts of contingency planning, and all of those are now being applied this year. It was a bit more challenging this year.” 

The retailer posted second-quarter revenue of $864.9 million, according to a statement, below the consensus estimate of $879.3 million as compiled by Bloomberg. Digital sales, a growing category for most retailers, fell 3% compared to this time last year. 

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