Abercrombie Plunges as Tariffs Weigh on Profit Outlook

(Bloomberg) -- Abercrombie & Fitch Co. plunged after trimming its sales outlook and flagging the impact of tariff on Chinese goods on its profit margin.

• Same-store sales, a key metric for retailers, were flat for its Abercrombie and Hollister Brand. The retailer now sees net sales being flat to up 2% for the full year -- down from a previous range of 2% to 4%. The stock fell as much as 17% to $14.18 in New York, the biggest slide since its last earnings report.

Key Insights

• UBS analyst Jay Sole wrote earlier this month that the bar for apparel retailers is “essentially unreachable” this quarter due to the “major risk” of tariffs. With U.S. duties on Chinese goods poised to rise, Abercrombie said the latest round of tariffs are “expected to have a direct adverse impact on cost of merchandise and gross profit of approximately $6 million for the fall season.”
• The retailer’s revised outlook includes factors in anticipated additional tariffs and of as much as 30%, in addition to currency fluctuations.
• The quarterly result exacerbates the pressure on Abercrombie. It had rebounded in recent quarters, largely on the strength of its Hollister brand, but that momentum seems to have faded.
• The company said that apparel was hit by discounting earlier this summer as companies sought to draw in back-to-school shoppers earlier than usual. Even so, the company said its back-to-school performance has been “solid.”

Market Reaction

• The drop in Abercrombie’s shares to as low as $14.18 was the lowest intraday level since 2017. The stock had declined 15% this year through Wednesday’s close, part of a broad decline by apparel retailers.
• Click here for company statement.

To contact the reporters on this story: Jonathan Roeder in Chicago at jroeder@bloomberg.net;Jordyn Holman in New York at jholman19@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Kevin Miller

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