Abercrombie & Fitch faced a significant market reaction, with shares plunging 15% after the company released disappointing guidance for its upcoming quarter and the fiscal year. While the retailer had enjoyed notable growth over the last two years, it now anticipates a slower sales increase than investors expected.
Weaker Sales Projections
Abercrombie is predicting a sales growth of just 3% to 5% for fiscal 2025, significantly underperforming expectations of 6.8% as reported by LSEG. In its current quarter, the forecasted earnings per share are projected to be between $1.25 and $1.45, falling short of the anticipated $1.97.
The company’s primary brand, Abercrombie, is experiencing a notable slowdown, which raises concerns among analysts. Historically, this segment has been a driver of growth, contrasting with its younger counterpart, Hollister, which is resonating more with teenage consumers. For the latest quarter, sales for Abercrombie grew by merely 2%, while Hollister saw a solid 16% increase. In February, Abercrombie’s sales remained flat, with projections suggesting a downturn.
Analyst Insights
During a recent conference call, CEO Fran Horowitz noted, “This year has shown a deviation from previous trends, with February’s results indicating a more normalized market.” While Abercrombie’s performance coupled with Hollister’s strong showing signals positive momentum, the downturn in Abercrombie presents a challenge that management must address.
Market analysts viewed Abercrombie’s fiscal fourth-quarter results—they narrowly exceeded expectations—as a slight silver lining:
- Earnings per share: $3.57 vs. $3.54 expected
- Revenue: $1.58 billion vs. $1.57 billion expected
The net income for the period was reported at $187 million, a rise from $158 million a year prior. Even with an additional selling week last year, Abercrombie managed to increase sales from $1.45 billion to $1.58 billion, a 9% growth.
Operational Challenges Ahead
In addition to its sales forecasts, Abercrombie anticipates that its operating margin for the upcoming quarter will also trail behind market expectations, falling between 8% and 9% against estimates of 12.8%.
Moreover, in January, the outlook already hinted at a moderation in growth, leading to investors’ concerns regarding future profitability. The retailer now finds itself navigating macroeconomic challenges, including rising consumer prices, geopolitical tensions, and changing weather patterns that impact sales of discretionary goods.
While Hollister’s growth is promising, it’s evident that Abercrombie must rejuvenate its brand appeal to sustain market interest. CEO Horowitz has indicated a strategic pivot towards enhancing profitability rather than merely expanding sales, emphasizing a focus on long-term shareholder value.
To counterbalance the recent downturn, Abercrombie has initiated a $1.3 billion share repurchase program and plans to allocate $400 million for stock buybacks in 2025. The company remains committed to international expansion and leveraging its existing capabilities to foster sustainable growth.
Despite the recent volatility in its stock, Abercrombie continues to strive towards profitable growth, underscoring its confidence in brand strength and operational efficiency while addressing the pressing need to invigorate its core offerings.
