Shares of Abercrombie & Fitch (NYSE: ANF) lost more than a fourth of their market capitalization, after the American lifestyle retailer reported mixed Q1 results. The unexpected losses were attributed to higher freight and product costs.
What upset investors further, was the cut in the annual sales and margins outlook by the company.
Q1 Mixed Results
The company reported an adjusted loss of $0.27 per share, which fell far short of the street’s estimated earnings per share of $0.08.
However, net sales of $812.76 million in the quarter were ahead of the $799.33 million consensus and grew 4% year-over-year from the $781 million reported a year earlier.
Regionally, the U.S. outperformed, with Europe, Middle East, and Africa (EMEA) region sales returning to growth, while the Asia-Pacific (APAC) region was negatively impacted by COVID lockdowns in China.
Disappointingly, gross profit declined 810 bps to 55.3% due to approximately $80 million in higher freight costs, partially offset by higher average unit retail on lower promotions.
Fiscal 2022 Full Year Outlook
Based on the current scenario and the inflationary impact on consumer demand, management slashed financial guidance for FY2022.
The company now forecasts net sales to be flat to up 2%, lower than the previously guided growth of 2% to 4%.
Additionally, the company now forecasts an FY2022 operating margin in the range of 5% to 6%, down from the prior outlook of 7% to 8%. The margin compression is expected from higher freight and raw material costs, foreign currency, and lower sales due to inflationary pressures.
CEO’s Comments
Abercrombie CEO, Fran Horowitz, commented, “We expect higher costs to remain a headwind through at least year-end. We expect freight relief in the fourth quarter as we anniversary increased air usage last year due to the Vietnam shutdown.”
He further stated, “We will continue to manage expenses tightly and are committed to finding opportunities to offset these costs while protecting strategic investments in marketing, technology and our customer experience, which should drive sustained, long-term sales growth.”
Wall Street’s Take
Following the disappointing results, CFRA almost halved the price target on Abercrombie & Fitch to $25 (30.96% upside potential) from $45 and reiterated a Hold rating.
The rest of the Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on two Buys and four Holds. The average Abercrombie & Fitch price target of $36 implies 88.56% upside potential to current levels.
Bottom-Line
Overall, the retail industry has been hammered by all-time high inflation, impacting sales on the one hand and pushing costs higher on the other, leading to squeezed margins.
CEO Horowitz’s warning on tightly managed expenses, as well as the slashed outlook, give a clear indication that relief will not come for the retailer anytime soon.
Discover new investment ideas with data you can trust.
Read full Disclaimer & Disclosure
Related News:
Booz Allen Hamilton Posts Q4 Beat & Issues Muted Guidance
AstraZeneca Wins EU Approval for COVID-19 Vaccine as Booster
Why Does Apple Want to Shift Its Base From China to India & Vietnam?
