Abercrombie Sees Weaker Sales, Margins as Inflation Bites

Abercrombie & Fitch Co trimmed its full-year sales forecast on Tuesday as record-high inflation hits demand for the retailer’s jeans, tops and dresses, sending its shares down 18 percent in premarket trade.

Demand for discretionary goods has taken a hit as consumers prioritise spending on essentials such as food and gas whose prices have been surging due to supply chain snarls and the Russia-Ukraine war.

Abercrombie joined some of the top US retailers in flagging a hit to margins from decades-high inflation, with Walmart Inc and department store chain Kohl’s Corp trimming their profit targets last week.

“We expect higher costs to remain a headwind through at least year-end,” Abercrombie chief executive officer Fran Horowitz said.

The company now expects net sales to be flat to up 2 percent in fiscal 2022, compared with its earlier forecast of a 2 percent to 4 percent growth. Analysts on average expect sales to increase 3.5 percent to $3.84 billion, according to Refinitiv IBES data.

It expects full-year operating margin between 5 percent and 6 percent, down from its previous outlook of 7 percent to 8 percent, reflecting a 200-basis-point hit from higher freight and raw material costs and lower sales.

By Deborah Sophia; Editor: Vinay Dwivedi

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Once a staple among American teens, the retailer faltered in the 2010s after failing to keep pace with shifting consumer preferences. But through a strategy rooted in customer centrism, a revamped product offering and changes to the internal structure of the company, the brand’s turnaround is taking hold.