When Hollister fell out of fashion, Abercrombie cut its sales forecast

Abercrombie & Fitch products are seen at their store at Woodbury Common Premium Outlets in Central Valley, New York, US, on February 15, 2022. REUTERS/Andrew Kelly/File Photo

August 25, 2010 Abercrombie & Fitch Co. cut its full-year sales and profit forecasts after reporting a surprise quarterly loss, signaling increasing competition for consumer dollars amid rising inflation.

Shares of the Ohio-based retailer were down about 5% in morning trading.

Rising inflation is eroding consumer spending power at a faster rate than seen in decades, prompting Americans to cut back on clothing, especially during the pandemic, and prioritize essentials.

Abercrombie says it will revamp its inventory by removing out-of-fashion casual and athletic apparel and bringing in more dress styles ahead of the key holiday season.

Sales of the company’s California casual Hollister brand, which accounts for more than 50% of its business, fell 15% in the second quarter, while sales of its upmarket Abercrombie label rose 5%.

“(Abercrombie’s) second-quarter earnings disappointed on the weakness of Hollister, which is vulnerable to younger, more affluent customers and global disruptions,” said Dana Telsey, an analyst at Telsey Consulting Group.

“The shift from core basics to fashion-oriented products contributed to the brand’s below-target performance,” Telsi added.

Abercrombie CEO Fran Horowitz said the slump in demand for Hollister’s apparel had worsened, with the company having to cut back heavily to get rid of excess casual wear.

The company joins several other top U.S. retailers, including department store chains Macy’s and Nordstrom ( JWN.N ), in warning that profits will be squeezed by the need to increase discounts. Read more

Abercrombie now expects net sales to decline in the mid-single digits in fiscal 2022, down from flat to 2 percent growth previously.

It forecasts a full-year operating margin in the range of 1 to 3 percent, down from previous estimates of 5 percent to 6 percent.

Reporting by Mehr Bedi in Bengaluru; Editing by Shailesh Kuber

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