Abercrombie & Fitch Co. (ANF) plunged the most in more than 21 months after forecasting profit for the current quarter that was less than analysts estimated amid declining traffic at its stores.
The shares slid 18 percent to $38.53 at the close in New York, for the biggest one-day drop since Nov. 3, 2011. Third-quarter profit will be as much as 45 cents a share, the company said today in a statement, while declining to forecast earnings beyond then. Analysts estimated $1.07, on average.
Chief Executive Officer Mike Jeffries has been struggling to reconnect with the clothing chain’s teenage customers who have become less enamored of Abercrombie’s fashions, half-naked models and cacophonous stores. On top of that, consumers concerned about the unsteady economy have been limiting purchases of non-essential items.
“People are completely shocked at the fact that they’re not able to give visibility, that the depths of traffic declines in July are what they assume will continue in the third quarter,” Stephanie Wissink, a Minneapolis-based analyst at Piper Jaffray Cos., said in an interview today. She has the equivalent of a buy rating on the shares.
Sales at stores open at least a year and through its websites fell 10 percent in the quarter ended Aug. 3, including an 11 percent U.S. decline. Comparable-store sales at New Albany, Ohio-based Abercrombie & Fitch slid 6 percent and 13 percent for Hollister. Revenue fell 0.6 percent to $945.7 million, trailing analysts’ projection of about $1 billion, while net income slid 33 percent to $11.4 million, or 14 cents a share.
Profit excluding some items was 16 cents a share. The average of 29 analysts’ estimates compiled by Bloomberg was 29 cents.
“The second quarter was more difficult than expected due to weaker traffic and continued softness in the female business, consistent with what others have reported,” Jeffries said in the statement. “In that context we are planning sales, inventory and expenses conservatively for the remainder of the year.”
Retailers from Macy’s Inc. (M) to Wal-Mart Stores Inc. (WMT) have reported results that trailed expectations for their most recent quarters. Macy’s last week posted its first sales drop since 2010 and its profit trailed analysts’ estimates for the first time since 2007. Wal-Mart said last week that earnings for the rest of the year would be less than it previously expected as consumers were hesitant to make discretionary purchases.
After taking the helm in 1992, Jeffries turned a chain that originally made safari and camping gear for the likes of Theodore Roosevelt and Ernest Hemingway into a teen emporium where sex met Ivy League. He used Abercrombie’s reputation for quality to charge more for youthful styles, recruiting all-American teens and college-aged kids to model and work as salesmen.
Risqué quarterly catalogs enraged religious groups. In 1999, the boy band LFO paid homage with its top-10 song “Summer Girls,” which included the lyrics: “I like girls that wear Abercrombie & Fitch / I’d take her if I had one wish.”
The Jeffries formula worked from 1995 into 2008, when the company boosted sales more than 20-fold and net income more than 56-fold. Then the world changed. The downturn made it hard for Abercrombie, long an aspirational brand, to keep selling $70 jeans when similar styles could be purchased elsewhere for $40, and Abercrombie’s customers began moving on.
“We are not satisfied by our results and are working hard to improve our trends for the third quarter and beyond,” Jeffries said on the company’s earnings conference call today.
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