Abercrombie & Fitch shares plummeted on Tuesday after the company reported a shock loss and revealed its inventories had surged from a year ago.
The company posted a net loss of $14.8 million for its first fiscal quarter — compared to net income of $42.7 million a year earlier.
The net loss worked out as a loss of 32 cents per share.
Net sales at Abercrombie & Fitch reached $812 million, up 4% year-on-year — but the company’s inventories reached $563 million, a year-on-year increase of around 45%.
Excess inventory can eat into a company’s cash flow by taking up space that could be used to store higher-demand products. Companies can be forced to discount items to cut through a build-up of stock.
Abercrombie & Fitch cut its full-year outlook on Tuesday, saying it now expected its operating margin to fall in the range of 5 to 6% instead of the previously projected range of 7 to 8%.
It cited higher freight and raw material costs, as well as lower sales expectations due to inflation’s impact on consumers, for the outlook adjustment.
Shares of the apparel giant were around 31% lower during early trade on Tuesday.
Plan to turn it around
CEO Fran Horowitz said in a statement as the earnings report was released that COVID lockdowns in China, and higher-than-expected freight and product costs, had weighed on the company’s highest first-quarter sales since 2014.
She added that the company expected higher costs to remain a headwind until at least the end of this year.
“We will continue to manage expenses tightly and are committed to finding opportunities to offset these costs,” she said.
Horowitz also said Abercrombie & Fitch would work to protect investments in marketing, technology and customer experience.
This strategy “should drive sustained, long-term sales growth,” she added.
Abercrombie is the latest in a string of retailers to see inventories soar and profits slump amid supply constraints and soaring inflation. Target and Walmart both reported similar issues in their first-quarter earnings reports.
