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Why Abercrombie & Fitch Co. Shares Tanked Today

By Jeremy Bowman - May 26, 2016 at 1:31PM

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Shares of the teen retailer fell on a weak earnings report. Here's what you need to know.

What: Shares of Abercrombie & Fitch Co. (ANF -3.39%) tumbled today after the teen apparel retailer turned in a disappointing first-quarter earnings reports. As of 12:12 p.m. EDT, the stock was down 18.2%.

So what: Abercrombie missed estimates on the top and bottom lines and issued weak guidance, echoing the headwinds felt by much of the apparel industry. The preppy retailer posted a per-share loss of $0.53 in the quarter, slightly worse than the $0.51 analysts had expected. On the revenue side, comparable sales dipped 4%, pushing total revenue down 3.3% to $685.5 million, below expectations at $709.5 million. 

Executive Chairman Arthur Martinez cited "significant traffic headwinds, particularly in international markets," but was optimistic about the Hollister brand, where comps were flat, and an improving gross margin across the board, a result of better inventory management. 

Now what: Martinez said he expected the current quarter to remain challenging, but results should improve in the back half of the year "as our assortments continue to improve and we see returns from significant investments in marketing, store management and omnichannel."

Management did not provide specific guidance, but the market was clearly disappointed with the report and the outlook. Still, the improvements in gross margin and expectations for better performance in the second half of the year are promising. Considering the fates of peers like Aeropostale and American Apparel, both of which entered bankruptcy recently, Abercrombie deserves credit for transitioning its business and remaining profitable, but the stock is unlikely to deliver any fireworks soon as the challenges facing the company are many.

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