Abercrombie & Fitch Co. (ANF 2.10%) stock was getting ripped apart today after the teen apparel retailer turned in another disappointing earnings report. As of 12:00 p.m. EST, the stock was down 14.1%.
Performance at the retailer was challenged across the board as comparable sales fell 6%, dropping 14% at namesake Abercrombie & Fitch stores but staying flat at Hollister, its sister brand. Adjusted earnings per share plummeted from $0.48 to $0.02, or $0.11 when adjusted for currency fluctuations, though that was still significantly worse than the $0.21 analysts had expected.
Total revenue was down 6.5% to $821.7 million, also below estimates of $830.6 million. CEO Arthur Martinez acknowledged the weak performance, saying:
Our third quarter was challenging. For A&F, flagship and tourist locations continued to be a major headwind. In addition, chain store traffic patterns remained negative. Weakness in A&F was compounded by underperformance of seasonal categories, which ultimately led to pressure on gross margin.
Martinez went on to say that A&F's results would be challenged for the remainder of the year, but he promised significant changes in product, marketing, and customer experience to make the brand more competitive.
For the fourth quarter, the key holiday period, management expects comparable sales to continue to be negative, but to improve from the third quarter. The company did not give bottom-line guidance, but it said it expects gross margin to be down slightly from the previous year, and operating expenses to be up 1%, indicating profits are likely to be challenged as well.
Abercrombie & Fitch is just one of many teen apparel and mall-based retailers that are facing significant headwinds. American Apparel and Aeropostale have declared bankruptcy, and Gap Inc, the biggest company in the industry, is seeing its shares fall double digits after a similarly weak earnings report. After its latest quarter, Abercrombie's dividend also looks even more pressured since the company can no longer afford to pay for it straight out of profits.
Considering the industry headwinds and the dividend risk, it seems likely that the stock will fall further.