What happened

Shares of Abercrombie & Fitch (NYSE:ANF) were down 26% as of 2:15 p.m. EDT Wednesday after the clothing retailer announced slightly better-than-expected first-quarter 2019 results but followed with underwhelming guidance and plans to close more flagship locations.

Regarding the former, Abercrombie's quarterly net sales climbed 0.4% year over year, to $734 million, helped by comparable-store sales growth of 1%. That translated to an adjusted (non-GAAP) net loss of $19.2 million, or $0.29 per share, narrowed from a $0.56 per-share loss in the same year-ago period. Analysts, on average, were expecting a wider net loss of $0.44 per share on revenue closer to $733 million.

Black and white stock market chart with yellow arrow indicating declines.


So what

Abercrombie CEO Fran Horowitz noted this was the company's seventh-straight quarter of positive comparable sales, including continued momentum at Hollister and a return to growth from their namesake brand. "We are focused on our transformation initiatives, with global store network optimization a key priority," Horowitz added. "We continue to believe in stores and are committed to delivering intimate, omni-channel brand experiences that closely align with our customers' needs."

To that end, Abercrombie is closing three additional large flagship locations (bringing the total closed to five since 2017), including its SoHo Hollister flagship store in New York City, its Abercrombie & Fitch flagship location in Milan, Italy, and its A&F flagship store in Fukuoka, Japan.

"These actions represent important ongoing steps in the company's global store network optimization efforts as it continues to pivot away from large format stores to smaller, omni-channel focused brand experiences," the company explained in a written statement.

Now what

The company also reiterated its guidance for full fiscal-year 2019 net sales to be up 2%, to 44%, assuming low-single-digit growth in comparable sales. For the second quarter, however, Abercrombie sees net sales being roughly flat to up 2% -- well below the 2.9% growth most analysts were modeling -- assuming flat comparable sales. 

After coupling that weak near-term guidance with Abercrombie's impending flagship-store closures, the market seems to fear, at the very least, that Abercrombie's full-year results will arrive near the low end of its stated outlook range. Until the company proves otherwise, it's no surprise to see the stock plunging in response.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.