Please ensure Javascript is enabled for purposes of website accessibility

Why Abercrombie & Fitch Stock Dropped 42.1% in May

By Steve Symington - Jun 5, 2019 at 8:16PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

From tariff worries to a strategic shift to smaller locations, Abercombie investors are understandably worried.

What happened

Shares of Abercrombie & Fitch (ANF 1.34%) plunged 42.1% in May, according to data from S&P Global Market Intelligence -- all but erasing the stock's roughly 45% year-to-date gain at the start of the month -- after the clothing retailer's reasonably solid first-quarter 2019 report was overshadowed by disappointing forward guidance.

To be sure, Abercrombie stock plummeted more than 26% on May 29 alone, the first trading day after its quarterly update hit the wires. In it, the company said its first-quarter revenue had climbed 0.4% year over year to $734 million, as a 1% increase in comparable-store sales was partially offset by store closures. That led to an adjusted net loss of $19.2 million, or $0.29 per share, improving from a loss of $0.56 per share in the same year-ago period. Both the top and bottom lines beat analysts' consensus estimates at the time for a loss of $0.44 per share on revenue of $733 million. 

Woman going up escalator holding multiple shopping bags


So what

Abercrombie's namesake locations managed to return to positive comparable-store sales growth of 1% during the quarter, while the Hollister brand mustered its 10th straight quarter of positive comps (2%).

But Abercrombie simultaneously announced plans to close three more large flagship stores, bringing its total flagship closures to five locations since 2017. Abercrombie CEO Fran Horowitz argued that the move is an important step toward optimizing the company's global store network, and ultimately pursuing its strategic vision for focusing on smaller omnichannel locations that offer a more intimate shopping experience for customers.

Now what

It certainly didn't help that the broader markets also fell hard last month -- with the S&P 500 losing almost 7% -- as investors worried about escalating trade wars and tariffs impacting economic growth. 

To that end, the potential costs of increased tariffs were not included in Abercrombie's second-quarter guidance, which calls for gross margin to decline 100 basis points from 60.2% a year earlier, and for net sales to be approximately flat to up 2%. The latter range was well below consensus estimates for growth closer to 2.9%.

That's not to say Abercrombie & Fitch isn't taking the right steps to ensure the long-term healthy of its brand. But given its relative underperformance in the meantime, however slight, it was hard to blame investors for taking some gains off the rack last month.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Abercrombie & Fitch Co. Stock Quote
Abercrombie & Fitch Co.
$32.52 (1.34%) $0.43

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.