What happened
Shares of Abercrombie & Fitch (ANF -1.30%) 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.
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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.
