Please ensure Javascript is enabled for purposes of website accessibility

Why Abercrombie & Fitch Stock Tanked 15.5% in the First Hour of Trading Today

By Reuben Brewer – Nov 23, 2021 at 11:09AM

Key Points

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

The basics retailer posted earnings, which looked solid. However, supply chain comments put investors in a downbeat mood.

What happened

Shares of teen basics retailer Abercrombie & Fitch (ANF -1.90%) dropped 15.5% as soon as trading opened on Nov. 23. That decline was precipitated by the company's third-quarter earnings release, which hit the market before the open today. It was a mixed bag, with the real problem likely tied more to investor sentiment around a key headline-grabbing topic.

So what

Abercrombie & Fitch's third-quarter 2021 sales came in at $905 million, up 10% compared to the same quarter of 2020 and 5% compared to 2019. That's not bad at all, and suggests that the company's brands are still resonating with consumers. On the bottom line, the retailer posted adjusted earnings of $0.86 per share, up from $0.71 per share in the third quarter of 2020 and $0.37 per share the year before that. Digital sales rose 8% year over year and now make up 46% of the company's top line. So far the earnings update looks pretty good, noting that the company beat analyst expectations on both the top and bottom lines.

A hand swiping a credit card through a credit card machine.

Image source: Getty Images.

The problem is that Abercrombie & Fitch commented about logistics issues, which is a red flag for investors. That's a pretty common thing right now, since the headlines have detailed problems across the global supply chain. In the case of this retailer, however, rising costs led to a slight year-over-year profit margin decline in the third quarter. Management noted that it was dealing with the problem well, but specifically highlighted "production and delivery delays and elevated costs" as issues. The impact wasn't small, either, representing a 300-basis-point headwind to the gross profit margin. Although Abercrombie & Fitch was able to largely offset that hit with higher pricing, it's an issue that's likely to linger through at least the fourth quarter if not longer. 

Now what

Wall Street is almost as mercurial as the teens who shop at Abercrombie & Fitch's stores. And today, despite decent sales and earnings results, investors chose to focus on the negatives. That's not shocking, given the top of mind nature of the logistics issues facing the company. The big question from here, however, is whether or not the retailer can keep offsetting the hit via higher prices.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

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