Shares of Abercrombie & Fitch (ANF 1.40%), a basics retailer focused on the youth market, fell a huge 17.5% at the open of trading on March 2. The news that precipitated that drop was the company's fourth-quarter 2021 earnings update, which hit the market before it opened for the day. It wasn't all bad news, but clearly investors were not particularly pleased.
Abercrombie & Fitch's fourth-quarter 2021 sales came in at $1.2 billion, up roughly 4% from the same quarter of 2020. However, the company's sales are still 2% below their pre-pandemic levels, so the performance was mixed, at best. Notably both the retailer's namesake brand and its Hollister nameplate reported year-over-year sales growth, but Hollister's sales remain below 2019 levels. Its recovery clearly hasn't been quite as robust as that of sister brand Abercrombie, which is the smaller of the two nameplates. That said, digital sales grew to 48% of the total, suggesting that the company's online efforts are producing fairly solid results. The company's adjusted earnings in the final quarter of 2021 was $1.14 per share, down from $1.50 in the prior year. That's not great, but alone it's not the reason for the steep price drop.
The issue that most likely got investors in a glass-half-empty mood was that Abercrombie & Fitch missed analyst expectations on both the top and bottom lines. Investors tend to get upset when that happens. Unfortunately, that wasn't the only negative from the quarter, as supply chain issues and inflationary pressures also played a part in the miss. Both are hot-button issues for investors today. So while there were some positives in the quarter, the negatives seem to have weighed heavier on investors' minds.
While Abercrombie & Fitch had to admit that it lost out on sales because of inventory headwinds in the fourth quarter, it believes those negatives won't be an issue in 2022. That said, inflationary pressures are expected to continue and sales growth is projected to be fairly modest, up between 2% and 4%, driven largely by the U.S. market. All in, the teen retailer isn't doing badly, but it certainly isn't hitting on all cylinders, and investors, having bid the shares up dramatically from their pandemic lows, appear to be reassessing their commitments here. That change of heart isn't shocking or illogical.