US fashion retailer Abercrombie & Fitch delivered a net loss of $14.8 million for its first fiscal quarter, causing a whopping share price drop of 29%.
The company said that logistics and product costs were weighing down sales. The apparel retailer also cut its sales outlook for 2022, as it expected economic headwinds to remain throughout the year.
CEO Fran Horowitz said the firm will manage its “expenses tightly” and look for ways to offset the higher logistics costs.
Abercrombie joins a clutch of prominent retailers that includes the likes of Walmart, Target, and Kohl’s, which are all seeing profits slashed and share prices fall as inflation is the highest it has been in 40 years.
Abercrombie’s inventories swelled to $563 million at the end of April, an increase of 45% from a year ago. The company said it had built up its inventories to guard against potential supply-chain disruptions.
What does this mean for me?
Abercrombie’s move to bulk up inventories after months of supply-chain disruptions is tying up cash flow just as consumer demand wanes. It could force the company to sell items at large discounts just to get them off the shelves.
In the same way that Abercrombie has slashed its outlook for 2022 in anticipation of economic headwinds worsening, many other retailers face the same reality.
Many analysts are predicting a bear market for the share prices of retailers in key markets. As a shares investor, you should be prepared to adjust your portfolio accordingly.