Abercrombie & Fitch‘s growth story is starting to slow down.
Shares of the apparel retailer plummeted 15% on Wednesday after the company issued weaker-than-expected guidance for its current quarter and fiscal 2025, and said it expects its sales will grow more slowly than Wall Street anticipated.
Abercrombie is expecting sales to rise between 3% and 5% in fiscal 2025, well below estimates of 6.8% growth, according to LSEG. During its current quarter, the company anticipates earnings per share will be between $1.25 and $1.45, short of expectations of $1.97.
A slowdown at Abercrombie’s namesake brand is compounding concerns. The segment had been leading the company’s growth in prior quarters more than Hollister, its chain that caters more to teenagers.
During the quarter, sales at Abercrombie grew just 2%, while Hollister sales jumped 16%. Comparable sales at Abercrombie rose 5%, while Hollister comps spiked 24%.
Abercrombie brand sales continued to decelerate into February and turned negative for the month, CEO Fran Horowitz said on a call with analysts.
“Last year we did have a bit of a flawless transition into spring, and this year it’s a bit more normalized. [The full company’s sales are] positive for the month of February, seeing a little bit of a difference between the brands. Hollister came in very strong off of a very, very strong Q4 and Abercrombie is a bit negative,” Horowitz said.
When asked where macroeconomic conditions or something else is driving that slowdown, executives didn’t really answer and said instead they’re seeing “green shoots for spring.”
Beyond guidance and slowing growth, Abercrombie narrowly beat Wall Street’s expectations in its fiscal fourth quarter. Here’s how the retailer performed compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Earnings per share: $3.57 vs. $3.54 expected
- Revenue: $1.58 billion vs. $1.57 billion expected
The company’s reported net income for the three-month period that ended Feb. 1 was $187 million, or $3.57 per share, compared with $158 million, or $2.97 per share, a year earlier.
Sales rose to $1.58 billion, up 9% from $1.45 billion a year earlier. Like other retailers, Abercrombie benefited from an extra selling week in the year-ago period. That negatively skewed comparisons for many companies, but Abercrombie sales jumped even with one less selling week.
Beyond sales and earnings, Abercrombie said it expects another key metric – operating margin – to be lower than Wall Street anticipated in the current quarter. Abercrombie is expecting its operating margin to be in a range of between 8% and 9%, well behind estimates of 12.8%, according to StreetAccount.
In January, Abercrombie offered investors a glimpse into its holiday performance when it released an early set of results and raised its fourth-quarter outlook. Still, its stock tumbled that day because the forecast showed that Abercrombie was expecting its growth to moderate and thought its operating margin would not increase beyond its previous forecast. Concerns around its operating margin are now likely increasing after Abercrombie issued its fiscal first-quarter guide.
However, not all of Abercrombie’s guidance was a disappointment. During its current quarter, it expects sales to rise between 4% and 6%, in line with expectations of 5.8%, according to LSEG. For the full year, it anticipates earnings will be between $10.40 and $11.40 per share, which at the mid to high end is higher than expectations of $10.83 per share.
Following about two years of explosive stock and sales growth, Abercrombie’s business appears to be leveling out, and the markets may be turning away from retail’s biggest star in favor of names with more immediate upside.
The company is still growing, and working to build out its international market, but it’s unclear if it’s still going to see the blockbuster numbers it’s been putting out after implementing a turnaround under CEO Horowitz. It faces tough prior-year comparisons, and some of the buzz from the turnaround might be starting to fade.
Plus, consumers have been noticeably cautious since the start of the year, which is always going to pressure specialty retailers that sell discretionary goods like clothes. Geopolitics, unseasonably cool weather and mass tragedies like the wildfires in Los Angeles have dampened consumer demand, but shoppers are also concerned about things like rising prices from tariffs. In February, consumer confidence slipped to its lowest levels since 2021.
The fact that Hollister is now growing faster than Abercrombie, and accounting for the majority of sales, marks a turning point for the company and indicates the teen-focused brand could once again be a more important growth driver ahead. It also puts pressure on management to do more to stimulate the Abercrombie brand and ensure it doesn’t go stagnant.
The start of the year has been a bit worse than expected for a number of other companies, including Target and E.l.f. Beauty. Like E.l.f., Abercrombie could have seen an impact from the proposed TikTok ban, which dragged on the cosmetics company’s performance at the start of the year.
Both of the companies rely heavily on TikTok for marketing. In February, E.l.f. CEO Tarang Amin told CNBC that he suspects the proposed ban impacted cosmetics sales because people weren’t posting things like “get ready with me” videos or clothing hauls, which can drive sales.
In a news release in January, Horowitz signaled that moving forward, Abercrombie will be more focused on boosting profits than sales as it looks to “drive long-term shareholder value.”
“Following an expected two years of double-digit top and bottom-line growth, I am as confident as ever in the power of our brands and operating model as we move forward, supported by the outstanding capabilities we’ve built,” said Horowitz. “In 2025, we will look to continue sustainable, profitable growth through the execution of our playbooks to win and retain customers around the world. Our goal is to leverage our healthy margin structure and balance sheet to grow operating income dollars and earnings per share at rates faster than sales.”
That suggestion came true on Wednesday when Abercrombie announced a new $1.3 billion share repurchase authorization and said it expects to spend $400 million on stock buybacks in 2025.
