Abercrombie warns of weak margins as holiday sales disappoint

Clothes retailer Abercrombie & Fitch Co warned of weaker margins in 2022 after missing holiday-quarter sales and profit estimates due to product shortages and COVID-19 curbs, sending shares down more than 17% in early trading on Wednesday.

The Ohio-based retailer took a hit from factory closures in Vietnam and shipping delays, leading to shortages during the peak Christmas and New Year shopping period. The company's teen-focused Hollister brand was the most heavily impacted.

"We had significant unexpected inventory receipt delays from late November into December leaving us unable to fulfill peak holiday demand," Chief Executive Fran Horowitz said on an earnings call.

Sales in the Asia Pacific region fell 21% in the quarter as renewed restrictions in some parts of the world due to a surge in the Omicron coronavirus variant forced the company to cut down on operating hours at its outlets.

However, Horowitz said sales had started to improve as products arrived and COVID-19 cases fell, giving the firm momentum in the current quarter.

Abercrombie projected net sales for fiscal 2022 to rise 2% to 4%, above estimates of a 2.7% rise at midpoint.

The retailer offered fewer and smaller discounts to protect its margins but they were offset by higher-than-expected freight costs in the fourth quarter, with profit per share of $1.14 falling short of estimates of $1.27.

The company said it expects gross margins to decline 200 basis points this year.

Abercrombie's net sales rose to $1.16 billion in the fourth quarter from $1.12 billion a year earlier, but missed analysts' estimates of $1.18 billion, according to IBES data from Refinitiv.

Teen apparel peer Urban Outfitters Inc (URBN.O) also saw a fall in store traffic before Christmas, while American Eagle Outfitters Inc (AEO.N) has signaled a hit to holiday sales due to the same factors of supply chain snarls and Omicron.