Aug 29, 2019
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Abercrombie & Fitch cuts full-year sales forecast on tariff impact; announces global leadership hires

Aug 29, 2019

Abercrombie & Fitch Co cut its full-year sales forecast on Thursday after missing Wall Street estimates in the second quarter, as the apparel maker grapples with the impact of increased U.S. tariffs on Chinese goods.

Shares of the Hollister brand owner tumbled as much as 14%, as the company also forecast a drop of 50 to 90 basis points in gross margins for the year, reversing its earlier expectations of a rise.

Hundreds of U.S. businesses including retailers and footwear companies have urged President Donald Trump to scale back rather than escalate tariffs on Chinese goods, warning they would jack up consumer prices and trigger job losses.

Abercrombie said its forecast also accounted for Trump’s most recent proposals for a rise in tariffs on $250 billion in goods to a 30% rate from 25%.

The company now expects full-year sales in the range of flat to up 2%, compared with its previous estimate of a 2% to 4% rise. The forecast also includes a hit of about $45 million from a stronger dollar.

The tariffs and currency impact were also expected to shave 60 basis points off Abercrombie’s margins for the full year, the company said.

To cushion the blow, the teen apparel maker has been aiming to cut the amount of goods sourced from China to below 20% in fiscal 2019 from 25% a year earlier.

Chief Financial Officer Scott Lipesky told a post-earnings call that he saw a chance to reduce that number to the low teens in 2020.

The tariff worries come as the company, once known for being a mall-based retailer, tries to cope with a rapidly changing retail landscape.

Hollister, which has been a bright spot for the company in recent years, reported flat comparable sales missing analysts’ estimates of a 1% rise, according to IBES data from Refinitiv.

“Tariffs alone do not fully explain the guide down,” Citigroup analyst Paul Lejuez said, adding the margin forecast suggests some “additional markdown pressure.”

The company’s comparable international sales fell 3%, taking a hit from protests in Hong Kong as well as concerns over Brexit.

Net sales slipped to $841.1 million from $842.4 million, below Wall Street expectations of $852.5 million for the second quarter ended Aug. 3.

Still, excluding items, the company posted a smaller-than- expected loss of 48 cents.

On Thursday, the company also announced the appointment of Daniel Le Vesconte and Olga Wu as group vice presidents for Europe, the Middle East and Africa (EMEA) and Asia-Pacific (APAC), respectively.
In their new roles, Le Vesconte and Wu will be responsible for driving growth in their respective markets by executing the company’s brand strategies. Both will report to President of Global Brands Kristin Scott.

Le Vesconte joins Abercrombie & Fitch from Dr. Martens, where he most recently served as president of EMEA. The executive’s more than 25 years of experience also include time spent at VF Corporation, where he oversaw the entry of the Vans and Reef brands into the European market and led their development in the region.
Wu boasts over 30 years of experience managing businesses in Asia, having most recently served as general manager of Timberland in China at VF Corporation. Prior to this, Wu was managing director of KFC Taiwan.
The two new appointments are in line with Abercrombie & Fitch’s global growth strategy, which also includes the designation of the company’s London and Shanghai offices as its regional headquarters for EMEA and APAC, respectively.
The HQs will complement Abercrombie’s existing regional teams and will be staffed with their own marketing, merchandising, planning, inventory management, customer research, and finance teams.
“As we seek to drive global growth and adapt our playbooks for markets around the world, we’re investing in our international teams to drive further closeness to our customers in every region,” explained Abercrombie & Fitch CEO Fran Horowitz in a release.

“We are pleased to welcome Dan and Olga to our A&F team; they each bring deep experience and understanding of consumer behavior and brand leadership across their respective regions.”

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