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Abercrombie & Fitch lowers outlook amid higher freight and raw material costs

Jeremy Lim
24 May 2022

Abercrombie & Fitch has announced its results for the first quarter ending 30 April 2022, with net sales rising by 4% to £649 million, compared to the same period last year.

Operating losses amounted to £7.9 million and $4.7 million on a reported and adjusted non-GAAP basis, respectively, as compared to operating income of £45 million and £47 million last year.

The company reported a decline in gross profit rate to 55.3%, driven by approximately £63 million of higher freight costs, partially offset by higher average unit retail on lower promotions.

Operating expense was up 5% compared to last year with approximately half of the increase caused by COVID-related rent abatements and payroll credits last year, and the other half due to an increase in marketing and digital fulfilment expenses.

Looking ahead, the company expects net sales to be flat to up 2% from £2.9 billion in 2021, down from a previous outlook of up 2 to 4%. It forecasts operating margin to be in the range of 5 to 6%, down from previous outlook of 7 to 8%, reflecting the adverse impact from higher freight and raw material costs, foreign currency, and lower sales

Abercrombie & Fitch added that the company plans to flex operating expenses in response to volatility in freight and other costs. Beginning this quarter, the company will no longer provide a full year outlook on gross profit rate or operating expense.

Fran Horowitz, Chief Executive Officer, said, "First quarter net sales exceeded expectations ... We continued to reduce our promotional activity, contributing to our eighth consecutive quarter of AUR improvement. This was more than offset by higher-than-expected freight and product costs.

"Looking forward, we expect higher costs to remain a headwind through at least year-end. We expect freight relief in the fourth quarter as we anniversary increased air usage last year due to the Vietnam shutdown. We will continue to manage expenses tightly and are committed to finding opportunities to offset these costs while protecting strategic investments in marketing, technology and our customer experience, which should drive sustained, long-term sales growth."

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