Why Did Abercrombie & Fitch’s Stock Drop 17.5 Percentage Point?

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The company’s fourth-quarter 2021 earnings report, which was released before the market opened for the day, was the catalyst for the decline. Although the news wasn’t completely awful, investors were plainly disappointed. Abercrombie & Fitch’s sales in the fourth quarter of 2021 totaled $1.2 billion, up 4% from the same quarter in 2020. However, revenues are still 2% below pre-pandemic levels, indicating that the company’s performance was mixed at best.

Both the retailer’s namesake brand and the Hollister nameplate saw sales increase year over year, while Hollister’s sales remained below 2019 levels. Its comeback hasn’t been as strong as sibling brand Abercrombie & Fitch, which is the smallest of the two nameplates. However, digital sales increased to 48% of overall revenues, indicating that the company’s online initiatives are yielding positive results. In the fourth quarter of 2021, the company’s adjusted profits per share were $1.14, down from $1.50 the previous year. That isn’t ideal, but it isn’t the sole cause of the price decline.

Abercrombie & Fitch failed analyst estimates on both the top and bottom lines, which most likely put investors in a negative frame of mind. When this happens, investors are usually irritated. Unfortunately, that wasn’t the only bad aspect of the quarter; supply chain concerns and inflationary pressures also contributed to the underperformance. Both are today’s hot topics among investors. While there were some positives in the quarter, investors appear to have focused more on the downsides.

While Abercrombie & Fitch had to confess that inventory difficulties cost them sales in the fourth quarter, the company expects that these issues won’t be a problem in 2022. However, inflationary pressures are predicted to persist, and sales growth is expected to be moderate, ranging between 2% and 4%, driven mostly by the US market. Overall, the adolescent store isn’t performing terribly, but it isn’t firing on all cylinders, and investors appear to be reconsidering their commitments after bidding the stock up considerably from its epidemic lows. That shift in opinion is neither surprising nor irrational.

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