Inflation and Shifting Consumer Preferences Impact Sales
- Abercrombie & Fitch lowers sales forecast for FY22
- Sales in Q2 dropped 7% to $805m (£683.2m)
- Hollister saw a 15% drop in sales to $436.9m (£370.8m)
- Operating income expected to be around break-even
- Inflation and shift in consumer preferences impacting sales
- Abercrombie & Fitch taking actions to adjust inventory receipt levels and cadence by region
Abercrombie & Fitch Co. has lowered its sales forecast for the fiscal year 2022, with sales expected to be down in mid-single digits from $3.7bn (£3.1bn) in FY21 compared to the previous outlook of flat to up 2%. The company’s operating margin is now expected to be between 1%-3%, down from the previous outlook of 5%-6%. This comes as Hollister has seen a greater than anticipated impact from inflation and a shift away from core categories to more fashion-driven products, contributing to lower-than-expected conversion and basket size. Operating expenses were up 4% year-on-year, driven by inflation and higher digital fulfilment expenses partially offset by lower incentive-based compensation. Abercrombie & Fitch announced a 7% decline in net sales to $805m (£683.2m) for the second quarter ended 30 July 2022 (Q2). Particularly, Hollister posted a 15% drop in sales to $436.9m (£370.8m). The company is taking actions to reduce certain expenses and adjust inventory receipt levels and cadence by region in response to current market forces. Fran Horowitz, chief executive officer, said: “As the global macro environment deteriorated in the second quarter, we experienced a divergence in brand performance. Abercrombie delivered its highest Q2 sales since 2015 and its ninth consecutive quarter of AUR growth. ‘We expect macro headwinds to persist and have taken action to adjust receipts across brands to fuel winning categories for late fall and holiday. In addition, we have right-sized the Hollister inventory receipt plan for holiday and beyond. Looking ahead, we will continue to monitor sales volumes and react with agility to ensure inventory turns appropriately.’
Factuality Level: 8
Factuality Justification: The article provides accurate and objective information about Abercrombie and Fitch Co.’s lowered sales forecast for FY22 and Q3, as well as the reasons behind it such as inflation, shift in consumer preferences, and actions taken by the company to mitigate these factors. It also includes relevant financial data like net sales and operating expenses. The article is not sensationalist or opinionated, and does not contain any logical errors or inconsistencies.
Noise Level: 3
Noise Justification: The article provides relevant information about Abercrombie and Fitch Co.’s lowered sales forecast and the reasons behind it, such as inflation and a shift in consumer preferences. It also mentions actions taken by the company to mitigate these issues. However, it could provide more context on the broader economic factors affecting the retail industry and how other companies are responding.
Financial Relevance: Yes
Financial Markets Impacted: Abercrombie and Fitch Co.’s lowered sales forecast and operating income impact the company’s financial performance and stock price.
Financial Rating Justification: The article discusses changes in Abercrombie and Fitch Co.’s financial outlook, including lower sales forecast, reduced operating margin, and operating loss. This directly impacts the company’s financial performance and could potentially affect its stock price and investor sentiment, making it financially relevant.
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: Minor
Extreme Rating Justification: There is no extreme event mentioned in the article, and the impact of the financial crisis seems to be moderate but manageable for the company.
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