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Abercrombie & Fitch Horror Show Sinks Shares

Abercrombie & Fitch (ANF) had a horrific quarter that sent its shares plunging to one of their bleakest days ever Thursday, and the teen clothing seller, invoking the well-trodden "lack of visibility" clause, said it no longer wants to discuss its projections beyond the current three-month fiscal period.

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Abercrombie & Fitch store: Credit Reuters
For the second quarter ended Aug. 3, Abercrombie earned $11.4 million, or 14 cents a share including 2 cents of charges, down from $17.1 million and 20 cents a share in the same period a year ago. Total sales declined 0.6% to $945.7 million from $951.4 million last year.

Analysts were far too generous on both counts, having been looking for sales of $996.7 million and a profit of 28 cents a share. Abercrombie not only didn't come close to Wall Street's expectation on the profit line, it badly underperformed its own comments in May that it was figuring to earn 28 cents to 33 cents.

Meanwhile, same-store sales, including online sales directly to consumers, slumped 10%. In the U.S., it was even worse, with comparables dropping 11%. Same-store sales fell 6% for the Abercrombie & Fitch brand, and Hollister more than doubled that with a 13% slide. In short, positives were rare, though international sales did climb 15% to $348.4 million.

Shares were recently down 18.1% to $38.32 on volume that only two hours into trading was already approaching seven times the normal total for a full session. That gave Abercrombie the dishonor of having the steepest drop on the New York Stock Exchange. A mere five days have been worse, going back to its initial public offering in September 1996, according to FactSet data.

Retail's (somewhat) mixed bag

Abercrombie CEO Mike Jeffries said in a press release that the quarter "was more difficult than expected due to weaker traffic and continued softness in the female business," and that the chain was "planning sales, inventory and expenses conservatively for the remainder of the year."

The outlook Abercrombie was willing to provide gave investors no solace. Saying the third-quarter's same-store sales "will be down slightly more" than the second quarter, earnings for the period will probably be 40 cents to 45 cents. The consensus estimate is for a profit of $1.06. Abercrombie said it wouldn't venture to offer predictions beyond that "due to a lack of visibility given recent traffic trends."

While the reluctance to share further specifics with regard to revenue and profits is certainly its privilege, considering how the last few months have gone for New Albany, Ohio-based Abercrombie, company executives are more likely terrified to promise a reversal in the results: It's badly fallen short on the bottom line for two straight quarters. Overall revenue has missed three consecutive times. Same-store sales have now declined for six quarters in a row, and in the quarter before that streak began, they were flat. It had already cut its earnings guidance for the year, and now it doesn't even want to get into it.

Like Abercrombie, Aeropostale (ARO) (it already warned and is scheduled to report later Thursday) and American Eagle (AEO) had rough second quarters. But the problems aren't all across the group, with two clothing sellers aimed at young buyers suggesting they've got more of what their audience wants. One of them, Urban Outfitters (URBN), was upbeat this week, including reporting a 9% increase in same-store sales.

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Abercrombie & Fitch and other retailer comparisons

Source: FactSet. Data as of the close Aug. 21.

Gap (GPS), the biggest name among this group of apparel sellers by both sales and market capitalization, will post its numbers following the close. In a preview earlier this month, Gap said sales for the quarter rose 8% to $3.87 billion. Comps advanced 5%, and earnings should be 62 cents to 64 cents. At this point, its forecast will be the key as investors gauge whether its turnaround can continue or it opts to take a sullen view on consumer spending.

[Related: How the Gap Got Its Groove Back]

Regardless, it's fair to say that retail in general has had a discouraging August, prompting worries about Americans' confidence in their own wallets, as well as the state of the economy at large. On Wednesday, Staples (SPLS) and Target (TGT) were among the downbeat retailers.

That said, some in the industry have held up, namely Lowe's (LOW), Home Depot (HD) and Best Buy (BBY). Measured by the SPDR S&P Retail ETF (XRT), retail has gained 26.7% this year, but has fallen 3.2% since the end of last month. Including the current selloff, Abercrombie has lost 20% this year.

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