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Why Abercrombie & Fitch Stock Stumbled Today

Jeremy Bowman, The Motley Fool

What happened

Shares of Abercrombie & Fitch (NYSE: ANF) were getting sent to the cleaners today after the teen apparel retailer issued a disappointing second-quarter earnings report and warned on the rest of the year, in part over concerns about tariffs.

As a result, the stock was down 15.6% as of 11:33 a.m. EDT.

Two teenage girls sitting inside a mall.

Image source: Getty Images.

So what

For the quarter past, Abercrombie said that comparable sales were flat at both Hollister, its larger chain, and its namesake brand. Overall revenue slipped 0.2% to $841.1 million but rose 1% after adjusting for currency translation. Nonetheless, that missed estimates at $852.5 million.

Gross margin fell from 60.2% to 59.3%, a sign the company might have had to do more discounting, and operating margin plunged due to exit costs associated with the closing of several of its flagship stores around the world.

Adjusting for the store closures, the company reported $0.02 in earnings per share, compared to $0.06 a year ago. On a generally accepted accounting principles basis (GAAP), the company lost $0.48 per share, which beat estimates of a $0.53-per-share loss.

Despite the tough quarter, CEO Fran Horowitz sounded optimistic about the quarter ahead, saying: "Trends improved throughout the second quarter, enabling us to deliver constant currency revenue growth and meet our previously issued comp and gross profit rate outlook, while continuing to tightly manage expenses. Importantly, we have had a solid start to back-to-school in the U.S. and we look forward to building on that momentum in the back half through exciting product and cohesive marketing campaigns." She also said that digital sales grew by double digits in the quarter.

Now what

The mall-based chain said that margins in its third quarter would compress again due to new rounds of tariffs scheduled to begin soon. The company forecast flat comparable sales for the third quarter but said gross margin would fall 100 basis points, due largely to the new Chinese tariffs. The retailer said about 25% of its merchandise last year came from China, while this year it would be less than 20%. Still, the tariffs are expected to weigh on retailers across the board, especially with the back-to-school season in full swing and the holiday season just a few months away.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com