Abercrombie & Fitch Co. on Thursday reported that net sales year over year fell 0.2% to $841.1 million, though they rose 1% on a constant currency basis. By brand, revenue at the company's namesake fell 2% to $336 million and at Hollister rose 1% to $505 million. U.S. sales rose 2% while overseas sales dropped 4%. E-commerce grew in double digits.
Comparable sales were flat, after rising 3% in the year-ago quarter, with comps at both brands also flat, according to a company press release.
Net loss widened by 3.7% year over year to $31 million, the company also said. Hollister opened four new stores in the quarter and closed two, and Abercrombie opened one.
Abercrombie & Fitch Co. provided a tempered outlook on Thursday morning, having calculated "a direct adverse impact" of $6 million on fall merchandise costs and company profits, due to new tariffs on apparel and footwear imported from China, plus more being proposed.
Last year the company sourced about a quarter of its merchandise from China, and its new outlook assumes it will have reduced that to below 20% for fiscal 2019, the company said in its release.
The levies complicate an already slow-moving recovery at the retail company. "Within the US, although demand at the start of the quarter was weak, it picked up as period progressed and this is reflected in Abercrombie & Fitch's reasonable US comparable growth," GlobalData Retail Managing Director Neil Saunders said in emailed comments. "However, there is no doubt that the growth profile has deteriorated over the past year and this naturally raises the question as to whether recovery at the brands have run out of steam within the domestic market."
Consumer perceptions of quality, design, price and value at both the company's major brands have improved in recent years, according to GlobalData research, but that looks to be slowing. "The pace of the improvement has evened off over the past six months, especially when it comes to ratings for the uniqueness of the assortment at Abercrombie," Saunders said. "This, alongside the more muted demand environment, is likely acting as a drag on growth. On balance, we believe that Abercrombie could inject a bit more excitement into the range, but we believe this will likely happen in fall and winter collections where the company traditionally plays a stronger hand."
The company's turnaround is designed to be accomplished in stages "rather than a one-hit wonder," so it's reasonable to expect modest growth, along with "margin expansion, expense control and getting the business into the right shape in terms of stores and channels," he also said. Next comes market share growth from traffic, conversion and basket size improvements, much of which will come from the company's efforts to rationalize its footprint and revamp remaining stores.
Although tariffs look to be complicating that, CEO Fran Horowitz in a statement said the company remains focused on the long term even as it's "committed to delivering near-term results."
"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 said.