Why Abercrombie & Fitch stock is dropping despite double-digit sales growth and rosy earnings

Abercrombie & Fitch beat sales expectations in its second-quarter earnings report on Wednesday, but it’s stock price fell by double digits after its chief executive warned about a challenging environment for retail.

The apparel company’s net revenue for the quarter ending August 3 was $1.1 billion, up 21% from last year.

“We delivered a strong first half of the year, and we are increasing our full-year outlook,” CEO Fran Horowitz said in a statement. “Although we continue to operate in an increasingly uncertain environment, we remain steadfast in executing our global playbook and maintaining discipline over inventory and expenses.”

Net income for the second quarter was $133 million, or $2.50 per share, compared to last year’s $57 million, or $1.10 per share. According to a consensus estimate cited by CNBC, analysts were only expecting EPS of $2.22.

The company’s stock had been on a roll, rising almost 90% this year. But it plummeted when markets opened on Wednesday and were down almost 20% in midday trading as of this writing.

Other figures in the report were also positive: Abercrombie and Fitch’s third-quarter net sales outlook is a growth of low double digits, versus last year’s $1.06 billion.

And while the company’s fiscal year will be one week shorter compared to the 2023 fiscal year (this loss of one selling week is expected to cause a $50 million impact), the growth outlook for fiscal 2024 net sales is in the range of 12% to 13%, compared to the previous outlook of 10%.

Abercrombie and Fitch’s additional brands, Hollister and Abercrombie Kids, are boosting sales and are used to promote company growth. Horowitz, meanwhile, continues to expand the company’s market and announced a partnership with Haddad Brands, a children’s clothing brand, earlier this month.

“We are on track and confident in our goal to deliver sustainable, profitable growth this year, while making strategic long-term investments across marketing, digital and technology, and stores to enable future growth,” Horowitz said.