Abercrombie & Fitch cuts full-year sales forecast amid US-China trade war

To cushion the blow, the teen apparel maker is aiming to cut the amount of goods sourced from China

FILE - This May 24, 2018 file photo shows an Abercrombie and Fitch retail outlet in New York. Abercrombie and Fitch reports financial results Thursday, Aug. 29. (AP Photo/Seth Wenig, File)
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Abercrombie & Fitch slashes its full-year sales forecast after missing Wall Street estimates for the second quarter, as the US clothing retailer bore the brunt of escalating trade tensions between Washington and Beijing.

Shares of the Hollister brand owner tumbled as much as 14 per cent, as the company also forecast a drop of 50 to 90 basis points in gross margins for the year, reversing its earlier expectations of a rise.

Hundreds of US businesses including retailers and footwear companies have urged President Donald Trump to scale back rather than escalate tariffs on Chinese goods, warning they would jack up consumer prices and trigger job losses.

Abercrombie said its forecast also accounted for Mr Trump's most recent proposals for a rise in tariffs on $250 billion in goods to a 30 per cent rate from 25 per cent.

The company now expects full-year sales in the range of flat to up 2 per cent, compared with its previous estimate of a 2 per cent to 4 per cent rise. The forecast also includes a hit of about $45 million from a stronger dollar.

The tariffs and currency impact were also expected to shave 60 basis points off Abercrombie's margins for the full year, the company said.

To cushion the blow, the teen apparel maker has been aiming to cut the amount of goods sourced from China to below 20 per cent in fiscal 2019 from 25 per cent a year earlier.

The tariff worries come as the company, once known for being a mall-based retailer, tries to cope with a rapidly changing retail landscape.

Hollister, which has been a bright spot for the company in recent years, reported flat comparable sales missing analysts' estimates of a 1 per cent rise, according to IBES data from Refinitiv.

“Tariffs alone do not fully explain the guide down,” Citigroup analyst Paul Lejuez said, adding the margin forecast suggests some “additional markdown pressure”.

The company's comparable international sales fell 3 per cent, taking a hit from protests in Hong Kong as well as concerns over Brexit.

Net sales slipped to $841.1m yearly from $842.4m, below Wall Street expectations of $852.5m for the second quarter ended on August 3.