Abercrombie & Fitch (ANF) extended its current losing streak this week, tumbling sharply in response to a surprisingly strong fourth-quarter earnings report.
The sell-off began early Tuesday with an almost vertical drop in the stock price and continued into Wednesday, wiping out another 9.24% by the close. Perhaps more alarming, the sell-off came despite ANF stock reporting better-than-expected earnings.
Adjusted earnings per share of $3.57 beat estimates and marked a 21% annual increase. Revenue also came in slightly above forecasts at $1.58 billion, reflecting 9% year-over-year growth.
Despite the strong financials, the main concern revolves around what lies ahead. CEO Fran Horowitz tried to reassure investors, emphasizing a focus on “profitable growth while strengthening our brands and operating model.”
The market, however, wasn’t convinced.
Broader retail downturn
Retail stocks were already under pressure ahead of former President Donald Trump’s congressional address on Tuesday as investors braced for the potential impact of tariffs and other White House policies.
ANF wasn’t the only casualty. Department store Dillard’s (DDS) and Victoria’s Secret (VSCO) were among the day’s biggest losers, extending their declines into Wednesday.
The apparel sector has been in a prolonged slump, weighed down by tariff fears for months. After an initial post-election rally, concerns over Trump’s trade policies sent ANF—and the broader retail sector—into a tailspin as the reality of his second term set in.
Over the past six months, apparel stocks have drastically underperformed the S&P 500. The contrast is even starker year-to-date, with the broader index slipping 0.7%, while the apparel sector has shed 6.6%.
When consumer budgets tighten, discretionary spending—particularly apparel—is often the first to take a hit.
Economists warn of tariff fallout
Sagging consumer sentiment, persistent inflation, and fears of a trade war are fueling bearish sentiment across retail. “Broad-based tariffs could hurt more U.S. consumer products and retail companies this time around than in 2018,” wrote S&P Global analyst Bea Y. Chiem.
“Price increases will be harder to pass along to the consumer this time because of the recent inflation cycle and an already weak consumer environment.”
Economist Stephen Guilfoyle sounded the alarm after the latest Conference Board Consumer Confidence survey showed “the steepest one-month drop for this series since August 2021.”
Consumer confidence tumbled to 98.3 in February from 104.1 in January—well below the 102 economists had expected. If that downward trend continues, apparel retailers may have more pain ahead.
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