Why Abercrombie's stock took a dive after just a slight tweak to the earnings outlook

By Tomi Kilgore

Guidance range for earnings was narrowed but essentially kept intact, while the sales growth outlook was lowered slightly

Abercrombie & Fitch's stock got punished for a slight tweak in its sales growth outlook, just after it logged its best two-month gain in 25 years.

Shares of Abercrombie & Fitch had their worst day in more than three years on Monday, as the apparel retailer's updated outlook for fourth-quarter earnings, in which the profit outlook was kept essentially intact, seemed to get a rather harsh treatment from investors.

The stock's selloff comes after the stock just booked its best two-month run in 25 years, as the company touted continued strength in Hollister-brand sales and raised its full-year outlook.

The company said Monday that it now expects earnings per share of $10.30 to $10.40 for the full fiscal year. That's narrower than the previous guidance of $10.20 to $10.50, but the midpoint of the outlook remains the same, and it's still well above the average analyst EPS estimate compiled by FactSet of $9.83.

But the company said overall net sales for the year are expected to be up "at least" 6% from a year ago, which marks a slight dip from previous guidance of 6% to 7%.

Abercrombie's stock (ANF) tumbled 17.7% on Monday, its biggest one-day selloff since it sank 17% on Aug. 28, 2024.

While the stock's selloff might seem like an overreaction to that actual news, since that news also includes a bump up in the sales outlook for the Abercrombie brand, it does follow a historically sharp climb.

Highlighted by the record one-day rally of 37.5% on Nov. 25 - after the latest quarterly results were reported - the stock rocketed 73.5% higher in the November-December period. That was the best two-month performance for the stock since it soared 90.3% for the two months ending August 2020.

The stock has now retraced about 40% of the rally from the two-year closing low of $65.61 hit on Nov. 24 to the one-year closing high of $129.85 on Jan. 8.

For the fourth quarter, net sales were expected to show growth of around 5%, the company said, compared with a previous outlook of growth in the range of 4% to 6%.

And following a strong holiday period, the company expects Abercrombie brand sales to be up in the low-single-digit percentage range, which is better than the previous target of "approximately flat" sales growth. That would snap a three-quarter streak of year-over-year declines.

Hollister sales are expected to post another year of sales growth in the mid-teens percentage.

Abercrombie's stock has dropped 24.3% over the past 12 months, while the State Street SPDR S&P Retail ETF XRT has gained 13.7% and the S&P 500 index SPX has advanced 19.6%.

-Tomi Kilgore

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01-12-26 1643ET