Updated with comments from conference call
Shares of the apparel maker, which has undergone a makeover of late to target 20 something shoppers instead of teens, crashed by about 12% to $14.85 in early trading Friday following an ugly earnings miss. Third quarter earnings adjusted for one-time items came in at 2 cents a share, markedly below Wall Street estimates for 20 cents a share. Same-store sales fell 6%, missing analyst projections for a 3.9% drop.
"As expected, our third quarter was challenging," said Abercrombie & Fitch Executive Chairman Arthur Martinez in a statement. "While Hollister improved sequentially, it was more than offset by disappointing performance in Abercrombie & Fitch."
Disappointing may be an understatement when it comes to the company's namesake brand. Same-store sales plunged 14%, worse than a 7% drop in the second quarter. It marked the 11th straight quarter of sales declines for the Abercrombie & Fitch brand, according to Bloomberg data. Same-store sales international dived 10%, lagging the 5% drop in the U.S.
Abercrombie fell victim once again to tepid sales at its flagship stores globally thanks to the strong U.S. dollar and terrorism threats in Europe hurting traveling plans and spending by tourists. "Tourist store traffic was a major headwind," Martinez said on a conference call.
Abercrombie operates about 117 locations in Europe, with the U.K. being the largest at 34 stores.
According to the UN World Tourism Organization (UNWTO), double-digit increases in tourist arrivals to major destinations such as Spain, Hungary, Portugal and Ireland were offset by "feeble" results in France, Belgium and Turkey between January and September. In Europe, international arrivals grew by a meager 2% from January to September, slightly outpacing a tepid 4% increase in visitors to the U.S.
As a result of weak spending at its flagship stores, Abercrombie has moved to cut costs. The company said it will close a flagship Abercrombie store in Seoul in January 2017 that it opened in 2013. In addition, the company opted out of a lease for an A&F flagship store in Hong Kong.
Abercrombie isn't alone in being hurt by foreign tourist flows.
Such issues continue to plague sales at Macy's (M) - Get Report most important U.S. store, Herald Square in New York City. Macy's sales to international tourists while stabilizing during the third quarter according to the company, still declined vs. the prior year. "It [tourist spending] still represented a headwind for our major international tourist stores for both Bloomingdale's and Macy's," Macy's Chief Financial Officer Karen Hoguet told analysts on a Nov. 10 conference call. The CEO of handbag maker Michael Kors (KORS) John Idol recently conceded that fewer Europeans spending at its key U.S. stores and department store shops has caused a "dramatic" decline in sales.