Most economic indicators are telling us there’s rough sledding ahead. The retail sector is speaking loudest.
Shares of once-hot clothing merchant Abercrombie & Fitch tumbled by about 30% Tuesday after the company became the latest retailer to report an unexpected loss in the most recent quarter.
Abercrombie also slashed its outlook for the year. This dragged down similarly trendy clothes companies such as Urban Outfitters and American Eagle Outfitters.
Fran Horowitz, Abercrombie’s chief executive, told investors the company will manage its spending “tightly” as it searches for a way out of the economic wilderness.
Traders have been dumping retail stocks as quickly as each company opens its books and reveals that consumers just aren’t buying their stuff.
Last week, heavyweights Walmart and Target reported lower-than-expected results and got hammered for acknowledging that high inflation isn’t doing them any favors.
Target saw a quarter of its market value disappear in a single day last week after spooking financial markets with its downbeat assessment of coming months.
Another problem: Inventories are piling up because retailers have too much unsold merch on hand. This almost certainly will lead to discounts, which will cut deeper into profits.
Abercrombie reported a quarterly net loss of nearly $15 million, compared with profit of $42.7 million a year ago.
The company’s inventories totaled $563 million as of April 30, up 45% from year-ago levels.
Things will improve — they always do. Retailers are nothing if not cyclical.
But for the moment, what the retail world is telling us is that things probably will get worse before they get better. And they’re probably right.