Abercrombie & Fitch Co. forecast second-quarter sales below estimates on Wednesday after the apparel retailer posted its slowest rise in quarterly same-store sales at its surf-themed Hollister brand in two years, sending shares down 18 percent.
Hollister has been a bright spot for the company over the last few years as its more casual and fun apparel gained popularity among young shoppers, who had previously abandoned flagship brand, Abercrombie, after its logo-emblazoned tees fell out of fashion. However, the company's most recent results showed that demand for Hollister was slowing, with its same-store sales rising just 2 percent in the quarter ended May 4, missing the average analyst estimate of a 3.3 percent increase, according to Refinitiv IBES data.
A year ago, Hollister's quarterly same-store sales rose 6 percent.
"Expectations were really high for Hollister, that has been their shining star ... (So) Hollister's numbers falling short and potentially slowing, is a red flag for investors," Gabriela Santaniello, analyst at A line Partners, said.
Overall same-store sales in the first quarter rose 1 percent, below estimates of a 1.33 percent increase.
Abercrombie also said its international business took a hit from not taking advantage of some promotional events in Asia. Sales abroad fell 6 percent in the quarter.
The company has decided to close three flagship stores, including a Hollister store in SoHo, New York City.
Abercrombie forecast second-quarter net sales to be flat to up 2 percent, below estimates of a 2.8 percent increase. The company blamed its disappointing forecast on a $10 million hit from a stronger dollar.
The company also forecast comparable sales to be flat, well below expectations of a 2.3 percent rise.
Net sales rose marginally to $734 million.
Net loss attributable to the company narrowed to $19.12 million, or 29 cents per share, from $42.5 million, or 62 cents per share, a year earlier.
Analysts on average had expected a loss of 43 cents per share on net sales of $733.4 million.
By Uday Sampath; editor: Shinjini Ganguli.