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(Reuters) -Abercrombie & Fitch raised its forecast for annual sales on Wednesday after reporting second-quarter revenue above market expectations, powered by steady demand for fresh styles and on-trend apparel at its namesake label.
Still, shares of the company were down nearly 10% in premarket trading, amid lofty investor expectations. The stock has surged about 89% so far this year after nearly quadrupling in 2023.
Abercrombie has been revamping its merchandise with new styles, featuring dressier apparel and cargo pants while tapping into growing demand for wide-legged jeans, helping it draw in fashion-savvy shoppers.
“Abercrombie has done a fantastic job of reinventing itself over the course of the last 18 months and its stock price has reflected that turnaround… The reaction that we’re getting today sort of falls into that category of buying the rumor and selling the news,” said Art Hogan, chief market strategist at B Riley Wealth.
Sales at the company’s Abercrombie brand jumped 26% in the three months ended Aug. 3, while its Hollister division reported a 17% rise due to better-than-expected summer and back-to-school selling.
For the full year, it said it now expects net sales to rise between 12% and 13%, compared with its prior forecast of around 10% growth.
It also expects operating margin in the range of 14% to 15%, an improvement from the previous forecast of around 14%.
Abercrombie CEO Fran Horowitz said the forecast raise came despite “an increasingly uncertain environment”.
Lower discounts, coupled with easing raw material costs, helped Abercrombie improve its gross profit rate by 240 basis points, to 64.9%.
In the second quarter, the company reported profit of $2.50 per share, beating an estimate of $2.22, according to LSEG data.
Net sales rose 21%, to $1.13 billion in the second quarter, compared with analysts’ estimate of $1.10 billion.
