Abercrombie, Gap forecasts signal tough holiday quarter for retailers

Bleak fourth-quarter sales forecast from Abercrombie & Fitch Co (ANF.N) and Gap Inc (GPS.N) raised fresh concerns that apparel retailers were in for another tough holiday season as fewer shoppers visit malls and continue to spend less on clothes.

Shares of Abercrombie, which reported a much steeper-than- expected 6 percent decline in same-store sales, fell as much as 14.35 percent on Friday.

Gap's shares fell 15.14 percent. Gap on Thursday said same-store sales fell 3 percent.

Both companies have been closing stores and investing their online businesses as they try to cope with rapidly changing consumer tastes and stiff competition from Amazon.com Inc (AMZN.O) and fast-fashion retailers such as H&M (HMb.ST) and Inditex's (ITX.MC) Zara.

But their efforts to turnaround their businesses have shown little traction.

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Abercrombie's sales have fallen for 15 straight quarters, while those of Gap have declined for seven.

To be sure, the holiday season is expected to be challenging for all retailers including department store operators such as Macy's Inc (M.N) and Kohl's Corp (KSS.N).

"It is tough overall, and it is tougher for teen," Wolfe Research analyst Adrienne Yih told Reuters.

"It has been unusually warm so far, and everybody is selling jackets and cold weather gear and it will be difficult to sell them when it is 65 degrees," she said.

Teen retailers, which are already struggling to sell their merchandise, will now have to deal with excess inventory as they add new items for the holiday shopping season.

This would mean more discounts and promotions at retailers, and a further hit to margins, analysts said.

Inventories at the end of the third quarter at both Abercrombie and Gap were, however, lower than in the year-ago period.

Abercrombie, once popular for its logo-emblazoned polo shirts, sweatpants and sweat shirts, said it expected sales to be challenging in the fourth quarter, but "modestly improved" from the third quarter as it expects its Hollister brand and sweaters for women to continue to do well during the holidays.

The company's net sales fell 6.5 percent to $821.73 million in the third quarter ended Oct. 29. Analysts on average had expected $830.6 million, according to Thomson Reuters I/B/E/S.

Abercrombie said it would close its A&F flagship store in Seoul in January and would take a $16 million charge in the fourth quarter from lease termination of its flagship store in Hong Kong.

Net income attributable to the company fell to $7.88 million, or 12 cents per share, in the quarter, from $41.89 million, or 60 cents per share, a year earlier.

Excluding certain items, Abercrombie earned 2 cents per share, well below analysts' average estimate of 21 cents.

(Reporting by Gayathree Ganesan, additional reporting by Jessica Kuruthukulangara and Sruthi Ramakrishnan in Bengaluru; Editing by Martina D'Couto and Sayantani Ghosh)

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