UPDATE 2-Abercrombie forecasts weaker sales, margins as cost woes persist; shares plunge

·1 min read

(Adds background, quarterly loss, updates shares)

May 24 (Reuters) - Abercrombie & Fitch Co on Tuesday cut its annual forecasts for sales and margins after posting a surprise quarterly loss amid a surge in freight and raw material costs, sending its shares down 30% in premarket trade.

Decades-high inflation has pushed consumers to cut spending on discretionary goods such as apparel, while persistent supply chain issues, worsened by the war in Ukraine, have dented profits.

Abercrombie shares fell about 14% last week after major U.S. retailers Walmart Inc, Target Corp and department store chain Kohl's Corp flagged weakening demand for apparel and non-essential items, and reported dismal quarterly earnings.

"We expect higher costs to remain a headwind through at least year-end," Abercrombie Chief Executive Officer Fran Horowitz said, as the company struggled to offset higher-than-expected expenses despite offering fewer and smaller discounts.

Known for brands such as Hollister and Gilly Hicks, the Ohio-based retailer reported an 810-basis-point fall in first-quarter margins, as it spent $80 million more on transportation.

The company also cut its full-year operating margin to between 5% and 6% from 7% to 8% forecast earlier.

The millennial-focused retailer expects net sales to be flat to up 2% in fiscal 2022, compared with its earlier forecast of a 2% to 4% growth. Analysts on average expect sales to increase 3.5% to $3.84 billion, according to Refinitiv IBES data.

For the three months ending April 30, Abercrombie reported an adjusted per-share loss of 27 cents, while analysts expected a profit of 2 cents.

(Reporting by Deborah Sophia in Bengaluru; Editing by Vinay Dwivedi)

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