2 Retailers in 2 Days Say Omicron Dented Holiday Season Sales

Abercrombie & Fitch store

For the second time in as many days, one of the trendy stalwarts of online and mall-based retailing has jumped the gun on Q4 earnings season with a weaker than expected preliminary sales report.

The unplanned update from Abercrombie — coming three full weeks ahead of the month-end close of its fiscal fourth quarter — was announced Monday (Jan. 10) afternoon and reflects what the company characterized as short-term COVID-related disruptions that crept in late in December to dampen an otherwise strong holiday selling season.

In a statement, Abercrombie CEO Fran Horowitz said the Ohio-based operator of 740 apparel stores held tight on discounting on Black Friday and Cyber Monday and will see it report its best operating income and margins in over a decade alongside the surprise weakness in sales.

“We experienced unexpected inventory receipt slides in key categories due to extended port and transportation delays,” Horowitz said. “As a result, we did not have enough inventory to keep pace with customer demand, resulting in lost sales during the peak holiday selling period,” she added, noting that the company’s Hollister and Gilly Hicks brands were most affected.

Troubling Trend?

Delving in deeper, Horowitz said she expects sales for the ongoing quarter that runs through the end of this month will now be “flat to down 2%” compared to pre-COVID levels two years ago. That’s down from the company’s initial forecast for this quarter of 3% to 5% sales growth.

The question remains if this is the start of a troubling trend of disappointing retail results or something more transient that will prove to be temporary.

The fact that Abercrombie’s alert came less than 24 hours after rival retailer Lululemon tipped off investors that its own Q4 results were also set to come in below projections, has certainly put retail investors and analysts on edge and cast a cloud over what was presumed to be a quarter that had generally exceeded expectations.

In its own statement and update, the trendy athletic and yoga apparel retailer also blamed COVID for its miss, albeit not in the form of inventory shortages, but rather, on its effect on people and locations.

“We started the holiday season in a strong position but have since experienced several consequences of the Omicron variant, including increased capacity constraints, more limited staff availability, and reduced operating hours in certain locations,” CEO Calvin McDonald said in the company’s announcement, noting specifically that Q4 sales and revenue would be at the low end of its projected range.

The dual dour revisions come on the heels of two weeks of anecdotal reporting that implied the Q4 holiday shopping season had been stronger than many had expected, given the months of long-standing concerns about inventory shortages, supply chain bottlenecks and delivery delays that pushed some holiday shoppers into the market as early as October.

The two new updates also contradict the 8.5% and 10.5% holiday season sales growth forecast projected by Mastercard and the National Retail Federation respectively.

In addition, Mastercard also said its data showed that online retail sales jumped 11% from record year-ago levels set in the throes of lockdowns when most stores were closed.

While all of this is happening just days ahead of the official kick-off of earnings season that will begin later this week, as well as at a time of heightened economic concerns and stock market duress, some of what Lulu and Abercrombie said could be seen as a silver lining.

“Post-holiday, as inventory has landed, we have experienced an acceleration in sales trend,” Horowitz said. “Looking ahead, we expect to minimize the gross margin impact of late deliveries by balancing promotional depth and utilizing pack-and-hold where appropriate,” she added, flagging what she called “standout performance” in the jeans, dresses and sweaters categories.

Since Nov. 1, shares of Abercrombie and Lululemon have fallen 19% and 24% respectively compared to a 2% increase for the S&P 500.