Abercrombie & Fitch says there is “significant uncertainty” across the industry resulting from coronavirus (Covid-19) as the US teen fashion retailer assesses the potential impact to its global supply chain.
In its fourth-quarter trading update, the retailer said it expects to take a full-year revenue hit of US$60-$80m, with 2020 sales forecast to be flat to up 2%, reflecting the impact.
“As we look to the full year, there is significant uncertainty across our industry as we attempt to assess the potential impact of the coronavirus on the global consumer and the global supply chain,” CFO Scott Lipesky said on the company’s earnings call. “We are providing a full-year outlook that takes into account the estimated impact on our operations in the first half of the year, based on the information available today. Given the fluid nature of the situation, this is subject to change.”
Lipesky added the company considered a number of factors when evaluating its outlook, including store closures, consumer travel and demand, production delays, raw material availability and freight congestion.
About 10% of Abercrombie’s revenues were derived from the APAC region in fiscal 2019, and around half of that from mainland China and the Hong Kong special administrative region.
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“Outside of APAC, we have begun to see temporary store closures and reduced store hours in other regions,” Lipesky said. “We have also experienced weakening trends in our tourist-heavy locations even when stores have not closed.
“On the supply chain side in 2019 approximately 22% of our total merchandise receipts were sourced in China and 15% of the total receipts were sourced in China and imported into the US. We expect to reduce these percentages in 2022 to the low-teens and roughly 10% respectively.”
The majority of Abercrombie’s fabric mills are in China. Lipesky added: “We have not seen meaningful delivery disruptions. All factories and mills are now operational. Although running with delays, which may cause increased short-term freight costs. We continue to be in close contact with our partners and are evaluating all options to try to ensure that we do not disappoint our customers.”
Lipesky said the inventory and expense planning process for the company has not changed as a result.
“We actually look at inventory and expense planning on a weekly basis for every year that we’ve existed here. That hasn’t changed with Covid-19. A little more focus on the inventory, a huge thanks to our global supply chain partners and our sourcing team here. It’s been a 14/7 conversation with our suppliers to understand where they are in ramping up post-Chinese New Year and what that means to our inventory flows as we go through the quarter. We always have a piece of our expense base that is variable. We trigger into that during the year, and that’s a process that will continue week after week.”
Click here for additional insight on the coronavirus outbreak: Is coronavirus a threat to the clothing industry?
