Abercrombie & Fitch Co (ANF.N) posted a sharp drop in profit and its first quarterly decline in sales at established stores in more than two years, leading to concern that a growing inventory could mean future discounting.
Its shares fell 13 percent to touch their lowest in more than two years on the New York Stock Exchange.
Same-store sales, or sales at stores open at least a year -- an important measure of retail growth -- fell 5 percent in the quarter, and the teen clothing retailer forecast a tepid year ahead.
"While management didn't quantify international comparable sales ... we estimate total international comparables were down double digits," Paul Lejuez, an analyst with Nomura wrote in a note to clients.
He noted this was the first negative quarterly comparable sales for the company's Hollister brand in Europe.
Net sales rose 10 percent to $921.2 million, but even that missed estimates.
Abercrombie said it ended the quarter with inventory up 44 percent, against the 10 percent rise in sales. Lejuez said that could signal more markdowns were on the way.
Abercrombie said margins were expected to improve throughout the year, but if it had to resort to discounting while rivals were selling clothing at full price, it could affect margins.
Earlier this month, American Eagle Outfitters Inc (AEO.N) raised its profit expectations for the first quarter sharply as it sold more clothes at full price.
Most clothing retailers, especially those that cater to teens and young adults, were expected to post strong sales for the first quarter as wardrobes were updated for spring breaks and warm weather.
For the first quarter that ended April 28, Abercrombie earned $3.0 million, or 3 cents per share, compared with $25.1 million, or 28 cents per share, a year earlier.
Analysts, on average, were expecting 2 cents a share, according to Thomson Reuters I/B/E/S.
Sales at the company, which also competes with chains such as Aeropostale Inc ARO.N and Gap Inc (GPS.N), rose 10 percent to $921.2 million.
Of its peers, Abercrombie is among the most heavily exposed to Europe.
"While we are disappointed that European sales trends remain challenging in a very difficult macroeconomic environment, we are largely satisfied with our overall performance for the quarter in that context," Chief Executive Mike Jeffries said in a statement.
The company forecast full-year earnings of $3.50 to $3.75 a share, compared with analysts' average estimate of $3.56.
At mid-morning, Abercrombie's shares were down nearly 12 percent, or $5.40, at $40.00. American Eagle and Aeropostale were both up about 1 percent.
(Nivedita Bhattacharjee in Chicago; Editing by John Wallace and Maureen Bavdek)