August 29, 2019 / 12:10 PM / 5 months ago

CORRECTED-UPDATE 2-Abercrombie & Fitch cuts full-year sales forecast (Aug. 29)

(Corrects paragraph 9 to say the company is a mall-based retailer; drops reference to "tariff impact" in headline)

By Aditi Sebastian

Aug 29 (Reuters) - Abercrombie & Fitch Co cut its full-year sales forecast on Thursday after missing Wall Street estimates for the second quarter, as the U.S. apparel retailer bore the brunt of escalating trade tensions between Washington and Beijing.

Shares of the Hollister brand owner tumbled as much as 14%, as the company also forecast a drop of 50 to 90 basis points in gross margins for the year, reversing its earlier expectations of a rise.

Hundreds of U.S. businesses including retailers and footwear companies have urged President Donald Trump to scale back rather than escalate tariffs on Chinese goods, warning they would jack up consumer prices and trigger job losses.

Abercrombie said its forecast also accounted for Trump's most recent proposals for a rise in tariffs on $250 billion in goods to a 30% rate from 25%.

The company now expects full-year sales in the range of flat to up 2%, compared with its previous estimate of a 2% to 4% rise. The forecast also includes a hit of about $45 million from a stronger dollar.

The tariffs and currency impact were also expected to shave 60 basis points off Abercrombie's margins for the full year, the company said.

To cushion the blow, the teen apparel maker has been aiming to cut the amount of goods sourced from China to below 20% in fiscal 2019 from 25% a year earlier.

Chief Financial Officer Scott Lipesky told a post-earnings call that he saw a chance to reduce that number to the low teens in 2020. The tariff worries come as the company, a mall-based retailer, tries to cope with a rapidly changing retail landscape.

Hollister, which has been a bright spot for the company in recent years, reported flat comparable sales missing analysts' estimates of a 1% rise, according to IBES data from Refinitiv. For interactive graphic, click link :

"Tariffs alone do not fully explain the guide down," Citigroup analyst Paul Lejuez said, adding the margin forecast suggests some "additional markdown pressure."

The company's comparable international sales fell 3%, taking a hit from protests in Hong Kong as well as concerns over Brexit.

Net sales slipped to $841.1 million from $842.4 million, below Wall Street expectations of $852.5 million for the second quarter ended Aug. 3. Still, excluding items, the company posted a smaller-than- expected loss of 48 cents.

Reporting by Aditi Sebastian in Bengaluru; Editing by Anil D'Silva

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