Abercrombie's turnaround effort boosts holiday sales, hits forecast

Wed Mar 2, 2016 2:04pm EST
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By Subrat Patnaik

(Reuters) - Abercrombie & Fitch Co (ANF.N: Quote) posted a surprise rise in sales at established stores in the holiday-shopping quarter, ending a streak of more than three years of declines, a sign that its efforts to revive sales growth is paying off.

The teen apparel retailer has so far focused on the Hollister brand by stocking trendier clothes, revamping 12 stores to change music, lighting and displays, rather than the A&F brand that was once popular for its logo-centric clothing.

Hollister's California-inspired summerwear clothing is aimed mainly at high schoolers. A&F's chic apparel targets college students and young adults and is more expensive.

Abercrombie's sales at stores open a year rose 1 percent in the quarter – Hollister rose 4 percent and A&F fell 2 percent – beating analysts' estimates of a 0.10 percent decline, according to research firm Consensus Metrix.

"They (results) are a sign that the brand continues to make progress in what remains a challenging market," said Neil Saunders, chief executive of research firm Conlumino.

The strong results sent Abercrombie's shares up 7.2 percent to a 16-month high of $31.45 in early trading. But they pared all gains as the company's forecast showed a continued drive to remodel stores and revamp merchandise would eat into sales.

Abercrombie said it would remodel another 60 Hollister stores this year, but the temporary closures would hurt sales. It forecast same-store sales to be flat to up slightly in fiscal 2016, compared with the 0.8 percent rise analysts had expected.

" ... The read after the call is that the outlook is more in-line with current expectations and likely to stay there," ITG Investment Research analyst Jeffrey Toohig said.   Continued...

People walk by an Abercrombie & Fitch Co store in Pasadena, California March 3, 2015. REUTERS/Mario Anzuoni