(Reuters) - Abercrombie & Fitch Co (ANF.N) 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.
Abercrombie also faces stiff competition from H&M (HMb.ST) and Inditex's (ITX.MC) Zara as well as online retailers such as Amazon.com Inc (AMZN.O). Its U.S. rivals, Aeropostale Inc ARO.N and American Eagle Outfitters Inc (AEO.N), have had contrasting fortunes.
While Aeropostale is still struggling to revive sales, American Eagle, which reports after the close on Wednesday, has posted higher sales in the past few quarters, in part as it cut down on discounting.
Abercrombie's sales have fallen for three years now, but the decline has been slowing. Sales in the latest quarter fell 0.6 percent, to $1.11 billion, less than analysts had estimated.
Excluding items, Abercrombie earned $1.08 per share, beating analysts' average estimate of 99 cents, according to Thomson Reuters I/B/E/S.
(This story has been refiled to to fix syntax in headline)
Reporting by Subrat Patnaik and Siddharth Cavale in Bengaluru; Editing by Savio D'Souza