A&F shares soar as Hollister drives another strong quarter

(Reuters) - Abercrombie & Fitch Co's ANF.N shares soared as much as 16 percent on Thursday after the U.S. teen apparel retailer posted much better than expected quarterly results, led by strong demand for its Hollister brand of surfwear.

FILE PHOTO - Signage is seen at the Abercrombie & Fitch store on Fifth Avenue in Manhattan, New York City, U.S., February 27, 2017. REUTERS/Andrew Kelly/File Photo

Hollister has been driving Abercrombie & Fitch’s results in recent quarters, while the company’s namesake brand, which sells a wider range of apparel, has struggled.

Many apparel companies have struggled as people abandon malls and shop online. The rise of fast-fashion retailers such as H&M HMb.ST and Inditex's ITX.MC Zara has pressured teen apparel retailers to speed up supply chains to bring new fashion from the runway to the store more quickly.

Hollister has been recovering, thanks to aggressive marketing, a strong denim collection and innovation in its swimwear lines, which have helped the brand gain market share, said Hakon Helgesen, an analyst at GlobalData Retail.

To better target teens, Hollister has also tied up with Angry Birds maker Rovio to launch a surfing-themed mobile game.

Hollister posted a 5 percent rise in sales at established stores in the second quarter ended July 29, topping analysts’ average estimate for a 2.9 percent increase, according to Consensus Metrix.

Abercrombie & Fitch’s upbeat results come more than a month after it ended talks to sell itself. The company had said in May it was in talks with bidders regarding a potential sale.

Same-store sales at Abercrombie’s namesake brand continued to decline, falling 7 percent in the latest quarter, but besting the 8.5 percent decrease expected by analysts polled by Consensus Metrix.

“It is still not clear what Abercrombie is and at whom it is targeted. In some ways, the brand understands that it needs to reinvent, but is not entirely clear what it wants to become,” Helgesen said.

Rival American Eagle Outfitters AEO.N on Wednesday also posted better-than-expected results, helped by strong demand for its jeans and Aerie lingerie.

Net loss attributable to Abercrombie & Fitch widened to $15.5 million, or 23 cents per share in the second quarter, from $13.1 million, or 19 cents per share, a year earlier.

Excluding one-time items, the company posted a loss of 16 cents per share. Analysts on average had expected a loss of 33 cents, according to Thomson Reuters I/B/E/S.

Net sales fell slightly to $779.3 million, but handily beat analysts’ expectations of $758.6 million.

New Albany, Ohio-based Abercrombie & Fitch’s shares were up 14.2 percent at $10.97 in morning trading.

Reporting by Vibhuti Sharma and Karina Dsouza in Bengaluru; Editing by Sai Sachin Ravikumar