Abercrombie, Gap rebound spark positive trends in apparel

(Reuters) - Abercrombie & Fitch Co's ANF.N solid showing in the latest quarter and robust holiday season sales forecast on Friday reinforced a raft of earnings reports that suggest a turnaround in the apparel retailing sector.

After posting multi-year sales declines from severe price competition and a larger stockpile of inventory amid changing consumer tastes, Abercrombie and rivals like Gap Inc GPS.N started to buckle down by sprucing up their online offerings, revamping stores and improving product lines of their brands.

Easier multi-year comparisons might be adding to their strength, but this is not coming from nowhere, A-Line Partners analyst Gabriella Santaniello told Reuters.

“We have seen two multibrand companies report, we’ve seen growth in their cash cow and they’ve also stabilized their underperforming brands. So that’s why the market was ridiculous today,” Santaniello added.

Abercrombie shares were up 24 percent at $15.54 in midday trade. Shares of Gap rose 6.3 percent to $29.20.

On Friday, Abercrombie returned to same-store sales growth in the third quarter after more than a year of declines helped by Hollister, while Gap’s quarterly revenue beat on Thursday was driven by strong demand for its low-priced Old Navy brand.

However, the highlight of Abercrombie’s report was the sequential same-store sales improvement in its underperforming namesake brand.

“Having seen the work undertaken at Abercrombie, we are confident that progress is being made and that the direction of travel is correct,” Neil Saunders, managing director of research GlobalData Retail said.

The chief executives of Abercrombie and Gap cited improving traffic and spending at their stores and provided robust forecasts for the holiday quarter and the fiscal year.

“The Hollister improvements, strides at A&F, and still solid balance sheet suggest a longer tail to the ANF story,” RBC Capital Markets analyst Brian Tunick wrote in a client note.

Abercrombie said earnings before one-time items was 30 cents per share on net revenue of $859.11 million.

Analysts on average had expected earnings of 22 cents and revenue of $818.9 million, according to Thomson Reuters I/B/E/S.

The company also forecast percentage growth of fourth-quarter comparable sales in the low-single digits and net sales in the mid-to-high-single digits, which translates to $1.09 billion to $1.13 billion.

Analysts had expected holiday-quarter comparable sales to rise 0.4 percent and net sales to be $1.06 billion.

Reporting by Gayathree Ganesan in Bengaluru; Editing by Patrick Graham and Bernard Orr