Teen retail resurgence? Abercrombie shares soar

Shares of Abercrombie & Fitch shot up 9 percent Wednesday, after the beleaguered teen retailer reported same-store sales that improved from the first quarter.

The company's better-than-expected results, which beat on both the top and bottom lines, were driven by progress in its California-centric Hollister brand and Abercrombie kids.

Overall, Abercrombie's same-store sales declined 4 percent, compared to an 8 percent drop in the first quarter. Management said it expects sales improvement to continue into the second half of the year—particularly in the fourth quarter—as more fashion-forward merchandise continues to flow through the stores.

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Its results came just days after competitors American Eagle and Urban Outfitters reported comparable sales gains of 11 percent and 4 percent, respectively.

"Our results exceeded what we signaled in our first-quarter earnings call and give us confidence that we are on the right track, although we recognize that we still have much to achieve," Executive Chairman Arthur Martinez said.

Hollister new storefront.
Source: Abercrombie & Fitch
Hollister new storefront.

While both Abercrombie and Hollister posted sequentially better sales results than in the first quarter, Hollister again outperformed the company's namesake label.

Hollister's comparable sales fell just 1 percent in the second quarter—compared to a 6 percent decline in the first quarter—while Abercrombie's same-store sales improved 2 points from the prior period's 9 percent drop.

The new open store concept that's been implemented at about 100 of its shops helped to drive trends at Hollister. The design does away with the brand's former beach shack store fronts, which didn't allow passersby to see merchandise through the windows. Martinez said these updated stores have experienced a mid- to high-single digit lift in sales.

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Hollister is also moving forward with a set of completely remodeled stores that include a lighter paint palette, where sales are up "strongly" versus the control group.

Brand President Fran Horowitz further highlighted that Hollister has been able to improve its same-store sales while cutting back on promotions, indicating shoppers are responding to its new fashion offerings.

"We continue to make significant positive changes to our brand and the customer is noticing," she said.

Though trends also improved at Abercrombie, its men's business continued to pressure results. Management added that it is not surprised its namesake label has lagged improvement at the Hollister brand, in light of the "historical issues" it has faced.

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Abercrombie over the years had built up a reputation as an exclusionary brand, thanks in part to its sexualized marketing and comments by former CEO Mike Jeffries, who exited the company in December.

"Although A&F was painfully slow to react to both the changing tastes of its core market as well as to the shifts in the dynamics of shopping, we believe the management team is slowly getting to grips with the new realities of retailing," said Neil Saunders, CEO of Conlumino retail research.

Though trends at Abercrombie are improving, analysts have favored the turnarounds at competitors American Eagle and Urban Outfitters. The retailer is also competing against consumers' penchant for the cheaper merchandise at fast-fashion and off-price stores.

Despite Wednesday's bounce, Abercrombie shares are still down 56 percent over the past year, near $19.