Abercrombie & Fitch shares soar as trendy styles help drive annual sales forecast raise

By Anuja Bharat Mistry

(Reuters) -Abercrombie & Fitch raised annual sales growth forecast and posted a better-than-expected first quarter on Wednesday, expecting new and on-trend apparel and accessories to drive demand, sending its shares surging as much as 19%.

Refreshing styles in low-rise baggy pants and wide-leg jeans to appeal to picky shoppers and relying less on discounts aided the Hollister brand owner's margins and lifted comparable sales.

"Our brands are delivering high-quality, on-trend assortments for new and retained customers across regions and brands," CEO Fran Horowitz said.

Comparable sales at Abercrombie rose to 29% and at Hollister to 13% in the quarter compared with the year earlier.

The company also benefited from people resuming shopping for discretionary items as inflationary pressures begin to ease. Its gross profit rate improved by 540 basis points to 66.4% in the quarter ended May 4.

Its shares, which has risen nearly 74% so far this year, were trading at a record high of $180.67.

Separately, shares of Dick's Sporting Goods also touched a record high after the retailer raised its annual forecasts on strong demand for sportswear.

Abercrombie & Fitch now expects fiscal 2024 net sales to be up 10%, compared with its prior forecast of a 4% to 6% rise. It also raised its annual operating margin forecast, benefiting from lower costs of cotton and freight.

Earlier this month, big retailers Walmart lifted annual forecasts, betting on strong demand for groceries and non-essentials, while Target said trends in its apparel category improved despite a dour quarter.

"Despite a choppy macro environment, Abercrombie continues to deliver an on-trend assortment with agility to meet demand, while investing in the business and demonstrating the ability to draw new customers to the brands," said Dana Telsey, analyst at Telsey Advisory Group.

Abercrombie & Fitch reported net sales of $1.02 billion in the quarter, compared with LSEG estimates of $963.3 million.

Adjusted profit rose to $2.14 per share, compared with analysts' estimate of $1.74 per share.

(Reporting by Anuja Bharat Mistry in Bengaluru; Editing by Shinjini Ganguli and Shilpi Majumdar)