By Nivedita Balu
(Reuters) - Abercrombie & Fitch's shares surged 20 percent after the apparel retailer forecast better-than-expected annual sales on Wednesday, betting on its remodeled stores and the popularity of its Hollister brand to attract more young shoppers.
The company also said it would close 40 stores, redesign its outlets to improve lighting and display and offer more on-trend clothing including jeans and sweatshirts to boost demand for its Abercrombie brand.
Chief Executive Fran Horowitz said stores with a new format are proving to be "highly productive" and the company would continue to invest in them.
"We are one of the specialty retailers still committed to investing in physical space," she said.
The company's Abercrombie brand has been fighting falling sales as young shoppers shunned its trademark logo-emblazoned designs for fast-fashion brands and cheaper clothes online.
Same-store sales at the Abercrombie brand fell 2 percent in the fourth quarter and the company blamed it on fashion missteps in tops and dresses during the holidays.
Hollister, by contrast, reported a 6 percent rise in same-store sales.
The company had gotten the silhouette wrong for Abercrombie tops and dresses, which were different from the fitted and oversized styles that shoppers were looking for, said Gabriela Santaniello of retail research firm A line Partners.
"They've corrected it ... people were worried that this was going to continue, it is clear that it was just a one-season thing," she said.
Abercrombie is investing in its loyalty program and using social media influencers to promote its new products including its "Fierce" perfume with brand-specific hashtags.
Overall, sales at Abercrombie & Fitch stores open for at least a year rose 3 percent in the fourth quarter ended Feb. 2, about twice the 1.47 percent increase analysts had expected, according to IBES data from Refinitiv.
Excluding one-time items, the company earned $1.35 per share, well above expectations of $1.15.
For 2019, the company expects net sales of between $3.66 billion and $3.73 billion, well above estimates of $3.61 billion.
(The story corrects to remove reference to "unprofitable" in second paragraph)
(Reporting by Nivedita Balu in Bengaluru; Editing by Arun Koyyur, Sai Sachin Ravikumar and Sweta Singh)