Hollister a bright spot in Abercrombie's first quarter

Abercrombie & Fitch Co, which has put itself up for sale, posted a smaller-than-expected drop in same-store sales, helped by strong demand for surfwear brand Hollister.

Shares of the teen apparel retailer, for which rival American Eagle Outfitters Inc and private equity firm Cerberus Capital Management are reportedly planning to bid, rose 10 percent to $14.18 on Thursday.

Apparel retailers, including Abercrombie, have been hurt by fierce competition from fast-fashion retailers such as H&M and Inditex's Zara as well as from online retailers such as Amazon.com Inc.

Same-store sales for the company's Hollister brand, which has remained flat for two years, rose 3 percent in the first quarter ended April 29, while analysts polled by research firm Consensus Metrix had expected it to grow a mere 0.8 percent.

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After struggling to turnaround sales as millennials shunned its risqué advertising and large-logo apparel, Abercrombie, in 2014, said it would revamp Hollister as a fast-fashion brand to compete with rivals such as H&M and Zara.

"While we anticipate the second quarter environment to remain promotional, we expect results to improve further in the second half of the year," Chief Executive Fran Horowitz said on a call.

The company said its same-store sales in the current quarter would remain challenging and gross margins would come under pressure due to falling mall traffic and higher promotions due to price competition.

Sales at established stores fell 3 percent in the first quarter, but beat the 3.4 percent decline expected by analysts, according to research firm Consensus Metrix.

The company had hired investment bank Perella Weinberg Partners to field takeover interest from other retailers earlier in May.

Private equity firm Cerberus Capital and American Eagle are working on a joint bid for Abercrombie, the Wall Street Journal reported on Wednesday.

Abercrombie's net sales fell 3.6 percent to $661.1 million. Analysts on average had expected $651.3 million, according to Thomson Reuters I/B/E/S.

Excluding charges on taxes and asset impairment, the company lost 71 cents per share, missing the analysts' average estimate by a cent.