Abercrombie & Fitch Shares Got Crushed: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of teen fashionista Abercrombie & Fitch (NYSE: ANF  ) were looking out of style to investors today as they fell as much as 16% in intraday trading after reporting third-quarter results.

So what: Earnings per share for the quarter edged up from a year ago from $0.56 to $0.57. Sales were much stronger, rising 21% year over year to $1.08 billion, while comparable-store sales increased 7%. The lackluster profit growth for the quarter came as Abercrombie's gross margin fell 360 basis points from a year ago, a drop that CEO Mike Jeffries chalked up to "costing challenges."

Wall Street analysts had been expecting $0.71 in per-share profit on $1.07 billion in sales.

Now what: Commodity cost pressures have hit a wide variety of consumer-goods companies, and it appears that Abercrombie is no exception. It's certainly a good sign that sales are increasing, but investors may continue to see lower profit margins as long as the company is caught between higher commodity prices and a tough retail environment that makes raising prices a dicey proposition.

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Fool contributor Matt Koppenheffer has no financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter, @KoppTheFool, or on Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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