Why Abercrombie & Fitch Shares Popped

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 retail chain Abercrombie & Fitch (NYSE: ANF ) jumped as much as 11% after the company reported better-than-expected earnings.

So what: The mall staple had struggled as its stock lost more than half its value since reaching a 52-week high last October, so Wall Street had set a low bar. Profit for the quarter dropped by 52% but was still enough to beat estimates after the company had signaled weaker sales and cut its forecast. CEO Mike Jefferies admitted problems with excessive inventory levels and a narrow product range, and he said the company will take steps to become more flexible so it can "chase and react" to trends.

Now what: Fashion is always hard to invest in, as trends and brands come and go. Levi's jeans, for example, have gone from iconic to ignored. Abercrombie's central problem seems to be that the teens are moving away from its preppy styles, a trend that will be difficult for it to adapt to. The chain has opportunities abroad, but today's gains seem like the proverbial "dead cat bounce" coming off lowered expectations. Investors should wait for a clear indication of the strength of the brand before getting on board.

Want to keep tabs on Abercrombie? Just add Abercrombie & Fitch to your Watchlist.

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