Stocks spent most of Wednesday in negative territory, but recovered significantly toward the end of the session. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) both closed down.

Today's stock market

Index Percentage Change Point Change
Dow (0.33%) (82.76)
S&P 500 (0.05%) (1.32)

Data source: Yahoo! Finance.

Retail stocks were weak, with the SPDR S&P Retail ETF (NYSEMKT:XRT) dropping 1.4%. Tech stocks were a bright spot: The Technology Select Sector SPDR ETF (NYSEMKT:XLK) gained 0.6%.

As for individual stocks, Abercrombie & Fitch (NYSE:ANF) soared as its turnaround takes hold, and shares of Dollar Tree (NASDAQ:DLTR) were cut down on a disappointing outlook.

Stock prices and up and down arrows.

Image source: Getty Images.

Abercrombie & Fitch announces accelerating sales

Teen-oriented clothing retailer Abercrombie & Fitch reported fiscal fourth-quarter results that beat expectations and shares rose 11.9%. Sales increased 15% to $1.19 billion, which included a 4% boost from an extra week in the period. Adjusted earnings per share came in at $1.38 compared to $0.75 a year ago. Wall Street was expecting the company to earn $1.10 on sales of $1.16 billion. 

Comparable sales made impressive gains across the board. Abercrombie's largest brand, Hollister, grew comps 11%, and the namesake Abercrombie brand grew 5%, giving the overall company 9% growth in comparable sales in constant currency and comparing equivalent 14-week periods. Sales gains were strong in the U.S., up 11%, and direct-to-consumer net sales increased to 34% of total company sales, up from 31% last year. Gross margin fell 90 basis points to 58.4% due to higher unit costs and lower prices, but operating income more than doubled from fourth quarter last year.

Looking forward, Abercrombie expects fiscal 2018 comparable sales and net sales to grow in the low single digits, while analysts had been expecting sales to be flat with 2017. 

For fiscal 2017, sales were grew 5% and comparable sales increased 3%, representing a remarkable turnaround for the company. Full-year comparable-sales numbers had been negative going back to 2013, but the 4% increase in Q3 and the 9% gain in Q4 had investors believing that the company is on the upswing.

Dollar Tree reports disappointing earnings, gives weak guidance

Shares of Dollar Tree sank 14.5% after the company reported fourth-quarter results that barely missed estimates, and provided forward guidance that was well below what analysts had been expecting. Sales grew 12.9% to $6.36 billion, slightly below the consensus estimate of $6.39 billion. Adjusted earnings per share were $1.89, a penny below expectations.

Companywide same-store sales increased 2.4% thanks to increases in average ticket and number of transactions, with the Dollar Tree segment growing comps by 3.8% and Family Dollar up 1%. Gross margin increased 90 basis points to 33% due to lower merchandise costs, markdowns, and occupancy costs.

At the midpoint, guidance for first-quarter sales fell below analysts' estimate, and EPS of $1.18 to $1.25, compared with expectations for $1.31, weighed heavily on the stock. The company's full-year profit forecast of $5.25 to $5.60 per share was well below estimates for $5.90. 

Dollar Tree expects to the new tax law to result in a benefit of $250 million in profit in 2018, and it plans to use about $100 million of that to increase store hours, raise hourly wages, put more money into employee retirement plans, and institute paid maternity leave. 

The market never likes negative surprises, but the reaction today was particularly harsh. The company's strategy appears to be on track, and investments in stores and the workforce should pay off in the long run, but investors today were hoping for a better outlook for the coming months.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.