What happened

Shares of Abercrombie & Fitch (NYSE:ANF) are falling today, down 9.7% as of 1:45 p.m. EDT, after the clothing specialist reported fiscal first-quarter 2018 earnings. 

A&F reported $730.9 million in Q1 revenue, well ahead of expectations for sales of just $698.3 million. Loss per diluted share came in at $0.62, or $0.56 adjusted for one-time items. In either case, it was less than the $0.79-per-share loss that Wall Street analysts had projected.

Falling stock chart laid over numbers

Image source: Getty Images.

So what

Abercrombie & Fitch defied expectations by reporting a better-than-expected 11% gain in Q1 sales. Same-store sales at Abercrombie stores increased 3% year over year, Hollister sales were up 6%, and same-store sales companywide grew 5%.

Profits-wise, gross margin expanded by 20 basis points, which when combined with the sales gains helped A&F to narrow its quarterly loss year over year, but was still not enough to earn the company a profit.

Now what

Management expects sales gains for the rest of this year to be more muted, however, with both same-store sales and total revenue projected to grow just 2% to 4%. Gross profit margin should again rise "slightly" when compared to last year's numbers -- 59.7%.

Management did not give a hard number for profits guidance. However, it warned that operating costs will be rising by about 2%. That could be enough to erase the company's gross margin gains -- and this may be exactly what investors are worrying about as they sell off the stock today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.