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.