These 2 Retailers Are the Stocks to Watch Monday Night

The stock market was mixed on Monday, largely recovering from a huge hammering earlier in the day. The Dow Jones Industrial Average (^DJI -0.12%) closed with a significant loss, but the S&P 500 (^GSPC -0.58%) and Nasdaq Composite (^IXIC -1.15%) finished closer to unchanged on the day.

Data source: Yahoo! Finance.

January is always a key time for the retail sector because the holiday season is one of the biggest revenue generators for companies across the industry. When retailers announce preliminary results for their holiday quarters, it can generate big moves. That's exactly what's happening in after-hours trading Monday afternoon, as both Abercrombie & Fitch (ANF -2.08%) and Big Lots (BIG -1.72%) are seeing noteworthy swings in their stock prices.

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1. A&F gets a boost

Shares of Abercrombie & Fitch were up nearly 7% in after-hours trading Monday. The company behind the Hollister, Gilly Hicks, and Abercrombie Kids brands provided an update on its fourth-quarter outlook that gave confidence to investors about its future prospects.

A&F expects its Q4 sales to rise 4% to 6% compared to year-ago levels. Compared to pre-pandemic  levels in 2019, that would represent sales that were flat to down 2%. That's considerably worse than the 3% to 5% upward move compared to 2019 levels that A&F had previously predicted, but the retailer cited pandemic-related impacts and restrictions as well as supply chain inventory issues.

As a result, Abercrombie & Fitch's full-year performance will be fairly strong. Sales should rise 19% to 20% compared to 2020, with gains of 2% to 3% against 2019's numbers.

CEO Fran Horowitz detailed some of the challenges the company faced. A strong start to the quarter gave way to challenges in maintaining inventory levels to meet high demand, resulting in lost sales. However, once the holidays ended, inventory became more readily available, and Horowitz reported that A&F has seen its sales rise subsequently.

Abercrombie & Fitch's stock has hit turbulence lately, falling nearly a third from its November highs. However, with attractive valuations, many investors are looking at the retailer as a potential value play.

2. Big problems for Big Lots?

Big Lots had a different reaction -- its stock fell 6% after hours following a nearly 7% decline in the regular trading session. The discount retailer's business update didn't inspire the confidence shareholders hoped to see.

Big Lots has seen conditions change dramatically during the quarter. Big Lots had surpassed its expectations through the end of December, with comparable sales compared to the same period in 2019 up 9%. However, since early January, the retailer has seen adverse weather and the omicron COVID-19 variant dramatically change consumer behavior. As a result, January will likely have comparable sales that are flat to slightly lower from 2019 levels. It also expects earnings of $1.80 to $1.95 per share, which would be somewhat disappointing for shareholders despite Big Lots spending another $70 million on stock repurchases during the period.

Nevertheless, Big Lots has big plans for the future. It still intends to open about 500 new stores, in addition to boosting sales productivity and building out its e-commerce distribution channel. By doing so, it hopes to reach $8 billion to $10 billion in revenue, an operating margin of 6% to 8%, and a return on invested capital of 20% to 25%.

Big Lots stock has stalled out in the past year after a strong performance in 2020. Investors hope it can return to its winning ways, but for now, Big Lots doesn't look like it's going anywhere fast.