What happened

Shares of Burlington Stores (BURL 0.91%) were moving higher today in spite of a disappointing third-quarter earnings report from the off-price retailer.

Instead, investors seemed to be encouraged by fourth-quarter guidance that indicated a modest recovery in its performance. A number of retail stocks were up today as well, a sign that investors may be betting that the sector is oversold.

As of 10:37 a.m. ET, shares of Burlington were up 17.9%.

So what

Comparable-store sales at the retailer were down 17%, following a 16% increase in the quarter a year ago, with revenue declining 11.5% to $2.04 billion. That was below estimates at $2.07 billion.

Gross margin was essentially in line with the quarter a year ago, while selling, general, and administrative expenses rose 270 basis points to 35.7% as a percentage of revenue because the company lost leverage from the sales decline.

On the bottom line, adjusted earnings per share fell from $1.36 to $0.43, which missed the analyst consensus at $0.52.

CEO Michael O'Sullivan said that the results matched the company's guidance, but he was disappointed in the performance, as the business should be able to pick up market share in a recessionary environment. He added:

In Q3, we took significant steps to improve the value and mix of our assortment. These actions have driven an improvement in our trend from mid-October through November. We are encouraged by this, but given the external risks, we are maintaining our guidance for Q4.

Now what

Those comments about improving trends seemed to juice the retail stock in spite of the poor Q3 performance, and Q4 earnings guidance also seemed to help.

For the fourth quarter, management called for a comparable sales decline of 6% to 9% and adjusted earnings per share of $2.45 to $2.75, which compares favorably with the $2.53 it reported last year and is in line with the consensus at $2.61. That earnings guidance shows the company is taking effective steps to manage inventory and costs in the fourth quarter, which also elicited cheers from the market.

Nonetheless, full-year adjusted EPS is still expected to be down from a year ago by more than half.