2005 has ended, and you know what that means -- it's time for preppy/edgy clothier Abercrombie & Fitch (NYSE:ANF) to take its turn on the catwalk. Abercrombie makes its appearance tomorrow after market-close, announcing Q4 and full-year 2005 earnings.

Wall Street Wisdom:

  • General consensus. Twenty-six analysts ride herd over Abercrombie's numbers, and there are an awful lot of bulls in this crowd. 14 analysts rate the stock a buy, and the rest all say hold. Not a seller in sight.
  • Revenues. Analysts are looking for Abercrombie to report $944.6 million in sales for its fourth quarter of 2005. If accurate, that would make for a 37% increase over last year's Q4. Ambitious, yes. But considering that the company just announced a 41% increase in December sales alone (not to mention a 37% rise in sales through the end of December as well), it seems achievable.
  • Earnings. Wall Street believes that Abercrombie transformed its sales strength into a 55% increase in quarterly profits. Analysts will be looking for $1.78 per share tomorrow.

Margin watch:
If the analysts' views play out tomorrow, this could mark another step in Abercrombie's improving fundamentals. Gross, operating, and net margins have all been on a slide over the past 18 months, but they began showing renewed strength last quarter. Moreover, the putative Q4 sales numbers, already released, suggest that Abercrombie is back on an upswing.

Margins %

7/04

10/04

1/05

4/05

7/05

10/05

Gross

54.6

60.5

45

46.3

47.6

49.2

Op.

19.7

19.3

19.2

18.6

18.2

18.6

Net

11.9

10.9

10.7

10.5

10.4

10.9
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects performance for the quarters ending in the named months.

Inventory watch:
Every suggestion deserves a contradiction, however, and in Abercrombie's case, you'll find the bear case laid out clearly on the company's balance sheet. There you can see that the only thing stronger than the firm's sales gains is its rise in inventories.

In the past two fiscal quarters, we've seen Abercrombie's sales rise 43% and 35% (in Q2 and Q3, respectively). Inventories, however, piled up at an even faster rate -- 74% and 87%, respectively. This doesn't exactly bode well for the quality of Abercrombie's earnings, and unless we see a reversal of the inventory trend tomorrow, I'd say this is an awfully good time to start getting nervous about Abercrombie.

Fool contributor Rich Smith does not own shares of Abercrombie & Fitch.