Ready for some fashionable earnings news? Good, because Tween Brands (NYSE:TWB) reported earnings for the third quarter yesterday, and the numbers are definitely in style.

The Fool by Numbers tool displays some impressive data -- double-digit growth rates on the income statement reigned supreme. Net sales rose a very lucky 13%. Operating income increased 21%. Net profit increased just less than 19%, while earnings per share grew at about the same rate as did the operating profit. Like, wow, that is a rad quarter for sure!

OK, that was embarrassing, and it shows my advanced age because I'm sure young consumers have moved on to hipper vernacular. Nevertheless, Tween Brands is doing a superlative job of serving the female tween demographic.

Margins improved across the board, going up 40 basis points or better on the gross, operating, and net income lines. In addition, the percentage of total sales used for gross costs and various expenses associated with operations decreased. This indicates something an investor wants to see -- i.e., a smooth-running engine. The earnings release said that a moratorium on television advertising for the company's Limited Too asset allowed it to focus on catalog promotions and other marketing devices, leading to efficiencies. Management seems to be succeeding with various card programs aimed at fostering customer loyalty and increasing dollar amounts per transaction.

Quarterly same-store sales were lackluster for the Limited Too concept at 1%, but Tween Brands' other concept, Justice, really did some heavy lifting, raising its comps by 35%; blended together, these two stats come out to a total comp gain of 4%. Justice is the new girl on the block, and the idea here is to reach out beyond mall traffic and capture sales in power centers. There are about 150 Justice stores and 570 Limited Too stores; as can be seen, there is ample opportunity for expansion with the Justice concept.

Checking out the balance sheet, we see that it may have weakened a bit as inventories grew by roughly 28% and accounts receivables jumped 42% -- also, cash and short-term investments dropped 26%. We are heading into the holiday season, so hopefully the inventory build will be justified. Other things to note are that share repurchases reduced the outstanding diluted stub count by 1.5% and that Tween Brands has no long-term debt.

Although Tween Brands didn't supply a cash flow statement, a look at the most recent 10-Q filed with the SEC shows that the company has been using cash for operations instead of generating the greenery (I noticed that the deduction from net income relating to inventories grew 68% compared with the previous year's deduction). Still, the latest 10-K for Tween Brands -- under its original corporate moniker, Too, Inc. -- says that the company has done well in delivering free cash flow for shareholders ($45 million in 2005).

The valuation on the stock isn't bad on a forward basis. The company expects somewhere between $2.05 and $2.10 in diluted earnings per share for fiscal 2006. That would represent a 28% growth rate relative to the previous year, based on the low end of the range. Assuming Tween Brands grows at 20% for the next fiscal year, earnings might come in at $2.46 per diluted share. Considering the share price as of this writing, that would make the PEG ratio about 0.84. This tells me that the stock could be undervalued.

There are things to keep in mind. We're talking not only about a very competitive retail space, full of tough retailers such as Abercrombie & Fitch (NYSE:ANF), Delia*s (NASDAQ:DLIA), Gap (NYSE:GPS), Wet Seal (NASDAQ:WTSLA), and Claire's Stores (NYSE:CLE), but also about a business based on a customer base of highly ambiguous brand loyalty. Plus, keep an eye on the growth in accounts receivables and inventories as they relate to sales. Yet, with room for expansion vis-a-vis the Justice concept, and with the not too shabby valuation, I think Tween Brands is an idea worth further due diligence.

More on the fabulous world of retail:

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Fool contributor Steven Mallas owns none of the companies mentioned. As of this writing, he was ranked 880 out of 13,207 investors in the CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.