Coldwater Creek (NASDAQ:CWTR) has a bit of a history as a highflier, but "come on in, the water's fine" may not apply to investing in this company at the moment.

Fourth-quarter net income decreased 3.1% to $15.9 million, or $0.17 per share. Of course, let's not forget Coldwater Creek dropped its expectations sharply for the holiday quarter in January.

Coldwater Creek's sales, on the other hand, increased 29.1% to $366.1 million. Fourth-quarter same-store sales increased 2.1%, compared with a 21.6% boost this time last year.

Although Coldwater Creek was able to reduce SG&A expenses a bit, the retailer's margins suffered. For example, gross profit fell 4% as the company was forced to mark down merchandise in the fourth quarter. Inventory grew a whopping 47.1%, which the company attributed to adding 65 new stores during the year; management insisted in the conference call that these levels are appropriate.

Coldwater Creek certainly has some admirable attributes, such as its cash position (it has $148.7 million) and no debt. On the other hand, while Coldwater Creek generated $4.4 million in free cash flow for the year, bear in mind that that's anemic compared with the $22.5 million it generated last year. (Dig deeper into the quarter with our Fool by Numbers feature.)

That brings us to Coldwater Creek's expansion plans as it faces off against major rivals for the older female demographic. Ann Taylor (NYSE:ANN) and Talbots (NYSE:TLB) seek to attract these shoppers, and perhaps most formidable is Chico's (NYSE:CHS), which had a rough time last year and seems very focused on winning back customer traffic. Regardless, Coldwater Creek opened 65 locations, bringing it to a total of 239, and it plans to open 65 more this coming year.

Longtime Fool Rick Munarriz made a good point when Coldwater Creek slashed its fourth-quarter outlook in January -- that maybe the former catalog-only retailer should consider cooling down its expansion of mall-based stores if there's a possibility that the concept needs tweaking. There's also Coldwater Creek's spa experiment, which is not only costly (it will negatively impact profit by $0.04 per share this year) but delves outside the company's core focus; the company plans to open three more test locations this year, compared with six last year.

Despite some recent signs of slowing at Coldwater Creek, the retailer did manage to grow its net income for the entire year by 33.2%. It also reiterated its former guidance for earnings of $0.55 to $0.63 per share this year. Given some of the concerns cited above and the fact that Coldwater Creek's earnings are only expected to grow by about 5% this year, a forward P/E of 29 sounds rich. I'll take a pass at this price.

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Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.