I had prepared myself to storm in and trash Finish Line (NASDAQ:FINL) for poor results after it announced earnings. A funny thing happened, though -- the company's third-quarter sales weren't the complete disaster I'd expected.

To be fair, Finish Line didn't make any money last quarter. Same-store sales were down 3.6%, and the company took a per-share loss of $0.16. Both sales and profits came in under analysts' expectations at the retailer of athletic shoes and related apparel and products. Yet after a big drop right before the earnings release, shares jumped back more than 11% on Wednesday following the announcement.

So what's up with the rally, especially on news that was mediocre at best?

A realistic look ahead
Kudos to investors for looking ahead, rather than behind. While I still think the company's 2009 outlook is a little too optimistic, I also believe that the market recognizes Finish Line's proactive efforts to improve its financial position during the economic crunch, with decisions such as backing out of the Genesco (NYSE:GCO) acquisition and implementing cost-cutting measure within the company.

For instance, third-quarter real estate expenses were down $2.2 million from a year earlier. The company also brought inventory levels down from $338 million a year ago to $293 million this year. A year from now, those decisions should mean a much healthier income statement.

In the meantime, things could look ugly. Finish Line's third quarter ended Nov. 29, so its results don't include December. We already know a whole slew of retailers reported troubling December results. Gap (NYSE:GPS) watched December's same-store sales slide lower by 14%, while Limited Brands (NYSE:LTD) fell 10%, and Abercrombie & Fitch (NYSE:ANF) tanked a whopping 24%. That doesn't quite give me a warm fuzzy feeling about prospects for Finish Line's fourth quarter.

Yet Finish Line is starting to grow on me for a couple of reasons:

  1. The company is sitting on $55 million in cash and short-term investments, against no long-term debt, giving it the resources to weather a fairly prolonged economic storm.
  2. The company has topped analysts' earnings estimates in three of the last four quarters. I wonder whether it's setting up another upside surprise for the fourth quarter, especially once those cost-cutting measures start to take hold.

The conservative move would be to wait and see how things go for Finish Line. But investors who are bullish about the company's prospects may want to jump in with a speculative stock purchase.

Related Foolishness:

Limited Brands is a Motley Fool Income Investor pick. Limited Brands and Gap are Motley Fool Inside Value selections. Gap is a Motley Fool Stock Advisor pick. Try any or all of these Foolish newsletters today, free for 30 days, to find the investing style that most suits your goals and your risk tolerance.

Fool contributor James Brumley doesn't own any of the companies mentioned above. In fact, he didn't even visit any of those stores during the holiday shopping season. James does, however, hold the Motley Fool's disclosure rules near and dear to his heart