Target (TGT 0.76%), Barnes & Noble (BKS), and Abercrombie & Fitch (ANF 1.32%) were rising steeply on Wednesday after reporting earnings numbers above analysts' estimations. Investors beware, though; these companies still have a long way to go before we can say that a sustainable turnaround is in place.

Source: Target

Target beats discounted expectations
Target was jumping by more than 7% after reporting better-than-expected earnings on Wednesday, but that doesn't mean the numbers were necessarily good. Wall Street analysts had considerably reduced their estimates after the data breach that affected the company on Dec.19, so expectations were pretty low coming into the report.

Sales were $21.5 billion during the quarter, a 3.8% decline over the same period in the prior year, but above analysts' expectations of $21.45 billion. Fourth-quarter net income crashed by 46% year over year to $520 million, which resulted in net earnings of $0.81 per share -- and this, too, beat the analyst consensus of $0.79 per share.

The data breach could have important consequences for the company on different fronts. Management says it's not able to estimate at this stage future expenses related to the issue, which will probably include not only operating expenses and capital investments but also legal costs and uncertainties for the company in the middle term. Perhaps more important, the impact on the company's reputation and customer traffic could be even worse.

Besides, the discount retail industry is going through a notoriously challenging period lately. Rival Wal-Mart (WMT 0.09%) reported on Feb. 20 a 0.4% decline in U.S. same-store sales during the 14 weeks ended on Jan. 31. Not only that, but guidance for the coming year was also remarkably weak. Wal-Mart is expecting earnings per share in the range of $5.10 to $5.45 for fiscal 2015, while analysts were forecasting $5.54 per share before cutting their expectations because of the company's guidance.

Target has a remarkable challenge ahead of it in trying to regain customer trust, and the company will have to fight an uphill battle because of harsh industry conditions.

Source: Barnes & Noble.

Don't read too much into Barnes & Noble's report
Barnes & Noble rose by nearly 3.5% after the company reported a net gain for its fiscal 2014 third quarter. Wall Street analysts were forecasting a loss during the period, and the company is showing some progress in terms of improving its balance sheet. However, sales are still falling steeply.

Total revenues declined by 10.3% during the quarter, with the retail segment falling 6.3%, college sales declining 6%, and revenues in the Nook division falling 50.4%. Cost savings can only go so far, and unless the company can turn around its declining sales, an investment in Barnes & Noble remains a very risky proposition.

It´s no secret at all that the digital revolution is transforming the industry, and (AMZN 0.23%) is the clear winner from the changing competitive dynamics. The online retailer announced media sales of $3.51 billion in the fourth quarter of 2013, a 21% increase versus the prior year.

This segment includes not only books but also other products such as movies, music, software, and video games, but it still sounds like a safe assumption to say that Amazon is most likely inflicting serious damage on Barnes & Noble considering these figures.

Source: Abercrombie & Fitch.

Abercrombie & Fitch is not in fashion
Abercrombie & Fitch exploded higher by more than 11% after reporting net earnings of $1.34 per share for the fourth quarter of 2013, comfortably beating analysts' estimates in the area of $1.04 on average for the period. In addition, the company announced an accelerated share repurchase program for $150 million.

On the other hand, sales declined by a whopping 13% versus the same quarter in the prior year to $1.3 billion, lower than the $1.34 billion forecasted by analysts. Comparable-store sales fell by 8% in the U.S. and 9% in international markets for a total decline of 8% at the company level.

Cost reductions can only provide a temporary boost to earnings, and the same goes for share buybacks. The company's brand power has been materially eroded in recent years, and Abercrombie & Fitch still needs to prove that it can deliver the right products to the right customers to reinvigorate sales and regain market share. Until that happens, there is no reason to believe in a consistent turnaround for the company.

Bottom line
Lowered expectations and cost reductions can do wonders for a stock in the short term, especially when earnings come in better than expected. However, this can only last for so long if the company doesn't find a sustainable path to recovery. Target, Barnes & Noble, and Abercrombie & Fitch are making big upside moves recently, but that doesn't mean they have what it takes to continue rising in the middle term.