The first-quarter results from Benetton Group (NYSE:BNG) are chock-full of interesting movements. In some ways I can't help but think it's fitting that the company is known for its variety of colors, because its financial statements show an interesting variety of movement and trends.

Benetton's quarter was a mixed bag. Sales were up 10.5%, but cost of goods sold rose a more brisk 12.8%. So while gross income increased slightly, gross margins declined, which is not a welcome sight for a retailer. Benetton was able to slightly increase its operating margins by holding payrolls flat, reducing advertising spend, and showing a decline in other expenses. An increase in operating income and net income is always welcome, but gains of this kind are ultimately unsustainable, and the declining gross margin brings additional worries if sales happen to soften.

Other portions of Benetton's results are similarly mixed. It is good that the company was able to keep its working capital flat with a year ago while growing its sales. But on the negative side, inventories grew faster than sales at 15%, and the flat working capital appears to be a timing issue, as it was mostly driven by payables being pushed out. Again, nothing terrible here, but no signs of a strong operation performance either.

Benetton Group is well-known globally, but isn't as powerful a force in U.S. retailing as, say, Abercrombie & Fitch (NYSE:ANF) or Limited (NYSE:LTD). However, it's a different story in Europe, where the company does 85% of its sales. The company also has opportunities to grow throughout Asia. Unfortunately, this geographic strength and the growth opportunities in Asia have yet to translate into strong results for the company.

Benetton does have its problems, and my colleagues have looked at them from multiple angles. But there are reasons to be cautiously optimistic about improvements. The company hired a new CEO in March, and a focus on improving its distribution and systems has me willing to keep an eye on this retailer. It also doesn't hurt that the company has a 2.2% yield and a decent valuation given its performance. Any signs of sustained or material improvement in merchandising or operations could create an interesting opportunity.

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Nathan Parmelee has no financial interest in any of the companies mentioned. Limited is a Motley Fool Income Investor selection. The Motley Fool has an ironclad disclosure policy.