"What a difference a day makes," goes the old saying. If a day can make a big difference, just look at what has happened in two weeks to the market's view of Goody's Family Clothing (NASDAQ:GDYS). On March 15, with Goody's trading for about $9.50 a stub, I wrote a few words suggesting what Fools should look for in the next day's annual earnings report. I recommended looking past GAAP earnings and focusing on trying to find "some evidence that Goody's has managed to stop the flood of cash leaving its coffers."

The next day, the company coyly sidestepped that issue, declining to file a cash-flow statement along with its earnings release. The market bought the ploy -- and although I say "bought," it might be more accurate to say "bought with a vengeance." In response to Goody's announcement that it had earned $0.46 per diluted share in GAAP profits -- better than anticipated, it seems -- Wall Street bid the shares up rapidly, all the way to $11.

Foolish investors may have been bemused by the Street's response. After all, failing to provide a statement of cash flows was the least of Goody's fiscal sins. The company also failed to report:

  • Any signs of earnings growth (profits declined by 13% in comparison to 2003).
  • Or of operating or net margin improvement (both of those declined, despite gross margins rising by 35 basis points).
  • Any ability to control its inventories (those rose 16% against a 3% rise in sales).
  • Or collect its bills in a timely manner (accounts receivable skyrocketed 51%).
  • Or, now that you mention it, any evidence that Goody's has managed to stop the flood of cash leaving its coffers. Cash on hand declined year on year.

So Wall Street, these are the kinds of results rewarded with a 15% increase in market cap? Gee whiz, guys. Here's a dime -- go buy yourself a clue. Or on second thought, hold on to that dime. You may need it to make your quarter, since after foolishly (small "f") buying Goody's on lousy results, I suspect you lost a bundle yesterday when Goody's warned that "cold and wet weather," "combined with an early Easter this year" (that's a new one) -- were going to depress Q1 2005 profits. At last report, Goody's was down more than 17%, losing all of its gains of two weeks ago, and then some.

Want to avoid Wall Street's mistakes next time around? Keep a sharp eye out for reports like the following, in which Foolish writers tell you what to look for before the earnings come out:

Fool contributor Rich Smith has no position, long or short, in Goody's.