You thought retail was left for dead in this economy? Think again. Joe's Jeans (Nasdaq: JOEZ) released earnings last night, delivering stunning sales growth. However, as growth aspirations take a toll on the bottom line, will Joe's still be a perfect fit for your portfolio?

It's clear where Joe's wants investors to focus this morning. The earnings release immediately latches onto the company's 51% surge in Q2 net sales, a boast-worthy figure indeed. Sales rose 42% in the wholesale segment, but retail-store sales leapt 180%, as Joe's aggressively expanded its retail footprint.

Despite all this growth, though, profits shrank like a pair of skinny jeans. Thanks to a shift into lower-margin non-denim products, and ballooning sales and administrative costs, operating profits slipped 30% from last year.

It's natural to expect profit weakness when a company expands into new product lines and aggressively builds out stores. Joe's amazing top line is absolutely blazing past lower-priced jean sellers like The Gap (NYSE: GPS) and Buckle (NYSE: BKE). Still, there are reasons to believe that the bottom line should rebound in the coming quarters -- and just as many reasons to be skeptical.

Management's explanation of the increased administrative costs -- "the additional cost of bringing customer service in-house [and] larger commission payments due to higher sales volume" -- seems to imply that SG&A could meaningfully rise in the future. After all, the company continues to push into lower-margin areas, so the trend of larger total commissions on products that contribute less to the bottom line won't end after this quarter.

However, the company also had to staff up and find low-volume suppliers for its new product lines. As sales increase, margins should see an uptick in these areas, as the company achieves better pricing and employee costs decline relative to sales.

 Joe's isn't alone in seeing strong demand for specialty jeans. Rival True Religion (Nasdaq: TRLG) posted a healthy first quarter as well. Just don't expect either company to send thank-you notes to large department stores such as Nordstrom (NYSE: JWN) for driving strong denim growth.

Joe's described the department stores as unwilling to "expand their space, or get aggressive behind denim." That retail difficulty highlights the importance of Joe's own successful retail locations. As a niche provider of jeans, Joe's doesn't have the resources to aggressively compete for floor space at Nordstrom and other large chains, but its brand is proving strong enough to hold up as a stand-alone item. The company rang up a 26% increase in same-store sales, albeit off a small store base.

While earnings growth was lacking for Joe's, I like the company's overall vision. Department-store weakness shows the benefit of Joe's ability to directly sell its products. Along those lines, Joe's needed to diversify into other products to fill out a retail-store concept, so I don't mind its growing pains in that area. A weak economy hasn't squashed continuing heavy demand for specialty jeans; now it's up to Joe's to transform itself into a full-fledged retail force. That strategy's not without its risks, but the company's upside soars if Joe's can keep delivering.

Have any thoughts on Joe's growth ambitions? Leave a comment below!