Teen retailer Abercrombie & Fitch Co. (NYSE: ANF) reported third-quarter results with $38.8 million in net income and net income per diluted share of 44 cents. This is in comparison to net income of $63.9 million and net income per diluted share of 72 cents for the period ended November 1, 2008.

IN PICTURES: Eight Ways To Survive A Market Downturn

No Surprises
Abercrombie's results aren't surprising. The company serves one of the most discretionary consumers: teenagers. Many will take the fact the sales only decreased by 15% year-over-year as being positive. While I typically avoid retailers as investment, Abercrombie along with American Eagle Outfitters (NYSE: AEO) have been two of the most successful teen retailers in the business. This recession aside, they certainly have rewarded shareholders over the long-term.

Strong Future?
Over time, I would suspect that both of these companies will benefit from the recession, as less successful retailers may find it far too difficult to operate in this environment. Indeed, a host of other retailers like Buckle (NYSE: BKE), and Aeropostale (NYSE: ARO) also have good-looking balance sheets, but neither seem to have captured teen brand loyalty as much as Abercrombie. (Learn to pick out your investments on your next trip to the mall in our related article Analyzing Retail Stocks.)

Always A Tough Day
Retailing is already a tough business - even in a normal economic environment, let alone in the current nightmarish times. The industry has low barriers to entry, excessive competition, rapid inventory obsolescence and few hidden trade secrets; anyone can walk into a retailer and see what's making the business click. Looking at Abercrombie's numbers, you can see that margins have decreased across the board, a sure sign that the company is reducing prices to entice shoppers. Net profit margin was down by nearly 30% from 7% to 5% for the quarter. I would guess that such price cuts will become more aggressive as the holiday season approaches.

Bottom Line
Overall Mr. Market is happy with today's earnings news, as the numbers weren't as bad as they were expected to be. However, don't expect this short-term optimism to be indicative of a turn in the retail industry. As long as unemployment remains stubbornly high, I doubt these businesses will ever deliver the numbers that many investors become accustomed to.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Are U.S. Stocks Still the Place To Be in 2016?

    Understand why U.S. stocks are absolutely the place to be in 2016, even though the year has gotten off to an awful start for the market.
  2. Investing News

    U.S. Recession Without a Yield Curve Warning?

    The inverted yield curve has correctly predicted past recessions in the U.S. economy. However, that prediction model may fail in the current scenario.
  3. Investing

    Retirees: 7 Lessons from 2008 for the Next Crisis

    When the last big market crisis hit, many retirees ran to the sidelines. Next time, there are better ways to manage your portfolio.
  4. Economics

    Industries That Thrive On Recession

    Recessions are not equally hard on everyone. In fact, there are some industries that even flourish amid the adversity.
  5. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  6. Fundamental Analysis

    Is a U.S. Industrial Recession on the Horizon in 2016?

    Find out why the industrial economy may be teetering on an industrial recession and what could prevent it from going over the cliff.
  7. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  8. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  9. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  10. Fundamental Analysis

    Gloom and Doom for Global Markets in 2016?

    Learn about the volatility in global markets during the beginning of 2016. See why famous investors are saying some economies could see recessions.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  3. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  4. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
Trading Center