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Abercrombie & Fitch Soars, but Will Crash Again

Stocks in this article: ANF

NEW YORK (TheStreet) -- Despite low expectations, shareholders of Abercrombie & Fitch (ANF - Get Report) were rewarded during Thursday's after-hours trading when the company reported higher-than-expected sales for its fiscal fourth quarter.

Embattled CEO and chairman Michael Jeffries needed a boost after calls for his resignation and being slapped with Herb Greenberg's Worst CEO of 2013 Award. The 15% surge, if maintained into trading to end the week, will leave shares only about 30% below their 52 week high.

Perhaps lost in translation are the nuances contained in the report that sent shares soaring. And those nuances may set Abercrombie & Fitch share holders up for more disappointment in the future. Manufactured good news has a way of doing that, once reality hits.

It is difficult to interpret today's press release as anything other than a very favorable spin on a company and a CEO much in need of a boost.

For the period in question, which ended on Jan. 4, 2014, the company actually reported decreased total sales, but found some solace in the fact that its direct-to-consumer sales were at their highest level of total sales ever. Of course, as the total pie shrinks, a component may look comparatively better by simply not shrinking as much. The details of the direct-to-consumer activities were lacking. This growth was by all accounts relative, not absolute.

While sales were reported to be better than expected, they nonetheless represented a 4% decrease in the U.S. and a 10% decrease in international sales. Improved guidance was based on the nine-week period ending before much of the east coast freeze that is reported to have stalled mall traffic. It's unclear how nature's elements will affect future sales, as the first quarter becomes the object of focus.

Additionally, reliance on "ongoing cost reduction efforts" is rarely a strategy for growth. Jeffries' one-year contract extension may require something more substantive than smoke and mirrors to further extend the engagement. Marketing the company as "We're Not Sears" is not likely to provide a prolonged bounce, just as today's suspect press release probably won't either.

But I don't really care about any of that, because Abercrombie & Fitch, for all of its dysfunction and sometimes embarrassing behavior of its CEO, has been one of my favorite stocks since May 2012. During that period of time I've owned shares on 18 occasions.

A&F hasn't been a holding for the faint of heart during that period, nor for anyone abiding by a buy-and-hold strategy.

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