Abercrombie & Fitch Shares Got Crushed: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of teen fashionista Abercrombie & Fitch (NYS: ANF) were looking out of style to investors today as they fell as much as 16% in intraday trading after reporting third-quarter results.

So what: Earnings per share for the quarter edged up from a year ago from $0.56 to $0.57. Sales were much stronger, rising 21% year over year to $1.08 billion, while comparable-store sales increased 7%. The lackluster profit growth for the quarter came as Abercrombie's gross margin fell 360 basis points from a year ago, a drop that CEO Mike Jeffries chalked up to "costing challenges."

Wall Street analysts had been expecting $0.71 in per-share profit on $1.07 billion in sales.

Now what: Commodity cost pressures have hit a wide variety of consumer-goods companies, and it appears that Abercrombie is no exception. It's certainly a good sign that sales are increasing, but investors may continue to see lower profit margins as long as the company is caught between higher commodity prices and a tough retail environment that makes raising prices a dicey proposition.

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