Why Shares of Abercrombie & Fitch Co. Are Surging Today

By Seth McNew Markets Fool.com

What happened

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Shares ofAbercrombie & Fitch Co.(NYSE: ANF)were up 17% as of 1:42 p.m. ESTafter the company reported lackluster earnings for the fourth quarter and full-year 2016, but relatively positive guidance for 2017.

So what

Abercrombie and Fitch Co. actually didn't post very positive results for the year in terms of growth -- sales were down 7% year over year with same-store sales companywide down 5%, and net income dropped to $4 million compared with over $35 million for fiscal 2015. Still, those results must have been better than the market was expecting, and the company guided for comparable-store sales to grow in fiscal 2017 as it closes another 60 stores.

Image source: Hollister/Abercrombie and Fitch Co.

Additionally, the company's Hollister brand saw some welcome same-store sales growth in the fourth quarter, up 1% year over year, which was the first and only positive same-store sales growth figure of any reported Abercrombie brand during any quarter in fiscal 2016. The company will remodel many of its Hollister stores in 2017, according to management, which could help to extend that same-store sales increase.

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Now what

Abercrombie's success today comes on the heels of one of its major rivals,American Eagle Outfitters (NYSE: AEO),taking a turn the other way yesterday after its own 2016 earnings disappointed investors and the company guided for Q1 2017 same-store sales to be flat or even slightly negative. Still, American Eagle Outfitters' full-year revenue and earnings were up year over year, and that coupled with Abercrombie's positive 2017 guidance could be a good sign for this segment of the industry, which has struggled so much in the last few years thanks to fickle fashion tastes among their target consumers and increased competition from lower-cost alternatives.

Looking ahead, Abercrombie still faces some major challenges, including continued same-store sales declines and increased price competition that could negatively impact margins. However, the company does have a strong cash position -- more than $547 million as of these earnings -- which will help in its store-remodeling efforts and help make the stock look stable during the company's transition.

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Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.