Here's a stock I've been wrong about. I've been bearish on J. Crew Group (JCG), as this previous article will indicate. But since the latest quarterly results show a vast improvement of the retailer's fundamentals, I guess you could say I was decidedly behind the curve.

According to the earnings release, revenues increased 14% in the third quarter. Same-store sales advanced 8%. Net income more than doubled to 67 cents per diluted share. A lot of this good news was expected, as Trey Thoelcke pointed out in his earnings preview. Still, the bottom line beat the analysts by several pennies. And you've got to love the increase seen in the gross margin.

J. Crew Group (NYSE: JCG - option chain) shares are rising today after the company lifted its third-quarter EPS forecast by 80% to a range of 54 to 59 cents, up from a previous range of 30 to 33 cents. Analysts are expecting the company to report a profit of 36 cents per share. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on JCG.

JCG opened this morning at $42.57. So far today the stock has hit a low of $41.50 and a high of $42.94. As of 11:50, JCG is trading at $42.41 up $4.67 (12.4%). The chart for JCG looks neutral and S&P gives JCG a neutral 3 STARS (out of 5) hold ranking.

J Crew (NYSE: JCG - option chain) shares are rising today after the company reported a second-quarter profit of $18.61 million, or 29 cents per share, on revenue of $357.56 million. Analysts had forecast a profit of 15 cents per share on revenue of $346.86 million. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on JCG.

JCG opened this morning at $35.75. So far today the stock has hit a low of $34.22 and a high of $35.80. As of 11:45, JCG is trading at $34.72 up $1.96 (6.0%). The chart for JCG looks neutral and S&P gives JCG a neutral 3 STARS (out of 5) hold ranking.

J. Crew Group (NYSE: JCG) issued a Q4 report that the market seemed to like. The retailer posted a loss of 22 cents per share on Tuesday after the bell. As I said in my earnings preview, Wall Street was bracing for a loss of 27 cents per share. That five-penny beat helped to send J. Crew's shares up by well over 10% in the after-hours session.

I think the buying was a bit overdone. Sure, I'll give credit where credit is due. Management did beat the analysts and their precious earnings models. How much credit should I give beyond that?

It is tough to be a retailer in this climate. It's especially tough to be a retailer like J. Crew Group, Inc. (NYSE: JCG). After all, if you're a Wal-Mart Stores, Inc. (NYSE: WMT) or a Family Dollar Stores (NYSE: FDO), at least you can entice consumers with your low prices, and at least you stock things that people need. Not so with J. Crew. It's a fashion retailer that you don't have to visit during the recession. Apparently, many people indeed haven't been visiting lately. That's why shareholders will most likely be nervous when fourth-quarter numbers are issued after the bell on Tuesday, March 10.

According to this source, J. Crew should report an earnings loss of $0.27 per share. How ugly! This compares to a profit of $0.41 per share in the year-ago period. I expect to hear the same stuff that we've been hearing from retailers such as Urban Outfitters (NASDAQ: URBN) and Kohl's (NYSE: KSS): things are tough, the rest of the year is going to be a huge challenge, we're doing everything we can to navigate the business through the treacherous times, etc. Such rhetoric probably won't be comforting to shareholders, especially considering that J. Crew's stock isn't too far from a 52-week low.

J Crew Group (NYSE: JCG) shareholders are big Obama fans.

Shares of the retailer jumped more than 10% yesterday on the news that much of the clothing worn by the new first family on inauguration day came from J Crew. According to The Associated Press, "While the items were made specifically for the Obamas, J. Crew said customers can see highlights or similar items in upcoming seasons."

Of course, it's been a long time since a politician and his family had the star power to sell clothing. Traffic to the website soared on Wednesday, overwhelming the company's server at times. The Obamas "asked for invoices for everything that was submitted to them," Tom Mora, the company's head of women's design told The New York Times.

The Obama camp reportedly told J. Crew designers that they wanted clothing that evoked a "happy, approachable warm mood" and given the doting press they've gotten in their first day in the White House, J Crew appears to have delievered the goods.

J Crew (NYSE: JCG) is recently down $10 to $36.91. JCG sees Q2 EPS of 31c-33c versus consensus of 40c. Smith Barney says "Downgrade to Sell; Expect multiple compression on slowing sales." JCG call option volume of 5,651 contracts compares to put volume of 10,076 contracts. JCG June option implied volatility of 42 is below its 26-week average of 54 according to Track Data, suggesting decreasing price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MOST NOTEWORTHY: PhotoChannel Networks, BioMarin Pharmaceutical, Double-Take and Leapfrog Enterprises were today's noteworthy initiations:

• Merriman believes PhotoChannel Networks (OTC: PNWIF) is positioned to become a leading provider to the digital photofinishing market through its offering of a fully-integrated solution to retailers. The firm started shares with a Buy rating.
  
• Jefferies resumed coverage of BioMarin Pharmaceutical (NASDAQ: BMRN) with a Buy rating and $33 target, as they expect strong long-term growth from Aldurazyme and Naglazyme and is optimistic for Kuvan approval and a strong market launch.
  
• ThinkEquity is positive on Double-Take's (NASDAQ: DBTK) impressive operating leverage and valuation and started shares off with a Buy rating and $28 target.
  
• Needham initiated Leapfrog Enterprises (NYSE: LF) with a Strong Buy rating and $11 target. The firm expects Leapfrog to benefit from its turnaround initiatives in 2008 and for shares to be driven by improving sales and profits.

OTHER INITIATIONS:

• UBS started J Crew (NYSE: JCG) and American Eagle (NYSE: AEO) with Neutral ratings and targets of $40 and $25, and Gap (NYSE: GPS) and Abercrombie & Fitch (NYSE: ANF) with Buy ratings and targets of $23 and $97.
  
• Goldman initiated The9 (NASDAQ: NCTY) with a Neutral rating. Broadpoint initiated Vocus Inc (NASDAQ: VOCS) with a Strong Buy rating.

MOST NOTEWORTHY: Centene, Brinker International, Harmonic, Idex and Royal Dutch Shell were today's noteworthy upgrades:

• Jefferies upgraded shares of Centene Corporation (NYSE: CNC) to Buy from Hold as they expect the company is benefiting from above 20% revenue growth next year and SG&A leverage opportunity over the next 12–18 months.
  
• Bear Stearns upgraded shares of Brinker International (NYSE: EAT) to Outperform from Peer Perform as they believe Brinker's turnaround efforts can enhance shareholder value.
  
• Friedman Billings raised shares of Harmonic (NASDAQ: HLIT) to Outperform from Market Perform based on the favorable outlook for cable and satellite spending on HD video and other projects.
  
• The firm also upgraded Idex Corporation (NYSE: IEX) to Outperform from Market Perform, citing the company's positive 2008 outlook and solid end markets.
  
• Goldman upgraded Royal Dutch Shell (NYSE: RDS.A) to Neutral from Sell on valuation.

OTHER UPGRADES:

• CIBC upgraded J. Crew Group (NYSE: JCG) to Sector Outperformer from Sector Performer and Parker Hannifin (NYSE: PH) to Sector Performer from Sector Underperformer.
  
• Sprint Nextel Corporation (NYSE: S) was upgraded to Outperform from Neutral at Credit Suisse.
  
• RBC Capital Markets upgraded LaSalle Hotel Properties (NYSE: LHO) to Top Pick from Outperform.

MOST NOTEWORTHY: Aeropostale (ARO) and Halliburton (HAL) top today's initiations.

• Caris initiated Aeropostale, Inc. (NYSE:ARO) with an Above Average rating and said Aeropostale's strong inventory, management and same-store sales growth should bring significant upside to margins.
• Credit Suisse started Halliburton Company (NYSE:HAL) with a Neutral and $43 target.

OTHER INITIATIONS:

• Medcath Corp (NASDAQ:MDTH) was initiated by Citigroup with a Buy and $35 target, citing a solid portfolio, strong core operating results and valuation.
• Credit Suisse initiated J Crew Group, Inc. (NYSE:JCG) with an Outperform rating and $42 target. The firm said J Crew was an attractive turnaround story with opportunity for margin expansion.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).