Abercrombie & Fitch (NYSE: ANF) was not hot at all in the first quarter. It's funny. You hear about the recession coming to an end this year, about things getting better, and then you check out some retail stats and you begin to wonder.

Anyway, Abercrombie, which shares space at the mall with names like J.C. Penney (NYSE: JCP), American Eagle Outfitters (NYSE: AEO), Gap (NYSE: GPS), and Aeropostale (NYSE: ARO), saw its top line decline by 24%. Same-store sales for the company's entire operations dropped 30%. Same-store sales at the Abercrombie & Fitch brand itself plunged 26%. Earnings per share took a dive of more than 50% to $0.31. It should be noted, however, that there is a pending non-cash charge that will be added to these results at a later time.

Bed Bath & Beyond (NASDAQ: BBBY) reported earnings for the fourth quarter on Tuesday after the market closed its doors. In the after-hours session, the retailer's stock rallied mightily, rising over $3.50, or better than 14%. Let me tell you, that was impressive. As was the beat on the bottom line.

As I wrote in my preview piece, the market was looking for 44 cents per share. Bed Bath & Beyond did its job and delivered 55 cents per share. Net sales decreased by less than 1%. Granted, no one likes to see the top line contract even a little, but considering how bad retail has been, I actually find this to be a small victory. Unfortunately, the same-store sales weren't good. They dropped over 4%. Also, operating profit and cash from operations saw a decline.

Mall retailers have been struggling, but Aeropostale (NYSE: ARO), whose colleagues include Gap (NYSE: GPS), Abercrombie & Fitch (NYSE: ANF), and American Eagle Outfitters (NYSE: AEO), actually posted a pretty decent earnings report on Thursday after the bell. For the fourth quarter, Aeropostale earned $1.01 per share. That performance represented a 6% growth rate, and it beat analyst estimates by the proverbial penny.

American Eagle Outfitters (NYSE: AEO), whose mall colleagues include Gap (NYSE: GPS), Abercrombie & Fitch (NYSE: ANF), and Urban Outfitters (NASDAQ: URBN), posted Q4 earnings on Wednesday.

The Christmas season was a difficult one for the chain. Sales decreased 9%, and same-store sales declined a whopping 16%. Ouch, sorry to hear that, American Eagle. Earnings came in at 19 cents per share, meeting analysts expectations.

It's the same old story: to move merchandise, things had to be marked down. And that affected profits. Big time.

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?

Urban Outfitters (NASDAQ: URBN), as one might have expected, didn't report a great fourth quarter. It's a fashionable retailer, so you can imagine that consumers, who aren't in the mood to spend top dollar on clothes and accessories, forced the company to do a lot of discounting.

Sales, though, were healthy. The top line increased by 9%, and same-store sales at the Urban Outfitters brand rose 3%. Unfortunately, Q4 wasn't so kind to the Anthropologie and Free People brands. Their comps were down 6% and 13%, respectively. And the company missed earnings estimates. The call was for 28 cents per share, but the retailer was only able to deliver 24 cents per share.

Abercombie & Fitch (NYSE: ANF) is resisting the tidal wave of discounting that is hitting malls, and is sticking to its retail prices. On a recent conference call, CEO Michael Jeffries called aggressive discounting a "short-term solution with dreadful long-term effects."

The idea behind the fear of discounting is that it kills margins and causes irreparable damage to a brand: If Abercrombie starts selling shirts for $30 instead of $60, will it be able to jack prices back up when the tide turns?

Here's the problem for Abercrombie: If the recession lasts awhile, which most experts predict it will, consumers will continue to flock to lower-priced stores that are embracing discounting like Aeropostale (NYSE: ARO) and H&M. At some point, teens may realize that wearing cheaper t-shirts from Aeropostale won't prevent them from being cool or getting into college. Abercrombie could then become the Gap (NYSE: GPS) of the second decade of the millennium.

For now, though, Abercrombie's strategy seems prudent even if it does batter the stock price with hideous same-store sales numbers. The company can always change its mind and begin discounting aggressively. It's much harder to go back.

Youth-retailer Aeropostale (NYSE: ARO) had a much better third quarter than I thought it would have. I was expecting a lower earnings growth rate and a worse performance in terms of same-store sales. Diluted earnings per share actually rose over 30%, coming in at $0.63. Way to go. And this performance beat expectations by a penny, according to Reuters Estimates. Net sales increased 17%. Double-digit expansion in both the top and bottom lines really is something to crow about in this terrible mall environment.

At least as far as I'm concerned, the 5% fall in same-store sales for the month of November wasn't too bad, especially considering that comps increased 7% for Q3 as a whole. Plus, on a year-to-date basis, comps rose 7%. Management can be proud of its achievements. However, that 5% drop in comparable sales for November is, unfortunately, a sticking point in terms of buying the retailer's stock. The economy has gotten much worse since I wrote about Aeropostale back in August. This decline might be a precursor to more bad times ahead. In fact, the stock is no longer as strong as it was earlier in the year. Shares of Aeropostale are trading closer to a 52-week low as opposed to a 52-week high.

There's no question that Aeropostale, whose colleagues at the mall include Abercrombie & Fitch (NYSE: ANF), Gap (NYSE: GPS) and American Eagle Outfitters (NYSE: AEO), has been efficiently marketing to its target audience. There's also no question that now may not be the time to roll the dice on a business that caters to fickle demos. Personally, I think Aeropostale offers value at these levels. But I'd still rather wait for the macro economy to improve before getting into this retailer.

Disclosure: I don't own any company mentioned; positions can change at any time.

American Eagle Outfitters (NYSE: AEO), whose competitors at the mall include Abercrombie & Fitch (NYSE: ANF) and Gap (NYSE: GPS), is part of a sector I'm not much of a fan of currently: retail. Just saying the word aloud makes it sound repulsive these days. Don't get me wrong, retail will come back (someday). For now, though, it's difficult to look at the numbers associated with the industry, especially the same-store sales.

Looking at American Eagle, I can see that its third quarter was, as expected, not too inspiring. Adjusted earnings per share dropped 33% to $0.30. Worse, comps plunged 7%. Last year at this time, comps increased 2%.

It's tough out there, folks, and it probably will get tougher. American Eagle, like every retailer out there, is facing a perplexing problem. What's the best way to get traffic through the door? Marketing and promotions. What do retailers have to focus on this Christmas season? Containment of costs. Margins are important, and management doesn't want them to deteriorate too badly. You can see the challenge. Plus, American Eagle can't really count on its target shopper. Young people are oftentimes fickle and ready to jump to some other business near the food court. Not a great position to be in.

We all know that this Christmas is going to be particularly tough on retailers. Wal-Mart (NYSE: WMT), Target (NYSE: TGT), Sears (NASDAQ: SHLD), and Best Buy (NYSE: BBY), as well as hipper competitors Abercrombie & Fitch (NYSE: ANF) and Gap (NYSE: GPS), will be fighting it out at the mall Mad-Max style the next several weeks.

It's not going to be pretty. With comps and cash flows on the line, these chains will be looking to extract as much discretionary money from consumer wallets as is heavenly possible. But there's a troubling sign with respect to a popular gift option this year.

Gift cards have been soaring in popularity over the years. Not only do they make great presents, but retailers love them because they represent a little insurance policy: if the Christmas quarter isn't as strong as a retailer would like, then redemption of gift cards will theoretically help the bottom line in the next quarter. The card purchases do not get recorded as a sale until they are redeemed. So it's like a squirrel putting food away for the long, cold winter.

Unfortunately, we have some bad news on this front: gift-card sales are expected to be down 6% this season. That's not what retail investors want to hear. It's just another reason for traders to short this sector.

Abercrombie & Fitch (NYSE: ANF - option chain) shares are dropping sharply today after the company reported an 11% drop in August same-store sales when analysts had been expecting a 7.9% decrease. Last month, July sales disappointed investors and we pointed out a potential trade with an annualized return over 35%. That trade is still looking good for expiration in two weeks. Today, we have another similar trade idea if you missed out on the last one and still think this stock won't be rising too far in the coming months

This morning, ANF opened at $51.39. So far today the stock has hit a low of $50.87 and a high of $53.00. As of 12:00, ANF is trading at $51.29, down $3.42 (-6.2%). The chart for ANF looked slightly bullish before today and S&P gives ANF a positive 5 STARS (out of 5) strong buy ranking.

For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $65 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in eleven weeks as long as ANF is below $65 at November expiration. Abercrombie would have to rise by more than 25% before we would start to lose money. Learn more about this type of trade here.

ANF hasn't been above $35 since June and has shown resistance around $55 recently.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in ANF.

J. Crew Group's (NYSE: JCG) stock is not a thing of beauty. The retailer's shares have been weak for a long time, and the latest quarterly numbers did nothing to change my mind about the stock's prospects.

For the second quarter, J. Crew, whose competitors include Abercrombie & Fitch (NYSE: ANF) and Gap (NYSE: GPS), reported a 10% increase in top-line sales. Not bad, I suppose. But I'll tell you what, there is some bad to come. Operating income went down 15%. Gross margin saw an unfortunate decline, dropping from 43.7% to 41%. And earnings per diluted share came in at 28 cents compared to last year's 32 cents per diluted share. That's a better than 12% drop.

Now, there is something to consider with the stats. The earnings release states that a systems upgrade in the direct-sales channel is affecting the results. In fact, there apparently were some costs related to the upgrades that were unexpected. Management says that this sum was equal to $3 million. In theory, these upgrades will help to position the company for long-term growth.

A hot retailer reporting a 4% drop in second quarter profit in the face of a 4% decline in same-store sales might not seem like good news but, in a very tough retail climate, it's a sign of how well Abercrombie and Fitch (NYSE: ANF) is holding up.

The stock's up more than 2% on the company's second quarter earnings, released this morning. The highlights:

• Revenue up 5% to $845.8 million.
• Abercrombie and Fitch same-store sales up 3%. abercrombie (kids clothes) SSS down 11%; Hollister down 9%, RUEHL down 22%.
• EPS down 1% to 87 cents on improved gross margins.

For a company to increase gross margins in the face of soaring commodity costs and timid consumer spending is extremely impressive, and a testament to the company's continued pricing power.

Investors have to be somewhat troubled by the performance of Hollister and the much-hyped RUEHL. Hollister may have been hurt because, as a lower-price point version of Abercrombie (Abercrombie won't call it that but that's what it is), its shoppers may be more sensitive to the economy. The huge plunge in same-store sales at Ruehl indicates that that brand might not have the great future people once thought it did -- but at less than 2% of the company's total sales, it won't drag anything down.

The stock has taken a beating with the rest of the retailers but, long-term, its prospects remain as strong as ever.

Abercrombie & Fitch (NYSE: ANF - option chain) shares are tanking today after the company reported a 7 percent decline in same-store sales in July, much worse than the 1.4 percent decline expected by analysts. Apparently, suburban Moms and Dads decided that $100 jeans were not the correct place to spend their economic stimulus checks. Either that or they were finally turned off by the three-quarters naked models in the store windows. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on ANF.

This morning, ANF opened at $52.13. So far today the stock has hit a low of $49.55 and a high of $52.72. As of 12:50, ANF is trading at $49.55, down 6.18 (-11.1%). The chart for ANF looks bearish but S&P gives ANF a positive 5 STARS (out of 5) strong buy ranking.

For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $65 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in six weeks as long as ANF is below $65 at September expiration. Abercrombie would have to rise by more than 20% before we would start to lose money. Learn more about this type of trade here.

ANF hasn't been above $65 since late June and has shown resistance around $56 recently. This trade could be risky if the economy stages a rebound, but even if that happens, the position above could be protected by reluctant shoppers who still have lingering worries about their wallets.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in ANF.

Abercrombie & Fitch (NYSE: ANF) shares have been slipping some of late. Recent insider selling is also flashing a warning for this stock. Over the past three months, insiders have sold $59.0 miilion worth of ANF stock. Insider selling has slowed its pace over the past few months, but it is still happening. A filing released on Saturday indicated that a director at the company sold 7800 shares of ANF, valued at over $500,000. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on ANF.

After hitting a one-year high of $85.77 in October, the stock hit a one-year low of $66.05 in January. This morning, ANF opened at $72.72. So far today the stock has hit a low of $70.50 and a high of $72.72. As of 12:25, ANF is trading at $70.70, down $1.90 (-2.6%). The chart for ANF looks bullish but deteriorating, while S&P gives the stock a very positive 5 STARS (out of 5) strong buy rating.

For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $85 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make a 6.4% return in three months as long as ANF is below $80 at August expiration. ANF would have to rise by more than 21% before we would start to lose money.

ANF hasn't been above $85 by more than a few cents at all in the past year and has shown resistance around $78 recently. This trade could be risky if the company's earnings (due out in on 8/15) are a positive surprise, but even if that happens, this position could be protected by resistance ANF might find at its 200 day moving average, which is currently around $77.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in ANF.