Abercrombie & Fitch (NYSE: ANF) is such a funny stock story. The company reports what I thought was a quarter full of dire results, and the market still sends shares higher. They closed almost 4% higher, in fact, on Friday. I don't get it.

For the second quarter, sales decreased 23%, and the overall same-store sales statistic, which is a really important metric for retailers, sank 30%. A net loss of 30 cents per share was booked, mostly on the back of the discontinuation of the Ruehl business. Excluding the effect of the closure, Abercrombie made 8 cents per share, and that, according to Reuters, beat by a mile the expected loss of 7 cents per share.

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.