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Why Shares of Urban Outfitters Are Up Today

What happened

Shares of Urban Outfitters (NASDAQ: URBN) climbed nearly 6% on Thursday, a second-consecutive strong trading session following the retailer's better-than-expected earnings report. The company has spent most of the year caught up in the malaise surrounding retail stocks, with shares at one point last week down 40% year to date. Investors, however, seem to be warming up to the idea that the worst is finally behind Urban Outfitters.

So what

Urban Outfitters saw retail net sales fall 3% year over year in the recently completed second quarter and generated gross margin of 32.8%, compared to 35.9% a year ago. But the company, which also owns the Anthropologie and Free People brands, said in its Aug. 20 earnings release that it's seeing reasons for optimism concerning the current quarter.

Image source: Getty Images.

August comps are up 4%, a potential sign that Urban Outfitters has the right mix of product in the stores for the fall buying season.

"I am pleased to report that customer reaction to our early fall apparel assortments have improved significantly from our second quarter results," CEO Richard A. Hayne said in a statement. "Third quarter-to-date 'comp' sales are positive at all three brands."

Urban Outfitters gained about nearly 7% on Wednesday after the release and carried that momentum through to Thursday, fueled in part by optimism surrounding the entire retail sector thanks to an earnings beat by Nordstrom.

Now what

It's great to see some optimistic talk out of Urban Outfitters, but this is a company that's still in "show-me" mode. Retailers are still vulnerable from worries about Chinese tariffs, as well as questions about the U.S. economy, and Urban Outfitters needs to prove that its early fall success can be sustained for the entire quarter.

The news this week from the company should offer a reason for existing shareholders to have hope that a turnaround can happen. But even after a few good days for the stock, it's way too soon to declare Urban Outfitters a turnaround success story.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.


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