This time last year, Urban Outfitters (NASDAQ:URBN) was entrenched in its own version of urban warfare, at least in terms of the damage sustained to its stock price, but its latest quarter implies things are looking up for the retailer.

Second-quarter earnings at Urban Outfitters jumped 24% to $31.9 million, or $0.19 per share. Sales increased 22% to $348.4 million. Same-store sales edged up by 5%, with its Anthropologie and Free People concepts doing particularly well, with comps up 14% and 28%, respectively. Inventories crept up just a bit, with management pointing to new stores; same-store inventories increased by 3%.

Better performance from Anthropologie is definitely a good sign, since the company struggled getting the merchandise mix right for that concept's customers last year. However, the company said that its namesake Urban Outfitters chains' comps decreased 3%, due to de-leveraging of occupancy expenses and the need to take significant markdowns on some merchandise -- uh-oh.

Perhaps we might be a teeny bit inclined to forgive Urban Outfitters if summer selling is a bit slow this year -- after all, we're hearing sluggish stories from many of the hottest youth-oriented retailers for July. Aeropostale's (NYSE:ARO) pain was quite striking -- its comps plummeted by 12% in July. Even the mighty American Eagle Outfitters (NYSE:AEO) has been taken down a few notches, with its July same-store sales coming in lower than expected, down 6%. Even Abercrombie & Fitch (NYSE:ANF) disappointed, with a 4% decrease in comps that surpassed analysts' downward expectations.

Year in, year out
Flash back to this time last year and things were a lot rougher than they are now for Urban Outfitters. You may recall a major fashion shift laid Urban Outfitters low. At the time I thought it was a good time to consider the stock a bargain, despite the mean streets. And the stock has increased 72% in the 12 months since those jarring lows.

There are other reasons for optimism. I was glad to see its cash and equivalents increased 14% to $173.1 million. Free cash flow generation is looking up as well. For the first six months of this year, Urban Outfitters has generated $14.2 million in free cash flow. That might not sound like much, especially compared to past levels, but this time last year, it was well in the hole, free cash flow-wise.

Not everything is peachy, though. Urban Outfitters improved its gross profit as a percent of sales just a tad on a year-over-year basis, to 37.3% from 36.7%, but this is not as high as it has been in the past. (For the 2006 fiscal year, Urban Outfitters' gross margin was 41%.)

Furthermore, SG&A expenses increased to 23.7% of sales from 23.1%. Urban Outfitters blamed that on expenses related to its new headquarters, as well as the very mysterious non-recurring legal fees related to defending its intellectual property.

Cutting edge and cool from the conference call
When it comes to its reputation as a hip retailer, Urban Outfitters had a few interesting items to share in its conference call. For example, its Free Yr Radio indie concert series appears to have done quite well. The company said that each of the in-store shows had full capacity attendance, and it was able to grab up more than 45,000 names from its Web-related communications related to the shows, which was a brand partnership with Toyota (NYSE:TM).

Urban Outfitters has also launched a blog on its core site that it said has had 150,000 unique visits and nearly 10 million page views. Given Urban Outfitters' success without having used traditional media to advertise, those of us who are familiar with the heart and the soul of the brand would far rather see it turning to innovative ways to connect with and engage its customers without using traditional modes of advertising.

The blog currently includes an international photo competition in partnership with the Lomographic Society, where customers can enter their own photographs taken on the fly. (The Lomographic Society's Web page motto appears to be, "Don't think; just shoot.") Urban Outfitters' blog also includes music playlists and pop culture links. These resemble the ways companies like Jones Soda (NASDAQ:JSDA) (user-generated photos) and Volcom (NASDAQ:VLCM) (board-sports-related competitions, videos, and music) have historically made emotional connections with their customers, and that makes sense for Urban Outfitters.      

In May, those of us who follow Urban Outfitters learned more about the long-awaited "concept four" -- namely, that it will address well-to-do people with green thumbs. Management said the brand-new concept's name will be Terrain, and it now has a managing director, creative director, general merchandise director, two buyers, and a support staff.

Just like everybody else?
Urban Outfitters is a company that strives to create individualistic brands -- but investors don't seem to be making any distinction between it and any other retailer today. If people are worrying about the economy, especially in terms of the current housing and credit situations, then they are also worried about consumers slowing their spending. Indications that teens didn't go all out on clothes in July certainly puts Urban Outfitters in the hot seat along with everybody else, but then again, it doesn't seem to be getting much credit at the moment for strengthening signs in its business. That's short-term angst though.

Urban Outfitters continues to show signs of improvement following last year's extremely awkward phase, and it still has plenty of room to grow and open new stores. Plus, trading at 20 times forward earnings sounds very reasonable for a company that is expected to report 25% growth for the next five years. Investors may be treating Urban Outfitters just like everybody else here lately, but I suspect its strengths and strategies aren't well recognized at the moment.      

For more on Urban Outfitters, see the following articles:

Volcom is a Motley Fool Hidden Gems recommendation. American Eagle Outfitters has been recommended by Motley Fool Stock Advisor.

Alyce Lomax owns shares of Urban Outfitters. The Fool has a disclosure policy that's always in fashion.