What: Shares of Urban Outfitters, Inc. (NASDAQ:URBN) were looking stylish Wednesday, flying higher after a strong second-quarter earnings report. As of 10:53 a.m. EDT, the stock was up 16.8%.
So what: In a rough retail environment, the company posted a comparable sales increase of 1%, while bottom-line improvement was especially impressive. Earnings per share increased 27% to $0.66, much better than expectations of $0.55. Overall revenue increased to $890.6 million, beating estimates at $885.6 million.
CEO Richard Hayne credited "substantial improvement in merchandise margins" for the strong profit growth as gross margin increased 179 basis points. The Urban Outfitters banner was the star in the quarter with comparable sales up 5%, while comps were flat at Free People and down 3% at Anthropologie.
Now what: Shares of Urban Outfitters have now nearly doubled since its low point earlier in the year as the stock sold off on a weak earnings report and its announcement that it would buy a pizza chain. The strong growth in the quarter came from a decrease in merchandise markdowns and higher initial margins, which may not portend to continued growth at the same rate. However, Urban Outfitters has one of the best profit margins in the apparel industry, delivering a mark of 8.6% in the past quarter, a sign that its brands have done a better at job at staying on trend than more traditional competitors.
If the company can continue executing on that level, the stock should move higher.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.