What happened

Shares of apparel retailer Urban Outfitters (NASDAQ:URBN) sank on Wednesday despite a monthly retail sales report from the U.S. Census Bureau showing solid growth in July clothing sales. An analyst downgrade on Tuesday and a disappointing quarterly report from Macy's (NYSE:M) could be weighing on the stock. Shares of Urban Outfitters were down about 5.4% at 12:10 p.m. EDT.

So what

Retail sales grew by 6.4% year over year in July, according to the Census Bureau report. Sales at clothing stores were up by the same percentage. But that good news wasn't enough to prevent Urban Outfitters' stock from slumping.

An Urban Outfitters store front.

Image source: Urban Outfitters.

The company was downgraded by Baird on Tuesday, with analysts keeping a price target of $53 per share steady by knocking the stock down to neutral. The company is set to report its second-quarter results on Aug. 21, so the downgrade may reflect some newfound pessimism about Urban Outfitter's quarterly numbers.

While that downgrade may be playing a role in Wednesday's slump, a weak showing from Macy's is probably the main driver. Macy's beat analyst estimates for both revenue and earnings, but the stock tumbled around 14% after the company warned about pressured margins for the rest of the year. Other department store stocks are selling off as well.

Now what

We won't know how Urban Outfitters fared during the second quarter until it reports next week, so Wednesday's decline looks more like noise than anything else. If the company can put up solid numbers and provide decent guidance, this decline could easily be reversed. But if Urban Outfitters comes up short, more pain could be ahead.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.