What happened

Shares of Urban Outfitters (URBN -1.29%) were up 6.8% as of 3:15 p.m. EDT Wednesday after the lifestyle retailer announced better-than-expected second-quarter earnings and encouraging forward guidance.

On one hand, Urban Outfitters' quarterly revenue fell 3% year over year, to $962 million, well below consensus estimates for roughly $980.6 million. But while earnings declined to $60 million, or $0.61 per share (from $0.84 per share a year ago), that was still comfortably ahead of the $0.58 per share most analysts were modeling.

Collage of various Urban Outfitters products including shirts, shoes, and hats.


So what

Urban Outfitters' top-line decline was driven by an 8% decline in wholesale segment net sales and a 3% drop in comparable retail-segment sales. Within the latter, digital growth was more than offset by Urban Outfitters' negative retail-store sales. As measured by brand, comparable-retail sales (or "comps") grew 6% at Free People locations but also fell 5% at the company's namesake stores and 3% at Anthropologie locations.

Management remained optimistic for better days ahead. "I am pleased to report that customer reaction to our early fall apparel assortments have improved significantly from our second-quarter results," added Urban Outfitters CEO Richard Hayne. "Third quarter-to-date 'comp' sales are positive at all three brands."

Now what

Put simply, that broad-based positive swing to comps growth gave bullish investors more-than-enough reason to forgive Urban Outfitters for its top-line shortfall in Q2. With shares already down nearly 60% over the past year and trading at a fresh 52-week low heading into the report, it was no surprise to see the stock rebounding today.