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Why Urban Outfitters Stock Is Soaring Today

By Jon Quast – Aug 26, 2020 at 10:58AM

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The company reported a surprise profit and, as of right now, the next quarter looks even better.

What happened

Shares of Urban Outfitters (URBN -0.82%) are soaring today after the company reported results for the second quarter of its fiscal 2021. This brick-and-mortar clothing retailer was left for dead by investors, but it reported a surprise profit in Q2. Its business is improving more than expected.

Beating low expectations can lead to big spikes in a stock's price, and that's true of Urban Outfitters today. As of 10:30 a.m. EDT, shares are trading 24% higher.

A businessman draws an upward arrow on a transparent touchscreen displaying a rising stock chart.

Image source: Getty Images.

So what

In North America, Urban Outfitters' brick-and-mortar retail locations were closed an average of 33% of Q2. However, total net sales were only down 16.5%. Analysts had expected far worse, but the company made up for stores being closed with strong e-commerce operations. Management said digital sales were up by a double-digit percentage.

This led to net income of $34 million for Urban Outfitters -- a big improvement from its $138 million loss in the first quarter. Still, its profit wasn't what it could have been under normal conditions. A higher percentage of sales in e-commerce hurts the company's bottom line. It still has to pay for its underutilized retail locations, and it has the added cost of shipping online sales.

Investors don't seem to mind. Urban Outfitters stock has almost clawed all the way back to where it started 2020.

URBN Chart

URBN data by YCharts

Now what

So far, Urban Outfitters' business is continuing to improve for the third quarter, and e-commerce gains are holding. That sounds positive. But CEO Frank J. Conforti was quick to temper investors' expectations. "Our thoughts on the third quarter are as of today," he said on the conference call with analysts. "And as we have learned all too often in 2020, the environment can change at a moment's notice."

Jon Quast 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.

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