What happened

Week to date, shares of Urban Outfitters (URBN -0.62%) were up 11% through Thursday's close, according to data provided by S&P Global Market Intelligence.

The company reported better-than-expected holiday sales that sent the stock soaring. Investors have been bracing for weaker numbers considering the macroeconomic headwinds impacting consumer spending, but some of the company's top brands have the advantage of an affluent customer base.

So what

Total net sales growth was consistent with previous quarters, up 2.3% year over year, hitting a record level for the company. Comparable sales growth of 2% would have been 1 point higher if not for a negative change in foreign currency translation. The company reported balanced results across digital sales channels and retail stores, with both channels delivering low-single-digit growth.

Management noted in the fiscal third-quarter earnings call in November that customers shopping at Anthropologie, Free People, FP Movement, and women's clothing rental service Nuuly have been "able and willing to spend despite the inflationary environment." However, Urban Outfitters serves younger customers who have less money to spend and are more sensitive to changes in the economy. Urban was the company's weakest link over the last year. 

URBN Total Return Level Chart

Data by YCharts

Now what

Management is working through excess inventory with the Urban Outfitters business in North America, which it expects to clean up by the end of the fiscal fourth quarter (which runs through January).

While Urban has badly underperformed the S&P 500 index over the last five years, the stock significantly outperformed the market in 2022, currently up about 2% over the last 12 months. 

The company weathered the storm well, but its low growth prospects may leave limited upside from here. There are better apparel stocks that could offer more upside over the next few years.