I've always admired the fashions on sale at hip retailer Urban Outfitters (NASDAQ:URBN) -- I even have a few of 'em in my closet. (Nothing too flashy, I must confess.) As a result, I've always rooted for the company. And its shares, which set a new 52-week high in morning trading, have given investors plenty of reason to cheer in 2003.

Urban Outfitters, which besides its key namesake chain runs the Anthropologie and Free People businesses, today reported strong fiscal Q3 (ended Oct. 31) results that should impress investors and observers alike. The remarkable numbers discussed by Matt Richey earlier this year in covering the company's Q2 and Q1 results continue to roll in: Sales rose 29% year over year, same-store sales improved 17%, direct sales revenue grew, and both gross and operating margins ticked upward.

In short, the business appears to be chugging away.

One thing worth watching is the company's inventory figure heading into the holiday season. As Matt pointed out earlier this year, the company has turned in same-store sales growth well ahead of comparable-store inventory growth so far this year -- a good sign that Urban Outfitters is merchandising effectively. This is especially important given its fashion approach, which is slightly more fashion-forward than, say, Gap (NYSE:GPS) or American Eagle (NASDAQ:AEOS), and suggests that it's well in tune with its customers.

As of the end of Q3, however, comparable-store inventories were actually down slightly from year-ago levels. With the holiday season approaching, it seems difficult to see this as a good thing; Urban Outfitters could leave business "on the table" if it's understocked -- though management is optimistic and says existing merchandise and shipments due to arrive this month and next should be adequate. (Anyway, even understock is arguably better than overstock and heavy markdowns.)

Give the company's performance so far this year -- and the news that early November same-store sales are beating expectations -- giving management the benefit of the doubt doesn't seem hard.

Dave Marino-Nachison can be reached at dmarnach@fool.com.