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What: Shares of specialty retailer Urban Outfitters (Nasdaq: URBN) climbed 12% Tuesday after the company posted a better-than-expected sales update.

So what: Shrinking margins have weighed on the stock over the past year, but Urban Outfitters' update for the current quarter -- retail same-store sales are tracking up in the mid-single-digits -- offers a glimmer of turnaround hope. Just last month, in fact, management said its third-quarter profit fell about 31% on aggressive promotions and weak sales, so the positive news couldn't have come at a better time.

Now what: I'd continue to be cautious on the shares. While the rally is nice, several Wall Street analysts warn that the lift in comparable sales still comes as a result of continued markdowns and at the expense of gross margins. Of course, with Urban Outfitters trading at a P/E discount to rival Abercrombie & Fitch (NYSE: ANF), much of those risks might already be baked into the price.

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