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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.

Interested in more info on Urban Outfitters? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

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