How Urban Outfitters Got to All-Time Record Highs

Next Monday, Urban Outfitters (URBN -2.50%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

The retail business is full of fickle consumers, and Urban Outfitters has suffered its share of ups and down over the past few years. Lately, though, the company has found a successful niche, and has made the most of it, and it's taking steps to keep the good times coming. Let's take an early look at what's been happening with Urban Outfitters over the past quarter, and what we're likely to see in its quarterly report.

Stats on Urban Outfitters

Source: Yahoo! Finance.

Can Urban Outfitters keep firing on all cylinders?
In recent months, analysts have been much less optimistic about Urban Outfitters and its earnings, reducing their estimates for the just-ended quarter by $0.03 per share, and cutting full-year fiscal 2014 consensus figures by nearly triple that amount. Yet, the stock has simply roared ahead, rising almost 5% since mid-February, and setting new record highs in the process.

The picture at Urban Outfitters is much more mixed than you'd think from the share price. Although new store openings have kept revenue soaring higher, the retailer posted flat same-store sales in its previous quarter, with higher numbers of customers failing to do more than offset lower selling prices.

Where Urban Outfitters has had some success is in Internet sales. The company gets almost a quarter of its revenue from e-commerce, which exceeds Abercrombie & Fitch's (ANF -2.08%) comparable figure, despite A&F's strong efforts to boost its online sales recently. With just 13% of sales coming from online and catalog orders, competitor American Eagle Outfitters has a lot of work to do to match Urban Outfitters' success in the cutting-edge sales area.

One interesting challenge that Urban Outfitters has faced lately has to do with its return policy. CFO Francis Conforti blamed returns for weak comps and, as Fool contributor Caroline Bennett noted just after the quarterly report came out, it's entirely possible that the retailer's edgy clothes create more buyer's remorse than more conventional retail rivals experience.

In addition, the company has faced criticism for how it characterizes its customers. Between its CEO referring to a typical customer as an "upscale homeless person," and board members suggesting that shoppers don't know anything about the cultural references the clothes they buy are making, it's apparent that Urban Outfitters lacks the customer-first mentality that defines good service in the retail industry.

In Urban Outfitters' quarterly report, look for the company to try to cash in on Abercrombie & Fitch's controversial statements about overweight customers. A&F's faux pas could become Urban Outfitters' big gain if the company can lure annoyed teens to its end of the shopping mall.

Click here to add Urban Outfitters to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.