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Urban Outfitters shares rally as fashion trends boost sales

Shoppers and pedestrians walk past an Urban Outfitters store in the Center City neighborhood of Philadelphia, Pennsylvania.
Charles Mostoller | Bloomberg | Getty Images

Shares of Urban Outfitters surged more than 15 percent Wednesday after the company's sales and earnings outpaced Wall Street estimates, helped by new fashions that resonated well with consumers.

The retailer on Tuesday reported fiscal second-quarter earnings of 66 cents per share on $891 million in revenue. Analysts expected earnings of about 56 cents a share on $886.8 million in revenue, according to a consensus estimate from Thomson Reuters.

"These results were driven by a positive retail segment 'comp' and substantial improvement in merchandise margins," Richard Hayne, CEO of Urban Outfitters, said in a press release.

In the company's retail segment, comparable net sales rose 1 percent, but the metric was up 5 percent at its Urban Outfitters business.

Stifel's Richard Jaffe said in a report Wednesday that the company's updated fashion line lifted its earnings, and is likely to boost apparel sales for the second half of the year. Additionally, he said it supports the firm's thesis that the fall selling season should be relatively strong.

"The deliberate and thoughtful store growth throughout the company's history has resulted in a business that is right sized, not overstored, appropriate in this omni-channel retail environment," said Jaffe, who reiterated his buy rating on the stock, while boosting its price target to $40 from $35.

Jefferies analyst Randal Konik also increased his target price to $40 from $38. Konik said Urban's results are a clear positive for the industry as a whole, especially in teen retail.

"We were pleased to hear [management] cite an influx of new fashion trends as a factor behind [Urban Outfitters'] improvement," he said in the report. "This should prove to be a tail wind for the industry, [especially] teen retail, and should build into fall as these trends gain broader acceptance."

Urban Outfitters shares have risen considerably this year, up 58 percent. The stock closed at $36.05 on Wednesday.

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