Can Trendy Retailer Urban Outfitters (URBN) Trend Higher?

Urban Outfitters reported strong earnings today following some recent bad news for the retail sector. The trendy retailer beat consensus estimates for the fifth consecutive quarter, topping expectations of $0.39 per share for a second-quarter earnings per share of $0.42. The company reported $0.29 per share for the year-ago quarter.

URBN also reported a 20 percent increase in revenue over the prior-year quarter, with revenues coming in at $552M vs. expectations of $542M, earning $0.29 per share.

“We are delighted to announce record second quarter sales and earnings, with every brand, channel, region and shared service group delivering exceptional results,” said Glen T. Senk, Chief Executive Officer. “Given the context of an uncertain economic environment, the Company continues to focus on superior creative execution combined with disciplined inventory and expense management,” finished Mr. Senk.

URBN operates such well-known retail shops as Urban Outfitters, Anthropologie, and Free People. For fiscal year ending January 2010, the company reported sales growth of 5.6 percent on $1,937.8M sales and income growth of 10.3 percent.

Last quarter the company reported a 25% increase in revenue to $480 M and a jump of 72% in net income to $53M for $0.31 earnings per share.

Despite these stellar earnings, the stock is struggling to stay afloat amid sinking expectations for retail. Just last week, the US Commerce Dept reported weaker-than-expected consumer spending for the month of July, and JC Penney and Kohl’s lowered outlooks in their earnings reports.

Shares edged higher before the earnings release on average volume.

Urban Outfitters Inc (NASDAQ:URBN)

Comments: For a company ranked third most financially healthy retailer in the US (by Consensus Advisers), this chart is something of a head-scratcher. The company has no long-term debt and has a current ratio (current assets to current liabilities) of over 4.5x. Despite the fact that the yearly mean target estimate is $43.40 and merited three recommends from analysts, the stock has been sinking like the Hindenburg from its April high of $40.84. In fact, the stock is off over 22 percent from its high and trading below its 50- and 200-day moving averages. It’s hard to see why URBN looks like the ugly stepchild of retail.

Recent insider selling may have spooked investors or investors may be abandoning retail stocks following last week’s bad news. But even Macy’s got a boost following their earnings report, and they don’t have the financials this company has. URBN held at the $30 support level today and was up over 1 percent for the day. This stock deserves a closer look (and more respect).  The stock is hitting oversold territory, so we may see the seeds of a turnaround starting to form.

Disclosure: No positions.