Urban Outfitters Shares Popped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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.