Why Shares of Urban Outfitters Inc. Jumped Today

By Markets Fool.com

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.

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What: Shares of Urban Outfitters jumped as much as 11% Tuesday morning after the company reported its fourth-quarter earnings the day before, beating analyst earnings estimates and posting comparable-sales growth across all of its brands.

So what: Urban Outfitters generated net sales of $1.01 billion during the fourth quarter, up 12% year-over-year and in line with analyst expectations. This revenue growth was driven by 6% comparable-sales growth in the company's retail segment, which accounts for nearly all of the company's revenue.

Comparable sales grew by 4% at Urban Outfitters' namesake stores, 6% at Anthropologie, and 18% at Free People. The much smaller wholesale segment, which accounted for just $57.8 million of revenue during the fourth quarter, grew by 21% year-over-year.

Diluted EPS of $0.60 for the quarter was only a penny higher compared to the same period last year, beating analyst estimates by two cents. Gross margin fell by 2.1 percentage points year-over-year, leading to this sluggish earnings growth, with share buybacks throughout the year preventing per-share earnings from declining.

Now what: Urban Outfitters posted robust growth across all of its brands, and the company expects to be able to improve its gross margin this year. While there will be a negative impact related to the company's distribution centers, management expects there to be a larger opportunity to increase the gross margin by reducing markdown rates.

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With earnings declining during the full fiscal year, which ended in January, Urban Outfitters will need all the gross margin improvement it can get. Even with a significant reduction in the share count, diluted EPS for the year fell to $1.68, down from $1.89 in the previous year. This puts the stock at 26 times earnings, a lofty valuation given the growth rate of the company.

The article Why Shares of Urban Outfitters Inc. Jumped Today originally appeared on Fool.com.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.