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The positive comparable-store sales performance so far in the fourth quarter of fiscal 2014 led the shares of apparel retailer Urban Outfitters Inc. (URBN - Analyst Report) to rise nearly 3.1% to $36.84.

As per Urban Outfitters’ recent SEC filing, comparable retail segment net sales have so far registered mid single-digit growth. This comes as a good news for the retailer amid a challenging holiday season and it hints that the fourth quarter may turn out to be another favorable one. In the third quarter of fiscal 2014, comparable retail segment net sales, including the comparable direct-to-consumer channel, increased 7%.

Strong performance across Anthropologie and Free People brands facilitated Urban Outfitters to post better-than-expected third-quarter fiscal 2014 results on Nov 18. The quarterly earnings of 47 cents a share beat the Zacks Consensus Estimate by a couple of cents and rose17.5% year over year.  

Total net sales of Urban Outfitters climbed 11.7% to $774 million during the quarter, driven by healthy comparable-store sales performance along with increased sales through store openings and double-digit growth at its wholesale operations. Total revenue also came ahead of the Zacks Consensus Estimate of $770 million.

We expect Urban Outfitters to sustain its growth momentum, going forward, on the back of new store openings, increase in direct penetration, growing wholesale operations, technology advancements and merchandising improvements.

Urban Outfitters, which competes with The Gap, Inc. (GPS - Analyst Report), remains cautious about the holiday season which would be a tough one given the highly promotional environment and limited shopping period. Retailers will leave no stone unturned to tap this holiday season, be it early-hour store openings, promotional events or heavy discounts. Consequently, this would keep margins under pressure.

Management anticipates improving gross-margin during this holiday season through improvements in better product execution and effective inventory management.

Other stocks to Consider

Urban Outfitters currently carries a Zacks Rank #3 (Hold). Some better-ranked retail stocks include CST Brands, Inc. (CST - Snapshot Report) and Citi Trends, Inc. (CTRN - Analyst Report). CST Brands carries a Zacks Rank#1 (Strong Buy) whereas Citi trends carries a Zacks Rank #2 (Buy).

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