Urban Outfitters goes from Wall Street zero to hero

Urban Outfitters (URBN) started the year adrift following the abrupt departure of CEO Glen Senk and facing accusations of stealing designs and selling others that falsely claimed ties to Navajo culture. Now, it may be making its way back into Wall Street's good graces.

Shares of the Philadelphia company are on the move Tuesday morning, gaining almost 6% and building on momentum from Monday when it said in an SEC filing that fourth-quarter trends appeared to be positive. It added that comparable sales growth thus far was in the high single digits.

This marks an improvement from the last quarter, when sales at stores opened at least a year fell 1%. It also was better than what analysts had expected. Ironically, the company will no longer report these figures, which many consider to be a key metric for retailers, starting in the next fiscal year.

Co-founder Richard Hayne, who replaced Senk, has begun to bring back shoppers previously turned off by the ugly designs the chain was peddling. During the last quarter, Urban Outfitters even boosted gross profit margins by 222 basis points to 37.6% as all the company's brands reported gains in sales. Hayne seemed optimistic about the holiday season, though he declined to offer a specific forecast during the company's recent earnings conference call.

Urban Outfitters, whose most recent earnings report disappointed Wall Street, is planning to open about 49 new stores in the current fiscal year, including 10 in the current quarter. The company is forecasting capital expenditures of $190 million to $210 million as it adds stores, expands its corporate headquarters and completes a fulfillment center in Reno, Nev.  Hayne may have more tricks up his sleeve.

Wall Street may have underestimated the chain. The average 52-week price target on the stock is $38.92, under where it currently trades. Urban Outfitters isn't a cheap stock, trading at a price-to-earnings ratio of 27.85, near its five-year high, according to Reuters. Any investors interested in buying the stock might want to wait for a pullback in the price or a clearer indication of how the company fared during the holiday season.

The turnaround at Urban Outfitters is encouraging, though it remains a work in progress.

--Jonathan Berr does not own shares of the listed companies.  Follow him on Twitter @jdberr

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