Urban Outfitters, Abercrombie stocks surge in bright spot for retail

The consumer slowdown teased by some of the nation's largest retailers isn't playing out at two major chains popular with teens — at least not yet.

Abercrombie produced a surprise profit in the first quarter and raised its net sales guidance for the full year. Meanwhile, same-store sales grew 5% at Urban Outfitters, nearly double the consensus estimate.

Shares of Abercrombie soared 31% while Urban Outfitters finished up 17% on the news, even as concerns over whether consumers will stop spending still linger into the back half of the year.

Questions about the state of the consumer have been commonplace on earnings calls this quarter as Wall Street buckles up for a widely forecasted recession. But the economic data, including positive retail sales in April, hasn't consistently indicated a slowdown.

The same murky picture is being painted by retail earnings. On the one hand, Target says its seeing weakness in consumer discretionary demand. Walmart believes its seeing consumers trade down. And Foot Locker is attributing challenges to a 'tough macroeconomic backdrop.'

Meanwhile, Abercrombie & Fitch's first quarter sales hit their highest levels in a decade, led by 14% growth at Abercrombie brands.

"We have been seeing a very strong consumer on the Abercrombie brand all through last year and certainly through the first quarter. We're also very pleased with our kickoff to the second quarter," Abercrombie CEO Fran Horowitz told Yahoo Finance Live. "So we have not experienced that (slowdown)."

Sales hit a quarterly record at Urban Outfitters in a quarter Citi analyst Paul Lejuez called "a rare bright spot during an otherwise challenging retail environment."

The company's CEO, Richard Hayne, doesn't see things fully slowing down yet, either.

"We currently see no signs of change in customer behavior, no indication that customers are shopping less frequently, buying fewer items, or trading down," Hayne said. "Indeed so far in May, total retail segment comps are in line with the first-quarter results, and we believe the total retail segment comps in Q2 could look very similar to Q1 print."