* Q2 EPS 29 cents vs Wall Street view 26 cents
* Sees at least 100 stores in Europe
* Shares up 1 percent after steeper rally (Adds CEO quotes, revenue, margin, byline; previous dateline BANGALORE)
SAN FRANCISCO/BANGALORE, Aug 13 (Reuters) - Urban Outfitters Inc (URBN.O) posted a higher-than-expected quarterly profit on Thursday as the clothing and home goods retailer enjoyed a modest rise in sales and improved margins, and its shares rose over 2 percent.
The operator of the Urban Outfitters, Anthropologie and Free People chains, which also sells clothes wholesale to other retailers, has fared better than most rivals in the economic downturn.
Its bohemian fashions and home accessories have remained appealing to urban shoppers even as overall consumer spending has taken a nose dive.
Urban Outfitters Chief Executive Glen Senk told analysts the company's shoppers are willing to pay for distinctive styles.
"The customer is seeking fashion and there is practically no evidence of price elasticity on compelling product," said Senk. "Undistinguished basics, or any commodity-like product, is another story altogether. There, it's a buyer's market and the right price is critical."
Also on Thursday, mid-priced department store Kohl's Corp (KSS.N) gave a tepid outlook for the second half of 2009 and said it expected an ongoing "fight for market share." [ID:nBNG380878]
Wal-Mart Stores Inc (WMT.N), meanwhile, posted better-than-expected profit on a modest sales decline, but reiterated that its mostly lower-income shoppers continued to spend chiefly on necessities like food. [ID:nN13399911]
Urban Outfitters' net income fell to $49 million, or 29 cents a share, in the second quarter ended July 31 from $57 million, or 33 cents a share, a year earlier.
That was above the 26 cents per share expected, on average, by analysts according to Reuters Estimates.
Revenue at the Philadelphia-based company rose about 1 percent to $459 million, making Urban Outfitters one of the few apparel retailers to post a quarterly sales gain.
Gross margin fell 0.26 percentage points, far better than analysts had been expecting, and an improvement over the previous quarter.
"These trends suggest that inventories are well-controlled, markdowns are being held in check and business is stable," wrote Jefferies analyst Randal Konik in a note.
UBS analyst Roxanne Meyer called the company "among the most attractive long-term growth stories," and cited its differentiated and relevant chains and discipline with inventory and markdowns.
The company said same-store sales fell 6 percent overall, with declines of 4 percent at Anthropologie, 16 percent at Free People and 8 percent at Urban Outfitters.
Wholesale sales fell 7 percent, but sales rose 17 percent at the direct-to-consumer unit which sells products through a catalog and two websites. The unit could eventually make up at least a quarter of total sales, Senk said.
Urban Outfitters, which has stores in the United States, Canada and Europe, said it will use a "multi-store strategy" as it expands in Europe as opposed to opening large flagship stores, like rivals including Abercrombie & Fitch Co (ANF.N).
Longer-term, the company could have at least 100 stores between Urban Outfitters and Anthropologie in Europe "and probably more," Senk told analysts.
Urban Outfitter rose as high as $30.50, before trading up 27 cents at $28.49 on Nasdaq at mid-afternoon.