We have maintained our long-term Neutral recommendation on
Urban Outfitters Inc
) with a target price of $42.00, following the company's
fourth-quarter fiscal 2013 results.
Why the Reiteration?
Urban Outfitters' initiatives to optimize inventory level and
focus on increasing customer count through store expansion,
online and mobile marketing endeavors and expansion of
direct-to-consumer business have paid off well amid the sluggish
The company posted fourth-quarter fiscal 2013 earnings of 56
cents a share, which more than doubled from earnings of 27 cents
in the comparable year-ago quarter. Total net sales of
Urban Outfitters climbed 17.3% to $856.8 million, while
comparable retail segment net sales including the comparable
direct-to-consumer channel escalated 11%.
Gross profit for the quarter soared 42.6% to $313.7 million,
whereas gross margin expanded 650 basis points to 36.6%.
Operating income marked a significant improvement during the
quarter and surged by 104.4% to $131.9 million, while operating
margin escalated 660 basis points to 15.4% due to rise in regular
price comp sales and efficient inventory management.
Despite robust results, this Zacks Rank #3 (Hold) stock's
earnings missed the Zacks Consensus Estimate by a penny. Infact,
Urban Outfitters has missed the Zacks Consensus Estimate for the
2nd straight quarter, which is a matter of concern.
A look at the company's earnings surprise history reveals that
the company has missed the Zacks Consensus Estimate in 3 of the
last 5 quarters.
Going forward, management now projects fiscal 2013 gross
margin to increase by 50 basis points. Alongside, Urban
Outfitters hinted that web products carrying low margin and
increased delivery expenses are apprehended to weigh upon the
margins. Moreover, macroeconomic headwinds and increased
competition remains a drag on the stock.
Other Stocks to Consider
However, until any further upward revision in the Zacks Rank
on Urban Outfitters, other stocks worth considering in the
non-food retail wholesale sector include
Sporting Goods Corp.
) all holding a favorable Zacks Rank #1 (Strong Buy).
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