We have maintained our long-term Neutral recommendation on
Urban Outfitters Inc
) with a target price of $45.00, as risk reward remains fairly
balanced at this juncture.
Why the Reiteration?
Urban Outfitters' initiatives to optimize inventory levels 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 a sluggish
The company posted second-quarter fiscal 2014 earnings of 51
cents per share that comfortably surpassed the Zacks Consensus
Estimate of 48 cents and jumped 21.4% year over year. Total
net sales climbed 12.2% to $758.5 million. Despite robust sales
results, the company missed the Zacks Consensus Estimate of $767
Supported by strong sales, gross profit for the quarter soared
17.2% to $298.2 million, whereas gross margin expanded 169 basis
points to 39.3%, reflecting lower merchandise markdowns.
Urban Outfitters is optimistic that fiscal 2014 will present
considerable opportunity for gross-margin improvement. The
company expects to enhance margins by at least 50 basis points
for the second half of fiscal 2014 through improvements in brands
and lower markdowns.
Despite these positives, we believe the stock is fairly valued
at this juncture and the positives are already priced in. Urban
Outfitters currently trades at a forward P/E of 22.1x, well above
the peer group average of 15.3x. The stock currently holds a
Zacks Rank #3 (Hold).
Other Stocks to Consider
However, until any further upward revision in the Zacks Rank
on Urban Outfitters, the other stock worth considering in the
non-food retail sector includes
Citi Trends, Inc
), which holds a Zacks Rank #1 (Strong Buy).
The Men's Wearhouse, Inc
), both carrying a Zacks Rank #2 (Buy) are also worth
CITI TRENDS INC (CTRN): Free Stock Analysis
GENESCO INC (GCO): Free Stock Analysis Report
MENS WEARHOUSE (MW): Free Stock Analysis
URBAN OUTFITTER (URBN): Free Stock Analysis
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