We have maintained our long-term Neutral recommendation on
Urban Outfitters Inc.
) with a target price of $41.00, as risk/reward remains fairly
balanced at this juncture. The stock currently holds a Zacks Rank
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
Sturdy performance across Anthropologie and Free People brands
facilitated Urban Outfitters to post better-than-expected
third-quarter fiscal 2014 results. The quarterly earnings of 47
cents a share beat the Zacks Consensus Estimate by a couple of
cents and jumped 17.5% year over year.
Total net sales rose 11.7% to $774 million, reflecting healthy
comparable-store sales performance coupled with sturdy sales
through new store openings and double digit growth at its
wholesale operations. Total revenue also came ahead of the Zacks
Consensus Estimate of $770 million.
The company remains committed to improve comparable-store
sales performance, enhance productivity in existing channels, add
new brands and optimize inventory level.
However, Urban Outfitters remains cautious about the holiday
season, which would be a tough one given the highly promotional
environment and limited shopping period. Retailers will leave no
stone unturned to tap this holiday season, be it early-hour store
openings, promotional events, or heavy discounts. Consequently,
this would keep margins under pressure.
Other Stocks to Consider
However, until any further upward revision in the Zacks Rank
on Urban Outfitters, the other better ranked stocks worth
considering in the retail sector include
), carrying a Zacks Rank #1 (Strong Buy),
Five Below, Inc.
), both sporting a Zacks Rank #2 (Buy).
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