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Urban Hits New 52-Week High - Analyst Blog

Posted
1/21/2013 12:30:00 PM
By: Zacks.com
Referenced Stocks:FRAN;GPS;M;URBN

Strong holiday sales results facilitated Urban Outfitters Inc . ( URBN ) to attain a new 52-week high of $43.46 on Friday, before closing at $43.39. Moreover, shares of this Zacks Rank #2 (Buy) company has generated a solid return of approximately 72.9% in the past one year.

Drivers that Triggered Momentum

Urban Outfitters posted sturdy sales results for the key holiday season. The company stated that net sales for the two months period ended Dec 31, 2012, jumped 15% year over year to $666 million. Comparable retail segment net sales, including comparable direct-to-consumer channel, escalated 9%, reflecting robust sales across all brands.

Comparable retail segment net sales jumped 33% at Free People, while it rose by 10% and 5% at Urban Outfitters and Anthropologie, respectively. Net sales at Direct-to-consumer increased 38%, while the wholesale segment marked an elevation of 21% in net sales for the period.

Moreover, for the 11-month period ended Dec 31, 2012, total net sales surged 12% year over year to $2.6 billion, while comparable retail segment net sales increased 6%. The company stated that comparable-store net sales edged down 1%, while Direct-to-consumer net sales soared 29%. Wholesale segment marked an increase of 11% in net sales during the period.

Besides Urban Outfitters, other apparel and accessories retailers like Francesca's Holding Corp ( FRAN ), Gap Inc . ( GPS ) and Macy's Inc . ( M ) recorded strong sales in the holiday season.

Urban Outfitters, being a multi-brand and multi-channel retailer, offers flexible merchandising strategy. The company also has a significant domestic and international presence with rapidly expanding e-Commerce activities.

Going forward, the company remains committed to improve comparable-store sales performance, sustain investments in direct-to-consumer business, enhance productivity in existing channels, add new brands and optimize inventory levels.

Stock's Key Indicators 

From the valuation perspective, Urban Outfitters currently trades at a forward P/E of 26.93x, well above the peer group average of 13.32x. However, given the debt free balance sheet and strong fundamentals, the stocks' premium valuation is justified. Moreover, the company's return-on-equity (ROE) and return-on-asset (ROA) of 16.8% and 12.1%, respectively, are higher than the peer group averages. The company's strong fundamentals are well supported by its long-term estimated EPS growth rate of 18.3%.



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