I neglected to post this recommendation when I wrote it. So here goes!:Urban Outfitters (URBN) 52-Week Range: $20-$37 (recent price: $35) Market Cap: $5.9 billionP/E: 30.70 P/S: 3.52 P/CF: 24.20 Earnings: 1.16 Sales: 10.13 Book Value: 5.44 Cash Flow: 1.47 ROE: 21.90 ROA: 16.50 ROI: 21.90In 1996 Forbes added Urban Outfitters to its list of the 200 best small companies. Since then the stock has returned more than 1,000%. Recession? Consumer spending freeze? Urban Outfitters didn’t get that memo. The company, which operates 245 primarily U.S.-based retail stores under the Urban Outfitters, Anthropologie and Free People brands, cranked out a 79% increase in net income and profits of 33 cents per share from 19 cents the previous year in this most recent quarter (ending April 30). Revenue rose 30% to $454 million with same-store sales popping 13%.Why Now?: Attention quality shoppers: This is Urban’s performance in the midst of one of the most brutal retail climates in recent memory. Just imagine how powerfully this unique brand will perform when consumers loosen the vice grips on their wallets. The Brand and The BizUrban Outfitters stands alone among the fashion retailers -- it’s a true lifestyle brand; a master merchant of the fashion and accoutrements (housewares, furniture, accessories) of its customers. Its competitive advantages include: A boutique brand: Part artisan-bohemian, part counter-culture, part high-end boutique, the Urban Outfitters franchises offer a truly eclectic array of merchandise guided by a precise approach to retailing. Its approach is in stark contrast to Abercrombie& Fitch, American Eagle, Aeropostale and J. Crew which all have a conveyor-belt same-ness about them. The company has a truly distinguishable product (Anthropologie and Free People brands, in particular): Customers get luxury detailing (a hot trend at the recent fashion shows) at affordable prices -- an important distinguishing factor in good times and bad. Three established retail franchises: The company operates 129 Urban Outfitter branches (115 in North America), providing fashion and apartment wares to the young, hip, casual set; 109 Anthropologie stores (geared to the 30-to-45-year-old chic female shopper), and 18 Free People franchises (contemporary women's fashion for ages 25 to 30). Retail sales were $1.4 billion and wholesale $102 million for the 12 months ended in January. (Respectively, they contribute 35%, 37% and 1.5% to the net sales mix.) A strongly branded wholesale division: In addition to its Free People retail branch, the company wholesales this brand to 1,700 department and specialty retailers worldwide, including Bloomingdales's, Nordstrom, and Lord & Taylor. The wholesale business represents 6% of revenue. Long-term, creative management: The company‘s founder, Richard Hayne (who established his first store in Cambridge in the early ‘70s) is still active and owns more than 20% of the company stock. (Total inside ownership is 28%.). In 2007 Anthropologie president Glenn Senk (with the company since ’94) was named CEO -- Urban’s first. He was previously at Williams Sonoma, Habitat, and Bloomingdales. An eye for consumer trends and a new concept to capitalize on a hot one: Urban is going green -- literally -- by giving the garden center a hip and urbane treatment. In April the company opened its first stand-alone Terrain store which sells both perishable (flowers, plants) and hard goods (garden-inspired products, tools and even antiques) to appeal to aesthetes with green thumbs and high disposable incomes. What a niche: Over the last five years, the U.S. spent an average annual $36.9 billion on gardening. Last year 83% of Americans did some kind of do-it-yourself gardening according to a National Gardening Association survey. A merchant’s merchant: Stores have a found-object, artisan, boutique-y vibe -- not the slick, mass-produced interiors of its competitors -- and are nearly impossible to imitate on a large scale. The retail operation is far from loosey-goosey, though. Buyers and merchandisers are given autonomy within a structure. No debt on its balance sheet: Zip. Zero. Nada.Risks? Fashion missteps (a la 2005)? Dependence on U.S. consumer: Net sales from domestic operations was $1.3 billion in Fiscal '08 with foreign operations contributing $134 million. ? Terrain is a different terrain: Peddling living things and antiques is more challenging than many retail endeavors.? Inventory controls: Inventories as of April 30, 2008, January 31, 2008 and April 30, 2007 totaled $191.3 million, $171.9 million and $168.1 million (Urban, Anthropologie, Free People), representing 15.9%, 15.0% and 17.9% of total assets, respectively. Elevator pitchUrban Outfitters doesn't follow the trends, it establishes them. The same can be said for its recent performance in a horrible retail environment. The company says its goal is to increase net sales by at least 20% a year. With all three of its concepts showing solid gains in same-store sales (Urban up 19%, Anthropologie 7% and Free People 10%), I think they have a shot. Given its performance while operating against the winds of retail, I’m willing to pay up (forward price-to-earnings ratio of 23) to add this brand to my long-term portfolio.
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