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We have maintained our long-term Neutral recommendation on Urban Outfitters Inc. (URBN - Analyst Report) with a target price of $41.00, as risk/reward remains fairly balanced at this juncture. The stock currently holds a Zacks Rank #3 (Hold).

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 economic environment.

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 Hanesbrands Inc. (HBI - Analyst Report), carrying a Zacks Rank #1 (Strong Buy), DSW Inc. (DSW - Snapshot Report) and Five Below, Inc. (FIVE - Snapshot Report), both sporting a Zacks Rank #2 (Buy).

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