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We have maintained our long-term Neutral recommendation on Urban Outfitters Inc. (URBN - Analyst Report) with a target price of $42.00, following the company’s fourth-quarter fiscal 2013 results.

Why the Reiteration?

Urban Outfitters’ initiatives to optimize inventory level 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 the sluggish economic environment.

The company posted fourth-quarter fiscal 2013 earnings of 56 cents a share, which more than doubled from earnings of 27 cents in the comparable year-ago quarter.  Total net sales of Urban Outfitters climbed 17.3% to $856.8 million, while comparable retail segment net sales including the comparable direct-to-consumer channel escalated 11%.

Gross profit for the quarter soared 42.6% to $313.7 million, whereas gross margin expanded 650 basis points to 36.6%. Operating income marked a significant improvement during the quarter and surged by 104.4% to $131.9 million, while operating margin escalated 660 basis points to 15.4% due to rise in regular price comp sales and efficient inventory management.

Despite robust results, this Zacks Rank #3 (Hold) stock’s earnings missed the Zacks Consensus Estimate by a penny. Infact, Urban Outfitters has missed the Zacks Consensus Estimate for the 2nd straight quarter, which is a matter of concern.

A look at the company's earnings surprise history reveals that the company has missed the Zacks Consensus Estimate in 3 of the last 5 quarters.  

Going forward, management now projects fiscal 2013 gross margin to increase by 50 basis points. Alongside, Urban Outfitters hinted that web products carrying low margin and increased delivery expenses are apprehended to weigh upon the margins. Moreover, macroeconomic headwinds and increased competition remains a drag on the stock.

Other Stocks to Consider

However, until any further upward revision in the Zacks Rank on Urban Outfitters, other stocks worth considering in the non-food retail wholesale sector include Macy’s Inc. (M - Analyst Report), Big 5 Sporting Goods Corp. (BGFV - Analyst Report) and Cabela's Incorporated (CAB - Analyst Report) all holding a favorable Zacks Rank #1 (Strong Buy).

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