There’s no denying that the retail sector has made a sort of a comeback in the past few weeks.
Black Friday weekend this year made history, with Cyber Monday becoming America’s largest-ever online shopping day. In-store foot traffic didn’t fall as much as analysts had feared, and if you went out shopping on Black Friday, you likely noticed that a ton of other people decided to join you.
Consumer confidence is high, and when consumers feel good, they like to spend money.
One company that is benefitting from this recent revival is millennial favorite and Zacks #1 (Strong Buy) Urban Outfitters Inc. (URBN - Free Report) , the parent of brands like Urban Outfitters, Anthropologie, Free People, BHLDN, and Terrain.
Urban Outfitters and…Pizza?
When Urban announced that it would be acquiring The Vetri Family group of restaurants, which includes the award-winning Pizzeria Vetri, investors were a little wary.
It seemed random and a little unorthodox at the time, in addition to the fact that running a restaurant business is costly. How could Urban, a retailer that was already struggling to boost its core apparel business, manage a pizza chain?
What was hard to pinpoint initially was the profit potential. But consumer spending on fast-casual dining has been growing rapidly for some time now, and Pizzeria Vetri offered the company an opportunity to create a unique in-store experience and leverage this restaurant trend to drive store traffic.
The acquisition seems to be working, becoming another strong example of the retail-restaurant model and following in the footsteps of Ralph Lauren (RL - Free Report) and Restoration Hardware (RH - Free Report) . Last quarter, Urban’s Food and Beverage segment pulled in $6.24 million, up from $5.85 million in the year ago period.
Impressive Third Quarter Earnings
Speaking of last quarter, Urban posted strong third quarter numbers.
The apparel retailer reported earnings of 41 cents per share, soaring past the Zacks Consensus of 33 cents per share.
Record revenues of $893 million were much higher than our consensus estimate and increased 3.5% year-over-year.
Overall, comparable retail segment sales, though only increasing 1%, were driven by strong, double-digit growth in the direct-to-consumer channel.
Breaking it down by brand—and excluding the estimated impact if the North American hurricanes in the quarter—Free People comps increased 5%, while Anthro rose 2% and Urban increased 1%.
As a result, growth estimates have been steadily increasing, and analysts have grown quite bullish on URBN lately.
For its current quarter, earnings are expected to grow almost 12%, and 12 analysts have revised their estimates upwards in the last 30 days compared to none lower.
Fiscal 2017 figures are also looking quite promising, with 13 estimates moving higher in the past month, compared to none lower. The consensus estimate trend has seen a boost for this time frame, increasing from $1.56 per share to $1.43 per share, an increase of 9.1%.
Earnings estimates for 2018 are on the rise as well, jumping to $1.74 per share from $1.58 per share in the last 30 days.
Will the Rally Continue?
2017 was a pretty rocky year for URBN, but the stock has been able to bounce back, and is currently up around 14.4% year-to-date compared to the S&P 500’s return of 18.8%
Its Q3 earnings were a huge boosting factor, and in the last three months, shares have gained almost 44%.
Urban is now trading with a forward P/E of 20.96.
And it’s not just URBN right now either. Retail-Apparel and Shoes is a fairly strong industry right now, and sits in the top 28% of all industries that we cover.
But even among this impressive landscape, Urban is a standout right now. Thanks to its strong growth metrics and smart acquisition strategies, URBN looks to be an intriguing opportunity for investors.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report. Download it free >>