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Anatomy of Success: Urban Outfitters (URBN)

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The proven Zacks Rank is a great method for both beginning and experienced investors to discover the best stocks to buy. The model, which emphasizes earnings estimates and estimate revisions, identifies the companies that display the strongest characteristics to beat the market.

When a company earns the coveted Zacks Rank #1 (Strong Buy), it tells investors it has all the right qualities to outperform the market over the nest one to three months. However, reaching this ideal rank is no easy feat. Of the thousands of firms tracked by Zacks, roughly 5% earn this title.

Below, you will learn about one particular company that exemplified the strength of the Zacks Rank. If investors had followed our ranking system when it selected this retailer, they would have witnessed huge profits.

Urban Outfitters (URBN - Free Report)

Urban is a specialty retail and wholesale company that offers a variety of lifestyle merchandise throughout the U.S., Canada, and Europe. It operates under the namesake Urban Outfitters brand, as well as Anthropologie, Free People, wedding boutique BHLDN, and outdoor and garden shop Terrain. The company’s wholesale division sells its product to approximately 1,100 specialty stores, department stores, and catalogs.

URBN was added to the #1 list back in November after it reported record sales numbers in its third quarter fiscal 2017 report. Sales of $893 million increased 3.5% year-over-year and beat the Zacks Consensus Estimate of $859 million; EPS also beat our consensus, and net income hit $45 million for the quarter. Comparable retail segment net sales increased 1% (comps were impacted by hurricanes that quarter), but by brand, comps popped 5% at Free People, 2% at Anthropologie, and 1% at Urban Outfitters. And, wholesale segment net sales jumped 8.7%. Shares closed at $30.16 per share that day, and the retail company maintained its Strong Buy run until right after the New Year.

The company became a #1 stock again after it reported impressive first quarter fiscal 2018 results. Earnings per share of 38 cents beat the Zacks Consensus and skyrocketed 280%, thanks to strong sales, healthy margin improvement, SG&A leverage, and a lower tax rate. Revenues of $856 million increased 12.4% year-over-year, while comps surged 10% due to double-digit growth in URBN’s digital channel and positive retail store sales. By brand, comps were up an incredible 15% at Free People, 10% at Anthropologie, and 8% at Urban Outfitters. Seven months after first becoming a Strong Buy stock, shares rose nearly 40% to $42.19.

From then on, URBN managed to hang on to its #1 title until almost the end of July, when it dropped down to a #2 (Buy) on the Zacks Rank. Over the past year, shares of the retailer have gained over 142%.

This table shows the price performance of URBN (in red), as well as the 12-month forward looking EPS estimate (in green) from the time the stock first earned a Zacks Rank #1 (Strong Buy). During this stretch, URBN never moved lower than a Zacks Rank #3 (Hold).

By utilizing the Zacks Rank, investors are able to easily identify elite stocks that are best positioned to beat the market on a consistent basis, and how to hold those top stocks as they continue to grow.

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