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Urban Outfitters Up Over 68% in a Year: Can It Scale Higher?

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Urban Outfitters, Inc. (URBN - Free Report) is gaining from impressive comparable sales (comps) growth, new store openings, increased digital penetration, merchandising improvements and international expansion.

The aforementioned factors may be cited as reasons behind the company’s bullish run on the bourses. Notably, this Zacks Rank #1 (Strong Buy) stock has surged roughly 68.6% in the past three months, outperforming the industry’s growth of 24.1%.



Let’s Delve Deeper

Urban Outfitters recorded its fourth straight quarter of comps growth during second-quarter fiscal 2019. Comparable Retail Segment net sales jumped 13%, buoyed by double-digit growth in the digital channel and increased retail store sales. This follows an increase of 10%, 4% and 1% in the preceding three quarters.

The company stated that apparel and accessories continued to gain traction, while home, beauty and Terrain also maintained healthy sales performances. Management hinted that based on current sales trends, it expects third-quarter comps to grow in high-single digits.

We note that Urban Outfitters remains committed to improve comps performance, sustain investments in direct-to-consumer business, enhance productivity in existing channels, add new brands and optimize inventory level. Incidentally, the company made an unprecedented move by acquiring Philadelphia’s The Vetri Family group of restaurants, including the Pizzeria Vetri chain.

The attempt is seen as a part of the company's strategy to target and attract millennials to the stores. Further, to enhance reach, Anthropologie and Nordstrom JWN entered into a partnership, following which more than 200 items from Anthropologie Home are now available at selected Nordstrom full-line stores and on Nordstrom.com.

Urban Outfitters is also gaining from its store-expansion strategy. Evidently, the company opened 18 new outlets — eight Free People stores, five Urban Outfitters store, four Anthropologie Group store and one Beverage restaurant in fiscal 2018. During the second quarter of fiscal 2019, the company opened seven new locations — three Free People stores, two Urban Outfitters stores and two Anthropologie stores. Going forward, Urban Outfitters plans to open 18 new stores and intends to close 13 locations during fiscal 2019.

Impressive Q2

Backed by such strategic endeavors, Urban Outfitters delivered better-than-expected top and bottom lines for the fifth straight time when it reported second-quarter fiscal 2019 results. Also, the company’s top and bottom lines improved year over year. While the increase in the top line was owing to the robust performance of its Urban Outfitters, Anthropologie Group and Free People brands, sturdy sales performance, margin expansion, SG&A leverage and a lower tax rate favorably impacted the bottom line.

Bottom Line

However, the company expects SG&A expenses to increase by approximately 8% and 6% in the third quarter and fiscal 2019, respectively, mainly attributable to higher digital-marketing investments, incentive-based compensation and increased store payroll. This may weigh on its margins in near future.

Nevertheless, we expect the aforementioned upsides to offset these hurdles and help Urban Outfitters continue with its growth story.

3 More Retails Stocks to Bank Upon

Zumiez (ZUMZ - Free Report) delivered an average positive earnings surprise of 9.6% in the trailing four quarters. It flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boot Barn Holdings (BOOT - Free Report) has a long-term earnings growth rate of 23% and a Zacks Rank #1.

DSW, Inc. (DSW - Free Report) has a long-term earnings growth rate of 9% and a Zacks Rank #1.

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