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Urban Outfitters’ Excellent Results Propel Stock To New Highs

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Co-founder Richard Hayne, rehired and appointed as CEO by Urban Outfitters, Inc. (NASDAQ:URBN), seems to have worked his magic with the company’s performance.

Urban Outfitters' Excellent Results Propel Stock To New Highs

Urban Outfitters, Inc. (NASDAQ:URBN) beat estimates when it declared its second quarter results today – the stock rose to a high of $37.65, also a new 52-week high, up over 18% in the single largest intra-day rise since 2003.

Net earnings rose over 8 percent to $61.3 million (42 cents a share) from $56.7 million (35 cents a share) in the year ago period, and ahead of expectations of 33 cents a share. Net sales were up 11 percent to $676.3 million, against analysts’ estimates of $672.6 million.

A bright spot was direct-to-consumer sales, which rose a good 22 percent to $137.7 million, on the back of strategic moves, such as an increase in web-only offerings and a boost in the number of dress styles available through on-line ordering. The company declared, “Comparable retail segment net sales at Free People and Urban Outfitters increased 12%, and 6%, respectively, while comparable retail segment net sales at Anthropologie were flat for the quarter. Direct-to-Consumer net sales increased 22%, and wholesale segment net sales rose 17% for the quarter.”

Brand-wise performance was led by the namesake brand, whose sales rose 46 percent to $310.7 million. Free People recorded a 26 percent growth to $73.8 million. Anthropologie brought up the rear with a 3.4 percent increase to $281.8 million.

Though no guidance was offered, CEO Hayne said, “As we head into the second half of the year we plan for gradual year over year improvement in our business, along with further tightening of our store inventories.”

Last week, competitor and specialty retailer The Gap Inc. (NYSE:GPS) reported a 29 percent rise in second quarter net-income to $243 million, or 49 cents, from $189 million, or 35 cents a share, a year earlier. Analysts were expecting earnings of 48 cents a share. Sales increased 6 percent to $3.58 billion, while same store sales rose 4 percent during the quarter. The company also raised its full-year profit outlook.

Another rival, teen retailer Abercrombie & Fitch Co. (NYSE:ANF) said second-quarter profit plunged 52 percent to $15.5 million, or 19 cents a share, from $32 million, or 35 cents a year, a year earlier. The company reaffirmed its full-year guidance, which was lowered earlier in the month.

Urban Outfitters, Inc. (NASDAQ:URBN) also figures as a Morgan Stanley Best Idea stock which has been assigned an overweight rating and a price target of $41. The firm justifies its overweight rating on the grounds that the likely strength of a rebound in profit margins has not been factored by the market. Secondly much of the improvement has been achieved through internal change such as a change in management structure, revamping the lines sold on-line and tightening inventories. In contrast the competition is looking for improvement mostly through an external improvement in the economic environment. The chain is also likely to benefit from improving same-store sales, growth in square footage, international operations and e-commerce.

Morgan Stanley gives Catalysts for the upside:

Potential Catalysts
• Mid-3Q sales update: Sept. 10 (est.)
• Analyst day: September 27

In the bull case the price target is $58, assuming the following happens

The company must regain fashion leadership and multiple expansion. The sales turnaround is stronger than expected, driven by improved product. The multiple expands back to historical averages as investors conclude URBN “is back.”

The multiple is a bit frothy at  24x $2.40 EPS

The stock is trading at $36.99, up over 18% at the time of this writing.

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