A brand in recovery
Although Urban Outfitters, Inc. (NASDAQ:URBN) has undergone some hard times since 2009, several signs now point to a recovery. Although I would not give a strong “buy” recommendation, I would certainly consider overweighting the stock, as suggested by Barclays. The main reasons to bet on the company’s future performance are:
Just like the previously-analyzed brands, Urban Outfitters, Inc. (NASDAQ:URBN) enjoys considerable fame, allowing it to use high initial markup rates. This generates substantial gross margins that now reach 36.9%, and operating margins of 13.4% (TTM), considerably above the 9.3% industry average. Urban Outfitters’ multiple brands create opportunities for flexible merchandising strategies, oriented to increase sales volumes and presence both in the U.S. and overseas.
Its “edgy and electric” product offering, added to a compelling pricing strategy, has helped the firm create a loyal customer base. Its highly differential retail model (called “experimental retailing” by some) creates a unique store environment and shopping experience that encourages customers to spend more time exploring the shops. Its roughly 475 stores provide plenty of space for further expansion, as several market segments remain to be penetrated.
Its expansion is targeted, rather than just aggressive. It seeks to expand in under-penetrated markets worldwide in order to attain higher revenue per square foot. Analysts expect solid quarterly results. Urban Outfitters, Inc. (NASDAQ:URBN) “is expected to see 26% growth in earnings along with 15% growth in revenue. Both rates are very strong for growth, and recent results from the company show strength.” (seekingalpha) Its healthy balance sheet presents no debt and $245.3 million in cash and cash equivalents.
Bottom line
All of these companies provide quite compelling investment prospects, as they all seem poised to grow both in the short and long-term. Although its forward P/E of 25.2 times does not make it exactly cheap, Michael Kors Holdings Ltd (NYSE:KORS)’ long-term earnings potential is one of the retail segment´s best. I will agree with Goldman Sachs and recommend buying this stock.
Trading cheaper, but not offering as much potential upside as Kors, is Urban Outfitters, Inc. (NASDAQ:URBN). I would consider buying this stock, but be aware of the various risks implied. Finally, there’s Coach, Inc. (NYSE:COH), which offers a great outlook at an attractive valuation. I would risk to say this last one is my stock of choice for a purchase, although all three of them look promising.
The article 3 Leaders In The Luxury Segment originally appeared on Fool.com and is written by Victor Selva.
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