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Urban Outfitters, Inc. (URBN), American Eagle Outfitters (AEO): This Apparel Retailer Continues to Impress

Urban Outfitters, Inc. (NASDAQ:URBN) continues to impress the market with the implementation of its business strategy. The company’s catalog and online sales now comprise 24% of total sales, which is up from 14% five years ago. The company is doing a great job in selling its apparel directly to its customers, which many retailers cannot say.
Urban Outfitters, Inc. (NASDAQ:URBN)

What’s so special?

Urban Outfitters, Inc. (NASDAQ:URBN) is known for its hip merchandise. The company’s apparel designs incorporate influences from past decades. The brand seeks to create an emotional bond with its targeted demographic for each brand. Its stores include Urban Outfitters, Inc. (NASDAQ:URBN), Anthropologie, Free People, Terrain, and BHLDN. Its core customer is generally young and is familiar with the latest trends.

The company has built a loyal customer base and that’s showing in its sales. So far into the second quarter, the company has reported that retail sales are increasing in the high single-digit range. This is better than expectations for a 7.5% increase. The strong sales trend seen in the first quarter of this year is continuing.

In the first quarter, the company posted record sales of $648 million, an increase of 14%. Comparable-retail sales increased 9%. Gross profit for the quarter increased 18% to $239 million. Gross profit margin came in at 36.8%.

What is the outlook going forward?

This year Urban Outfitters, Inc. (NASDAQ:URBN) will open 35 to 40 new stores. Of those, 25 will be stores opened outside of the U.S.

In addition, the online segment looks particularly appealing to me as the company has done a great job with its web presence and mobile initiatives. On a year-over-year basis, web traffic is up 20%. Mobile sessions have more than doubled, and customer conversion has improved by 56 basis points. The company continues to find better uses of data analytics and personalization to get to know its customers better. By tailoring product offerings to customers’ wishes, sales are likely to increase in this segment.

What about competition?

There’s no shortage of competition in the specialty apparel market. One of Urban Outfitters, Inc. (NASDAQ:URBN)’s main competitors is American Eagle Outfitters (NYSE:AEO). American Eagle Outfitters (NYSE:AEO) targets men and women between the ages of 15 and 25.

The problem with American Eagle Outfitters (NYSE:AEO) is that it is dependent on the 15- to 25-year-old demographic. These customers are notoriously fickle. Urban Outfitters, Inc. (NASDAQ:URBN) has five different retail brands in its portfolio and is not as dependent on fickle teenagers.