Urban Outfitters On Profitable Path

Urban Outfitters' growing popularity with trend-led shoppers have seen earnings and sales growth for the fourth quarter of 72.2 and 42.9 percent, respectively. Higher merchandise margins, increases in customer transactions and strength in catalogue and Internet-based sales bolstered results as the company had double-digit profitability increases in each of its three brands in the quarter. Year-end results also were impressive with profits that doubled, year-over-year.

But that doesn't mean Urban is resting on its laurels. The 25-year-old specialty retailer is ramping up sales by better serving its core demographic as well as reaching new consumers via stores in shopping malls, historically nontraditional locales for the company.

Total quarterly sales were $251.6 million, up from $176.1 million last year. By division, sales at Urban Outfitters stores rose 34.4 percent to $112.2 million. Direct-to-consumer sales increased 69.5 percent to $33.4 million, and gross profit margin as a percentage of sales climbed to 43 percent in the fourth quarter from 41.5 percent last year.

"Unlike many other specialty apparel retailers that develop a core segment, then create a new concept when saturated, Urban Outfitters has built a complex business platform of three brands as well as a direct-to-consumer business," wrote Bear Stearns analyst Dana Telsey in a March 7 research report initiating coverage of the retailer. "None of these divisions have reached maturity, which sets the stage for a great deal of future organic growth."

Because Urban has a relatively small store base versus its peers, that growth potential is considerable, analysts say. Urban currently operates 75 Urban Outfitters stores, 65 Anthropologie units and two Free People locations, in addition to its wholesale operations that sell to more than 1,100 specialty stores, department stores and catalogues. Telsey, who has a "peer perform" rating on Urban shares, thinks the company could eventually reach 150 to 200 Urban stores, 200 to 300 Anthropologie stores and more than 30 Free People stores.