Urban Outfitters Inc. (NASDAQ:URBN) is on the course of recovery and set to benefit from the pending fashion shift. Moreover, the fundamentals appear intact with new management working well together. URBN's recent product are resonating, and inventories are becoming more aligned with sales.
For the fourth quarter, the retailer's profit fell 48 percent amid deteriorating margins even as sales increased 9 percent. Urban Outfitters reported net income of $39.3 million or 27 cents per share, compared to $75.2 million or 45 cents per share for the year-ago quarter. Net sales for the fourth quarter rose 9 percent to $730.65 million.
"We believe 4Q was the bottom and that a turnaround is gaining traction. Recent results and commentary regarding QTD comps solidify our view that 4Q marked a trough for shares," Oppenheimer analyst Pamela Quintiliano wrote in a note to clients.
The company is expected to benefit domestically, internationally and online from the long-term buildout of its multi-brand strategy, unique brand/product positioning, and other multiple growth vehicles.
Longer term, the Oppenheimer analyst continues to believe the retailer is uniquely positioned. She says its due to Urban's differentiated shopping experience, mix of own-label and third-party branded assortments, flexibility to manipulate mix by category and classification, large and short open-to-buy positioning and ability to be the first to respond to fashion shifts.
The analyst is excited about several structural opportunities including opening 55-60 new stores in FY13 (store openings have been strong), ongoing direct-to-consumer expansion, and IT initiatives.
"We're especially impressed with unique patterned denim at Urban Outfitters, which sets stores apart in the marketplace, as well as the positive reaction to feminine dresses/knits at Anthropologie," Quintiliano wrote in a note to clients.
The company's recent senior management hires, including Ted Marlowe as CEO, as well as recent commentary on improved full-price sell-throughs, makes URBN good long-term stock pick.
"We are confident in the pending fashion shift and believe that URBN is best positioned across concepts to capitalize on this in F13 and beyond," said Quintiliano, who has an "outperform" rating on Urban Outfitters shares.