Urban Outfitters (URBN)

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See all Bulls Reasons Bulls: Reasons To Buy Zacks sees a upward momentum 0% agree Zacks sees a upward momentum Share price has been rallying. Its portfolio of retail stores that hedge short term poor performing products within the store. And Zacks says that most analysts see close to 20% earnings in the next quarter. So, they recommend this a BUY. View or Edit Reason 0 votes 0% agree Third quarter performance at Urban Outfitters far exceeded expectations 0% agree Third quarter performance at Urban Outfitters far exceeded expectations Third quarter performance at Urban Outfitters far exceeded expectations. A profits increase of 32% and a same-store sales increase of 8% put the company ahead of its competition in the area of growth. Given that Urban Outfitters' has far to go before it reaches market... read more View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell Extremely high valuation 0% agree Extremely high valuation URBN is undoubtedly overvalued at its current price of $25, which gives it a P/E ratio of 30. In the current retail environment and uncertain economy, very few retailers are trading at this high of a multiple. URBN cannot generate enough growth to justify such a high valuation. View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

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The company sets itself apart from other similar retailers by focusing on fashion trends (i.e., it does not sell basic clothing) and laying out stores in a boutique format with a different mix of products in every store. The upside to this strategy is that customers are much more willing to pay full price. The downside is that the company has fewer economies of scale and must bring in fresh new inventory more frequently. Still, Urban Outfitters manages to be more efficient than big scale competitors such as Gap (GPS) and AnnTaylor Stores (ANN), generating one of the highest sales per square feet in the industry ($674 in FY 2007).

The company announced plans to open a fourth division in 2008 called "Terrain", which will offer home and garden products. ^[2] The launch of this concept may suffer from a prolonged slump in the U.S. housing market due to the subprime lending crisis; sales of these products tend to correlate highly with new home sales, as homebuyers shop to decorate and furnish their houses.

[edit] Company Overview

Urban Outfitters stocks each of its retail locations with a different mix of merchandise that changes rapidly, unlike most similar retailers. While this strategy makes its merchandising expensive (i.e., fewer economies of scale and fast turnover needed), customer of Urban Outfitters stores are more likely to pay full price instead of waiting for sales.

Urban Outfitters also benefits from its stocking third-party label items, which accounts for 50% of its merchandise. The company's use of third-party label items expands its selection, and also helps shape the company's fashion decisions in its private label items.

[edit] Sales Channels

[edit] Retail Stores (79%)

The parent company operates three different store chains (revenue contribution in fiscal 2007 in parentheses)

• Urban Outfitters (44%) is its eponymous store that targets 18-30 year olds. Stores average 9,700 square feet and carry between 30,000 to 35,000 different items. As of fiscal year 2007, there were 106 stores in North America and Europe. ^[3]

• Anthropologie (36%) caters to 30 to 45 year old women with clothing, accessories and home furnishings. Stores average about 7,600 square feel and carry 20,000 to 25,000 different products. By the end of fiscal year 2007, the company operated 93 stores in the U.S.^[4]

• Free People (<1%) targets women between 25 and 30 years old. The company operates 3 of these stores, which carry 1,600 products on 1,600 square feet of space ^[5]

[edit] Catalog and E-Commerce (13%)

Urban Outfitters sells directly to consumers via catalogs and online sites for each of its store brands. Direct to consumer sales comprised about 13% of sales in fiscal year 2007.

[edit] Wholesale (8-9%)

The company sells its Free People products through wholesale channels to department stores such as Bloomingdales and Nordstrom (JWN). This division generated about 8-9% of sales in fiscal year 2007.

[edit] Financial Performance

Since 2003, Urban Outfitters has enjoyed double-digit sales growth. This growth is based on good comparative sales performance, but is heavily complemented by opening several new locations in both of their retail brands each year. Since 2000, the company has maintained square footage growth at around 20% a year. ^[6]

Net Sales and Operational Profit (in Millions)

Comparative and New Sales Growth

Urban Outfitters has recently taken steps to implement point-of-sale data collection systems. This will allow it to get to know its consumers more effectively, account for regional differences, and track specific sales trends.

[edit] Key Trends and Forces

[edit] Increasing Leverage in Private Label

As of fiscal 2007, 50% of the Urban Outfitter's merchandise comes from its own private labels, which allows the company to offer exclusive products and generate higher profit margins compared to outside brands.

[edit] Managing Expansion in Europe

Growth at Urban Outfitters depends on the company's ability to expand and open new retail centers (it has opened more than 25 stores annually for the past three years). In recent years, the company has opened Urban Outfitter retail locations in Europe. However, only 40%-60% of products sold in American markets cross over to European retail locations.

[edit] Increasing its Mall Presence

The company has been increasing mall locations for its Urban Outfitters brand. Mall locations have generated better-than-average sales per square feet figures and require 10% lower initial investment; overall, mall-based locations have provided a better return on investment compared to standalone stores. As of the end of fiscal 2007, the company operated 22 mall locations. Urban Outfitters has announced plans to expand this number until it reaches up to half of its store base.

[edit] Expanding to Home and Garden Products

Home and garden products resonate with the company's demographic targets (women with money to spend), and the company has announced plans to open their fourth concept (called "Terrain") selling these wares in 2008. ^[7] However, home and garden products tend to correlate highly with new home sales, as homebuyers have needs to decorate and furnish their houses. A prolonged slump in the U.S. housing market due to after-effects from the subprime lending crisis could hamper the launch of this concept.

[edit] Limited Retail Personnel May Hinder Store Expansion

Urban Outfitters runs its chains of over 250 stores in a boutique style with a different mix of merchandise and layout for each store. Therefore, Urban expends significant efforts training and maintaining its staff. As Urban Outfitters expands, they may experience increasing difficulties in finding personnel to continue their merchandising and store layout strategy. ^[8]

Its employees generate a much higher net income per employee compared to larger stores with mass-appeal merchandise and layout such as Gap (GPS) and AnnTaylor Stores (ANN). Abercrombie & Fitch Company (ANF) also generates a significant amount of income per employee.

Income/Employee Comparisons^[9]

[edit] Competition

Urban Outfitters sets itself apart from most other clothing and accessory retailers with its boutique-like atmosphere and its focus on fashion (none of its store brands sell basic items).

• Abercrombie & Fitch Company (ANF) is a major competitor to the Urban Outfitters brand with which it shares the similar customer base by offering entry-luxury products. As of the end of each company's fiscal 2007, Abercrombie had 944 stores while Urban Outfitters operated 106 under its namesake brand.

• AnnTaylor Stores (ANN) competes with Anthropologie for clothing and accessory spending by 30-45 year old women. Ann Taylor offers full wardrobes, including shoes and accessories, and seeks to provide its customers with an "updated classic" look, compared with Anthropologie's more fashion-forward offerings.

• Guess? (GES) and Gap (GPS) are other competitors with strong own-brand products.

Urban Outfitters' enjoys one of the highest rates of sales per square foot among its competitive set, and outperformed all of the above-mentioned stores from 2004 to 2006.

Sales/Sq. Foot Comparisons

Operating Margins

Urban Outfitters also has a very strong operating margin relative to others.

 Urban Outfitters

	Select All  |  Select None Metrics Gross Profit Sales Growth Number of Stores Square Footage Net Income Sales per Store Comparable Sales Growth Website and Catalogue Sales Revenue Cancel

	Select All  |  Select None Companies Nordstrom (JWN) Gap (GPS) Limited Brands (LTD) American Eagle Outfitters (AEO) Abercrombie & Fitch Company (ANF) AnnTaylor Stores (ANN) Aeropostale (ARO) Big Dog Holding (BDOG) Buckle (BKE) Bakers Footwear Group (BKRS) Cache (CACH) Christopher & Banks (CBK) Charlotte Russe Holding (CHIC) Charming Shoppes (CHRS) Chico's FAS (CHS) Casual Male Retail Group (CMRG) Dress Barn (DBRN) DSW (DSW) Finish Line (FINL) Foot Locker (FL) Genesco (GCO) Guess? (GES) Hot Topic (HOTT) J. Crew Group (JCG) Men's Wearhouse (MW) Mothers Work (MWRK) New York (NWY) Pacific Sunwear of California (PSUN) Ross Stores (ROST) Retail Ventures (RVI) Shoe Carnival (SCVL) Shoe Pavilion (SHOE) Stein Mart (SMRT) Stage Stores (SSI) Talbots (TLB) Tween Brands (TWB) Urban Outfitters (URBN) Wilsons The Leather Experts (WLSN) Zumiez (ZUMZ) Citi Trends (CTRN) Gymboree (GYMB) Children's Place Retail Stores (PLCE) Collective Brands, Inc. (PSS) Cato (CTR) Lululemon (LULU) Dick's Sporting Goods (DKS) Wet Seal (WTSLA) Jos. A. Bank Clothiers (JOSB) Cancel

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Company	Data From	Sales per Store	Revenue	Comparable Sales Growth	Net Income	Website and Catalogue Sales
Abercrombie & Fitch Company (ANF)	2007	$3.47M[12]	$3.75B[13]	(1%)[13]	$476M[13]	$298M[14]
American Eagle Outfitters (AEO)	2007	$3.1M[15]	$3.06B[15]	1%[15]	$400M[15]	Add
Guess? (GES)	2006	$3.53M[16]	$1.19B[16]	12.8%[17]	$123M[16]	Add
Nordstrom (JWN)	2006	$44.8M[18]	$8.56B[18]	7.5%[19]	$668M[18]	Add
Urban Outfitters (URBN)	2007	$5.81M[20]	$1.22B[21]	(6.2%)[22]	$116M[21]	$21.8M[23]

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[edit] References

1. ↑ Urban Outfitters (URBN) Form 10-K, Fiscal Year 2007, "Business", pgs. 2-3
2. ↑ Morningstar URBN Quick Take, 8/9/07
3. ↑ URBN 10-K Filing, FY 2007, "Business", p. 2
4. ↑ URBN 10-K Filing, FY 2007, "Business", p. 2
5. ↑ URBN 10-K Filing, FY 2007, "Business", p. 2
6. ↑ Urban Outfitters (URBN) Form 10-K, Fiscal Year 2007, "Financial Data", pgs. 18-22.
7. ↑ Morningstar URBN Quick Take, 8/9/07
8. ↑ Urban Outfitters (URBN) Form 10-K, Fiscal Year 2007, "Business", pg. 10
9. ↑ Efficiency Ratios Supplied by Reuters.com
10. ↑ Urban Outfitters (URBN); Abercrombie & Fitch (ANF); Ann Taylor Stores (ANN); Gap Inc. (GPS); Guess?(GES) Forms 10-K, Fiscal Year 2007, "Financial Data."
11. ↑ Urban Outfitters (URBN); Abercrombie & Fitch (ANF); Ann Taylor Stores (ANN); Gap Inc. (GPS); Guess?(GES) Forms 10-K, Fiscal Year 2007, "Financial Data."
12. ↑ Abercrombie & Fitch FY2007 10-K, 03/28/08, pg. 28, Item 7, Financial Summary
13. ↑ ^{13.0 13.1 13.2} Abercrombie & Fitch FY2007 10-K, 03/28/08, pg. 25, Item 6: Selected Financial Data
14. ↑ Abercrombie & Fitch FY2007 10-K, 03/28/08, pg. 4
15. ↑ ^{15.0 15.1 15.2 15.3} AEO FY2007 10-K, 04/02/08, Item 6: Selected Consolidated Financial Data, pg. 16
16. ↑ ^{16.0 16.1 16.2} GES, 2006 10-K, Item 15, Pg. F-4
17. ↑ GES, 2006 10-K, Item 7, Pg 33
18. ↑ ^{18.0 18.1 18.2} JWN, 2006 10-K, Item 8, Pg 29
19. ↑ JWN, 2006 10-K, Item 7, Pg 16
20. ↑ URBN, 2006 10-K, Item 15, Pg F-8
21. ↑ ^{21.0 21.1} URBN, 2006 10-K, Item 15, Pg F-5
22. ↑ URBN, 2006 10-K, Item 7, Pg 25
23. ↑ URBN, 2006 10-K, Item 7, Pg 20