3 Reasons Why Urban Outfitters May Sustain Bull Run In 2018

Despite a competitive retail landscape, Urban Outfitters, Inc. (NASDAQ:URBN) has emerged as a strong contender to be an investment choice on the back of better-than-expected quarterly numbers, turnaround in comparable store sales and strategic initiatives. This is quite evident from the stock’s performances in the past six months. In the said period, the stock has soared 96% compared with the industry’s 18.2% gain. We believe there is still momentum left in this Zacks Rank #1 (Strong Buy) stock, which is reflected from its long-term impressive earnings growth rate of 12%. Let’s delve deeper.

Sturdy Fundamentals Underscore Potential

Being a multi-brand and multi-channel retailer, Urban Outfitters offer flexible merchandising strategy. Additionally, the company has a significant domestic and international presence with rapidly expanding e-commerce activities. It remains committed to improve comparable-store sales performance, sustain investments in direct-to-consumer business, enhance productivity in existing channels, add new brands and optimize inventory level.

In third-quarter fiscal 2018, growth in Retail segment sales benefited from double-digit gain in digital sales. Internationally, digital growth was robust in Europe and China. Digital penetration, which increased by 400 basis points in the reported quarter is likely to register a gain in the fourth quarter too.

We expect Urban Outfitters to drive growth on the back of new store openings, increase in direct penetration, growing wholesale operations, technology advancements and merchandising improvements. We also believe that better product execution and effective inventory management will help boost performance. Management is aggressively focusing on efforts to enhance the performance of its brands through store refurbishment and by bringing in more compelling assortments. The company is also strategically investing in shop-in-shops.

Comparable Store Sales Back on Track

Further, the big take away from the third quarter was, that it’s all three brands reported rise in comps for the first time in two years. Excluding the impact of hurricanes comparable retail segment net sales inched up 1% at Urban Outfitters, 2% at Anthropologie Group and 5% at the Free People. Comparable retail segment net sales, including the comparable direct-to-consumer channel, were up 1% year over year following a decline of 4.9% and 3.1% in the second and first quarters of fiscal 2018. However, excluding the impact of the North American hurricanes comparable Retail segment net sales gained 2%.

Holiday Season to Drive Results

The fact that Urban Outfitters brands are well placed for holiday season compared with the prior year further bolsters optimism. Taking into the account that holiday season is very challenging and highly promotional in nature, the company remains “cautiously optimistic” about fourth-quarter results.

Following the company’s sturdy performance and upbeat holiday season view, the Zacks Consensus Estimate witnessed an uptrend as analysts raised their estimates. Analysts polled by Zacks are convinced that the stock will see robust performance in the future as well. In the past 30 days, the Zacks Consensus Estimate for fourth quarter and fiscal 2018 rose 10.7% and 9.1% to 62 cents and $1.56 per share, respectively.

From the above analysis it is apparent that Urban Outfitters is a stock that deserves a place in your portfolio.

3 Other Retail Stocks Hogging the Limelight

G-III Apparel Group, Ltd. (NASDAQ:GIII) delivered an average positive earnings surprise of 6.1% in the trailing four quarters. It has a long-term earnings growth rate of 15% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ross Stores, Inc. (NASDAQ:ROST) delivered an average positive earnings surprise of 5.5% in the trailing four quarters. It has a long-term earnings growth rate of 10% and carries a Zacks Rank #2 (Buy).

Wal-Mart Stores, Inc. (NYSE:WMT) delivered an average positive earnings surprise of 2.2% in the trailing four quarters. It has a long-term earnings growth rate of 6.1% and carries a Zacks Rank #2.

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