After suffering a year of slowing growth due to merchandise misses, Urban Outfitters Inc. spent most of 2007 working to reposition itself and has now emerged as the top stock pick from several analysts.
Efforts to improve its business have begun to show, particularly at the Anthropologie division.
"We are the one story that is contrary to what is currently happening in retail," said John Kyees, chief financial officer of the specialty retailer, during a Needham & Co. growth conference last week.
While most of the apparel industry had a humdrum holiday, earlier this month Urban Outfitters reported a 9 percent jump in same-store sales for the November and December period. This compares with a 5 percent decline in the same period last year. By division, comps rose 5 percent at Urban Outfitters, and soared 16 and 17 percent at Anthropologie and Free People, respectively.
"We believe that Urban Outfitters is one of the best growth stories in the specialty retail space and should be a core holding for retail investors," said Christine Chen, retail analyst at Needham & Co., in a research note. "In 2008, Urban Outfitters faces easier same-store sales and margin comparisons, and we continue to believe merchandise adjustments are accelerating the turnaround at Urban Outfitters."
Amid a slowdown in consumer spending, Urban Outfitters is one of the few apparel retailers that has been able to consistently post positive comps and operating margins throughout the year. This follows three quarters of declining sales and profits.
Carrying this momentum is the Anthropologie division.
Glen Senk, who was appointed chief executive in May, has made sweeping changes in processes and merchandising strategy, bringing back what made the division unique, said Roxanne Meyer, retail analyst at CIBC World Markets.
The success of the chain comes from its ability to entice shoppers of a broad age range. With a sweet spot in the 25- to 40-year-old demographic, the business caters to a wealthier customer, who is a little more immune to economic downturns.
"The product is dead-on, and during the holiday season there were long lines at the register and fitting room. Visiting the Anthropologie stores you would think we were in the best market environment ever," Meyer said.In 2007 Anthropologie made up 47 percent of sales for the company, and analysts say it can continue doing its part as the Urban Outfitters division recovers. But the key is getting both divisions to work at the same time, said Brad Stephens, retail analyst at Morgan Keegan & Co., who added a small dose of skepticism.
"Everyone is saying Urban is in the midst of a turnaround, but the question is, are they back on track or is this a function of easy comp comparisons and more aggressive promotions?" he said. "Compared to December's putrid comps, relatively, Urban looks great. But I am not sure we are back where we need to be." The company took a hard hit in 2006 when its merchandise became too fashion-forward, and the retailer tried to bank on the big-over-small silhouette.
"Urban Outfitters is a merchant-centric organization. When they were on, they were spot-on for two to three years. But when they missed, they missed big," Stephans said. "They were managing the upside but not the downside, so when they missed it got ugly because there weren't a lot of controls in place."
"The biggest positive of the company, that each division was able to operate as a separate entity, is also what hurt them. By decentralizing the organization, the best practices from each weren't shared," Meyer said.
However, analysts say it does seem like the retailer is beginning to gain control over its inventory. And with a shortage of designers to create its private label merchandise, the Urban Outfitters division is going through a massive hiring process.
With only about 242 Urban Outfitter, Anthropologie, and Free People stores as of December, the company expects it can grow to about 750 stores domestically and internationally.
"Few retailers are growing stores at about 20 percent," Meyer said. "They are nowhere near maximum capacity or saturation."
Urban Outfitters is also working to open its fourth concept, called Terrain — an up-scale landscape and garden retailer.
"The concept is not expected to be our guiding light. I have eight years to figure it out, and if it doesn't work I will think of something else," Kyees said. "But we have never started a concept and closed it. We are purposely slow and deliberate."And Kyees announced a fifth concept is also on the horizon. The concept, which will be unveiled at the end of the year, will be more in line with the apparel businesses.
The Philadelphia-based company has sales of $1.4 billion, with a 23 percent compound annual growth since going public in 1993. In the third quarter, earnings rose 31 percent to $45.4 million, or 27 cents a diluted share, while sales increased 23 percent to $379.3 million.
And the stock has held up better than others in this tough macroeconomic environment. Since its lowest day of trading on Aug. 9 2006, shares have soared over 90 percent. For the year-to-date period, shares are up about 2.7 percent, closing at $26.15 on Jan. 10.
But the company's struggle taught it how to better manage inventory, make more scientific and planned real estate decisions, and control store costs, Kyees said.
"Though the last year was painful for management and investors, it was essential as a learning lesson for the business," he said.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews