One Retailer Rejects Recession

Urban Outfitters (Nasdaq: URBN  ) continues to fire on all cylinders, despite a slow consumer spending environment. Alas, many investors have chosen to look the other way, judging by the company's stock performance following its latest earnings release.

First-quarter net income surged 45% to $42.6 million, or $0.25 per share. Revenue jumped 25% to $394.3 million. Same-store sales increased an impressive 10%, with each of its concepts doing well. Anthropologie, Free People, and Urban Outfitters comps increased 10%, 19%, and 10%, respectively.

Even better, Urban Outfitters was able to improve its gross margin to 40.2% of sales, versus 35.8% of sales last year. That's an admirable feat in an economy where many consumers may be stubbornly searching for deals; Urban Outfitters wasn't forced to mark down tons of merchandise.   

Not bad for a retailer in an extremely difficult environment, right? A quick look at recent headlines reveals that first-quarter profits plunged 24% at Nordstrom (NYSE: JWN  ) , 27% at Kohl's (NYSE: KSS  ) , and 50% at J.C. Penney (NYSE: JCP  ) , implying that consumers of all stripes are keeping a firmer grip on their wallets. It's kind of nice to see a retailer whose first-quarter profit improved by an impressive amount.

Urban Outfitters and another recent winner, Aeropostale (NYSE: ARO  ) , just might illustrate that the right merchandise at the right price can lure even super-cautious consumers to give you their business.

Urban Outfitters' quarter beat Wall Street's expectations by $0.02 per share, so that doesn't explain the pessimism, either. Maybe investors are getting cold feet following the stock's 36% rise in the past year, and have decided to do a little profit taking. And of course, Urban Outfitters has returned to its premium multiples of yore, trading at 30 times its trailing earnings. (On the other hand, its PEG ratio is just 1.18.)

I still think Urban Outfitters is a great stock for the long term. It's headed by real merchants who get their client base, a strength that shouldn't be underestimated in a retailer. And despite its fashion stumble in 2006, which took its stock to deep bargain levels, the retailer has gotten things back on track. Even better, Urban Outfitters has increased its cash and cash equivalents by 33% to $219.1 million, and it has no long-term debt.

Sell now? I think that's silly. In fact, given Urban Outfitters' pullback in price this week, it may be a good time to consider buying this great retail stock for the long term.

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Alyce Lomax owns shares of Urban Outfitters. The Fool has a fashionable disclosure policy.


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