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Retail Smackdown: American Eagle Vs. Urban Outfitters

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Two retailers recently reported quarterly results that excited retail-stock watchers. One has launched a new concept, while the other shuts down a failed one. Let's see how Urban Outfitters (Nasdaq: URBN  ) and American Eagle Outfitters (Nasdaq: AEO  ) measure up.

Compare and contrast
The last year has been difficult for many retailers. Consumers have been reluctant to spend money, and with unemployment so high, many simply couldn't. Retailers had their work cut out for them; beyond simply convincing consumers to spend at their stores, they had to inspire shoppers to spend money at all.

Here's how Urban Outfitters and American Eagle fared over the past 12 months:


Revenue Growth (TTM)

Earnings Growth (TTM)

Trailing P/E Ratio

Urban Outfitters




American Eagle




*Source: Capital IQ, a division of Standard & Poor's.

Both retailers have roughly similar price-to-earnings multiples, but they're sending wildly different messages. For 2009, American Eagle's earnings decreased, while Urban Outfitters' increased. In addition, Urban Outfitters generated far more impressive revenue growth. Considering the recession, that's an impressive achievement for any retailer; struggling Abercrombie & Fitch's (NYSE: ANF  ) revenue dropped 17.3% last year.

Victory and defeat
Both Urban Outfitters and American Eagle have employed different concepts to lure a broad swath of consumers in various demographic categories. Unfortunately, American Eagle finally had to admit defeat on its money-losing Martin + Osa concept, which once seemed like a bright spot for growth. (Rivals such as J. Crew (NYSE: JCG  ) are no doubt breaking out the party hats.)

No one can blame American Eagle for abandoning a failed 28-store experiment; at least now, it won't drag on the company's overall business. American Eagle's surrender leaves the retailer in reasonably good company; Costco (Nasdaq: COST  ) , Tiffany (NYSE: TIF  ) , Aeropostale (NYSE: ARO  ) , and the aforementioned Abercrombie have all given up on ancillary concepts in recent memory. When concepts hinder growth instead of sparking it, shareholders should be glad to see companies pull the plug.

In contrast, Urban Outfitters has announced that it's opening a new bridal concept. Though recent economic woes have driven many high-end wedding-oriented boutiques out of business, marriages remain a lucrative $60 billion industry.

The undoubtedly hip bridal brand will join Urban Outfitter's already robust portfolio, which includes Anthropologie, Free People, Terrain, Leifsdottir, and of course, its namesake stores. Opening new brands to take advantage of market opportunities is a great sign of corporate strength, especially during difficult times for rivals.

Better chances for growth?
Perhaps I'm biased -- I've been an Urban Outfitters shareholder for years -- but I think the trendy retailer makes a better bet than American Eagle. Urban Outfitters has a stable of strong brands and a solid track record of expanding with exciting new ones. Better yet, it's done a great job prudently avoiding the temptation to overextend its existing chains.

Meanwhile, American Eagle has stumbled recently, as rivals successfully lure teen customers into their own stores. A year ago, American Eagle's revenue decreased 2.2%, and its earnings fell by 55.2%.

On a forward basis, Urban Outfitters has a PEG ratio of 1.12, while American Eagle's sits at 1.15; neither sounds terribly overvalued. Still, Fools should ask whether analysts' growth expectations are a little too rosy for American Eagle, given the failure of Martin + Osa, additional signs that it has lost traction with customers, and its abundance of smart competitors.

Personally, I'll stick with Urban Outfitters shares.

Which stock do you consider the better long-term bet? Is yet another retailer even more of a bargain now? Sound off in the comment boxes below.

Costco is a Motley Fool Inside Value and Stock Advisor recommendation, and a Motley Fool holding. Try any of our Foolish newsletter services free for 30 days.

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

Read/Post Comments (3) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 16, 2010, at 11:48 PM, prginww wrote:

    I never get how all of you guys keep overlooking Aeropostale (NYSE: ARO)

    Revenue Growth (TTM) 18.27% v 6.5% URBN

    Earnings Growth (TTM) 18.59% v 10.3% URBN

    Trailing P/E Ratio 12.52 v 28.6 URBN

    PEG Ratio (5 yr expected) 0.68

    Everything is full guns for these guys, yet they are trading 5% BELOW their 52 week-high. I can't remember a stock like this in an industry that has been on such a run, that could lag so far behind everyone else. When is Fool going to find the value here?

  • Report this Comment On March 17, 2010, at 9:21 AM, prginww wrote:

    Hi WECpoker,

    Aeropostale has been on my radar as a retail stock that looks good compared to many others out there right now, I mentioned it in this article on Limited the other day and have mentioned it many times in retail stories:

    You're right, it has done very well during the difficult economic times. Maybe it's time to do a more focused piece on the stock.

    Thanks for your comment.


  • Report this Comment On March 21, 2010, at 4:30 AM, prginww wrote:

    hey WECpoker where did you find all those numbers I am new in investing thanks

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