Gentlemen readers: How confident would you be if we asked you to head for your local mall and pick out an outfit for a female friend that represents the best of the best (not the most expensive or the trendiest) of everything else for sale?
Investors face just that sort of challenge when shopping for retail stocks -- and that's where Stock Picks for Chicks comes in.
We're here to have a different kind of conversation about stocks -- to highlight investing ideas that may not be on your radar, to offer a unique perspective on the companies you're considering for your portfolio, and to let you in on the small talk we make when we run into each other at the watercooler.
As female investors, we have some serious competitive advantages that help us find superior investments. We think every investor would be better off with a little girl power in their portfolios.
And, yeah, although it may be playing to a worn-out stereotype, we do think that when it comes to investing in retail, there's nothing like a woman's touch.
So today, we kick off Stock Picks for Chicks by highlighting a hip retailer with smart, savvy management and strong financials on its side -- a company that for years has been a blockbuster in one of our portfolios. (You'll have to watch the video to find out why only one of us has netted a pretty profit on this stock.)
The true merchant among mall merchants
That retailer is Urban Outfitters (Nasdaq: URBN ) , which is so much more than your typical clothier. Unlike so many mall-based stores, including Gap (NYSE: GPS ) , American Eagle Outfitters (NYSE: AEO ) , AnnTaylor (NYSE: ANN ) , Abercrombie & Fitch (NYSE: ANF ) , and Pacific Sunwear (Nasdaq: PSUN ) , Urban Outfitters sets itself apart by catering to an individualistic demographic.
With its bohemian, artistic, and occasionally off-the-wall merchandise and distinctive stores, Urban Outfitters bucks the cookie-cutter trend trap that retailers too often fall into. The company wraps different retail concepts and brands into one company -- Urban Outfitters' namesake chain, Anthropologie, Free People, Leifsdottir, and Terrain – which enables it to appeal to a wide spectrum of age demographics. Plus, each store's merchandising reflects that concept's personality, and each store has the feel of a hip, well-curated independent boutique.
The company also has an air of scarcity that makes happening upon a store really special. Unlike Gap in its heyday -- when you could find a Gap store in any shopping mall you set foot in -- Urban Outfitters' storefronts usually aren't found in typical shopping malls at all.
That's because Urban Outfitters has carefully and prudently opened its retail concepts, avoiding the temptation to overexpand. It has just over 300 stores across all of its concepts. Compare that to Gap (3,100 stores) or Abercrombie (nearly 1,100 stores). Urban Outfitters has plenty of growth ahead, and a long way to go before investors need to be concerned about damaging ubiquity.
A peek inside Urban's pocketbook
On the financial front, Urban Outfitters is debt-free, unlike overly indebted retailers such as Borders Group (NYSE: BGP ) . It's got $591 million in cash on the balance sheet, which works out to $3.58 per share.
As far as financial performance over the years, Urban Outfitters has been a shining star on the retail landscape. Let's compare its compound annual growth rates with those of Gap and Abercrombie over the last five years:
5-year CAGR, Net Income
5-year CAGR, Gross Profit
5-Year CAGR, Revenue
|Abercrombie & Fitch
Five-year compound annual growth rate data from Capital IQ, a unit of Standard & Poor's.
Gap and Abercrombie have been struggling to turn around their businesses for years, with falling or relatively anemic profitability and sales. Urban Outfitters had a "fashion miss" years ago, but quickly turned that situation around to get back in customers' good graces.
Few retailers can turn around their business with fickle consumers quickly, and without serious brand tarnishing. The swiftness with which Urban Outfitters achieved this tricky feat testifies to the strength of its management. And in its latest quarter, Urban Outfitters showed that it's still thoughtfully and carefully navigating the "new normal" consumer environment.
Are you willing to pay up for quality?
Urban Outfitters currently trades at about 20 times earnings, which may sound pricey compared to retailers like Gap. But given Urban Outfitters' great growth potential, investors may regret passing this one by right now.
And in a shout-out to the ladies, how many times have you bought something on super-sale that you realized you didn't really want, even though the price seemed so tempting at the time? Value investing can be a bit overrated. Pursuing shares of a high-quality company that might look a little pricier in the near term, but has plenty of growth ahead of it, is sometimes the smarter way to invest for the long haul.
For more girl-powered chat on Urban Outfitters and:
- Founder-led companies and insider ownership
- The importance of brand differentiation in a congested retail landscape
- Dayana's big mistake
- Why girls totally rock
... watch the Stock Picks for Chicks video on Fool.com.