Is Urban Outfitters, Inc. Going the Way of Aeropostale and Abercrombie & Fitch?

Urban Outfitters just reported its third consecutive quarter of same store sales declines – is it time for shareholders to start panicking?

May 27, 2014 at 8:46AM

Once unbeatable apparel retailer Urban Outfitters (NASDAQ:URBN), owner of multiple retail brands, including its namesake Urban Outfitters, Anthropologie, BHLDN, Free People and Terrain, recently reported quarterly results. While the overall company performed well thanks to strong performances from Anthropologie and Free People, sales at its Urban Outfitters stores continued to sag.

The world of retail, as you can imagine, can oftentimes be unpredictable and extremely difficult to manage given the fact that it depends almost entirely on the current tastes and trends of the consumer. Can it be that Urban Outfitters is going the way of apparel retailers Aeropostale (NYSE:ARO) and Abercrombie & Fitch (NYSE:ANF), both once strongly sought-after brands that have also fallen on hard times?

If you don't count Urban Outfitters Stores...
For the first quarter of the current fiscal year, Urban Outfitters saw its sales rise to a total of $686.3 million compared to $648 million for the same period a year ago. The 5.9% increase follows a decent full year performance ended January 31, 2014, where total company sales rose to $3.086 billion from $2.8 billion year over year. In fact, the company managed to grow its top and bottom lines in nearly every year over the last five years.

Urban Outfitters

2014

2013

2012

 2011

2010

Net Sales

$3.09 billion

$2.8 billion

$2.5 billion

$2.3 billion

$1.94 billion

Net Income

$282 million

$237 million

$185 million

$273 million

$219 million

Source: Sec.gov.

These results are not indicative of a company that is performing poorly. And these figures compare favorably to results posted by competitors Abercrombie & Fitch and Aeropostale,

Aeropostale 

2014

2013

2012

2011

2010

Net Sales

$2.09 billion

$2.39 billion

$2.34 billion

$2.4 billion

$2.23 billion

Net Income (loss)

($142) million

$34.0 million

$69.5 million

$231 million

$229.5 million

Source: Sec.gov.

Abercrombie & Fitch

2013

2012

2011

2010

2009

Net Sales

$4.1 billion

$4.5 billion

$4.16 billion

$3.47 billion

$2.92 billion

Net Income

$54.6 million

$237 million

$143.9 million

$155.7 million

$254,000

Source: Sec.gov. 

In fact, anyone looking at the long term results of these three companies would conclude that Urban Outfitters is performing quite well compared to its competitors. So what is the problem that has caused the stock to fall following its latest results? To put it simply, the problem with Urban Outfitters is the Urban Outfitters store.

In addition to listing corporate-wide results in its latest quarterly release, Urban Outfitters also provided a breakdown of the results of its individual branded stores:

Quarterly sales by brand 

2014

2013

Urban Outfitters

$277.7 million

$292.8 million

Anthropologie and BHLDN

$295.8 million

$268.3 million

Free People

$108.7 million

$83 million

Other

$4.1 million

$3.8 million

Source: Yahoo! Finance.

As you can see, the problem isn't the entire company but rather its namesake stores. They have seen three consecutive quarters of same-store-sales losses, leading many to wonder if the retailer (once thought to be unbeatable in the retail space) has lost its charm. Fortunately for shareholders, the company is far more diversified than competitors like Abercrombie & Fitch and Aeropostale. Unlike these two companies, Urban Outfitters operates five brands, three of which are lifestyle brands--Urban Outfitters, Anthropologie, and Free People--providing an assortment of apparel, accessories, home decor, home furnishings, and other objects. While Abercrombie & Fitch operates its namesake brand in addition to Holister Co, neither of them are lifestyle brands, providing only apparel, accessories, and beauty products to customers.  Aeropostale is the least diversified of the three companies, with only two apparel and accessory brands under its name--Aeropostale and P.s. from Aeropostale, appealing to children and teenagers. Through its five brands Urban Outfitters offers a much larger variety of consumer goods, including decor for special events and the garden through its BHLDN and Terrain brands, which neither Aeropostale nor Abercrombie & Fitch offers.

Foolish takeaway
For now, shareholders of Urban Outfitters do not need to worry about their company going the way of Aeropostale and Abercrombie & Fitch. It seems that losses at its Urban Outfitters stores are being more than replaced by sales gains at its fast-growing Anthropologie and Free People stores. This is the company's major advantage over its struggling competitors -- it has multiple brands to appeal to a bigger piece of the consumer market. So, while it may not see massive gains until it can attract customers back to its Urban Outfitters stores, it's unlikely that this unique retailer is going anywhere anytime soon.

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Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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