Hipster clothier Urban Outfitters (NASDAQ:URBN) is clearly a company on the cutting edge of fashion -- and time travel. While all around it this earnings season, companies are reporting their numbers for Q1 2006, Urban zipped that one up long ago. Now it's ready to slip into something more comfortable: fiscal 2007. Earnings are due out tomorrow morning.

What analysts say:

  • Buy, sell, or waffle? Eighteen analysts follow Urban. Of these, 13 rate the stock a buy, and just five call it a hold.
  • Revenues. Analysts are looking for 20% year-over-year improvement in sales, to $276.8 million.
  • Earnings. Profits, in contrast, are expected to stay flat at $0.16 per share.

What management says:
On May 8, Urban made the, shall we say, "interesting" decision to release its sales numbers just days before its earnings release. The stock suffered an immediate 4% drop and is still falling as of this writing. The reason: Urban clearly missed analysts' sales target for the quarter, reporting "only" a 17% increase after its new-store sales were hobbled by a 3% decline in same-store sales.

Said CEO Richard Hayne: ".Urban Outfitters and Anthropologie brands both delivered Q1 'comp' store sales well below our original expectation." On the bright side, things went better for the firm's "Free People" stores, where sales grew 74% year over year on the back of 14% comps improvement. Hayne also mentioned that comps looked better in April alone than in fiscal Q1 2007 as a whole, and that customers seem pleased with the summer apparel lines now coming out at Anthropologie.

What management does:
Let's hope he's right. It would be a crying shame to break up the beautiful trend shown below, where despite a slight dip in gross margins, Urban has managed to grow both its operating and net margins by restraining the growth of its operating costs (for example, selling, general, and administrative costs grew only 25% over the last six months, despite sales growing 30%.)

Margins %

10/04

1/05

4/05

7/05

10/05

1/06

Gross

41.4

40.9

41.2

41.4

41.3

41.1

Op.

18.2

17.9

18.5

18.9

19.3

19

Net

10.9

10.9

11.4

11.7

11.9

12
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
Time for the bad news: working capital management. Though the firm's 30% sales growth over the last six months is impressive, it pales in comparison to the rate at which Urban's inventories have piled up and its accounts receivable have gone uncollected. Inventories are up 46% during the last six months, and A/R is up 49%. Sales growth is great, but if we had our druthers, we'd much rather see the company's inventories being drawn down to feed its frenzied customers' desire for its goods. And of course, it's always nice to see your company collect its bills on time, too.

It bears noting, however, that Urban is far from the only clothier experiencing problems managing its inventories to suit consumer tastes. For example, Hot Topic (NASDAQ:HOTT) has let inventories grow 20% year over year in the last six months -- more than twice as fast as its 8% sales growth. Urban's real worry, though, should be up-and-comer Citi Trends (NASDAQ:CTRN), which is not only beating Urban on sales growth (up 49% year over year in the last six months), but also holding inventories to a slower growth rate (47%).

Other competitors:

  • Gap (NASDAQ:GPS)
  • Limited Brands (NASDAQ:LTD)
  • Wet Seal (NASDAQ:WTSL.A)
  • Zumiez (NASDAQ:ZUMZ)

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Fool contributor Rich Smith does not own shares of any company named above.