Shares of hip retailer Urban Outfitters
Investors seemed excited about the company's rosy holiday outlook and heightened expectations for sales growth in the coming year. With same-store sales up 1% in the recent quarter, management predicted a similar boost in the current quarter and a low-single-digit performance next year. Management has continued to support this belief with a healthy share buyback program. Urban Outfitters announced that it has received authorization from the board to purchase 10 million shares. This is an addition to nearly a half-million shares remaining in a 2006 repurchase program.
The decline in the retailer's gross margins -- off 39 basis points -- was a bit disappointing. Management blamed the decline on higher international shipping expenses in its direct-to-consumer sales, as well as the timing of newly opened stores, which increased occupancy costs during the quarter.
The company is seeing some very impressive growth in its direct-to-consumer business through online and catalogue sales. Its 31% increase in that segment points to a similar trend that Polo Ralph Lauren
While Urban Outfitters third-quarter results have not changed my opinion of the business fundamentals, the recent stock price appreciation makes me hesitant to pick up shares right now. The stock is up more than 17% since I recommended it on Oct. 18. I believe the company's great-looking balance sheet and top notch management makes it a great buy for the long term. However, the almost 12% pop on just an OK quarter makes me want to take profit and wait for the next irrational pullback.
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