Investing legend Peter Lynch once said, "If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them."  With that said you may have walked around your local mall and noticed apparel retail shops The Buckle (NYSE:BKE) and Urban Outfitters (NASDAQ:URBN).

This may be a good starting place to research investment ideas. However, it always pays to check out whether or not companies grow their revenue, profitability, and free cash flow and retain some cash for reinvestment back into the business or for dividend payment to investors like you.

Slowing down
The Buckle sells mid to higher priced footwear, apparel, and accessories to young women and men.  Buckle operates 452 stores as of this writing.  The company experienced solid fundamental growth over the past five years with revenue, net income, and free cash flow growing 26%, 28%, and 35%  respectively during that time.

However, preliminary first quarter 2014 data indicates a slowdown. Buckle's revenue increased a mere 0.73% while net income declined 0.56% in the most recent quarter.  Not surprisingly, Buckle's online sales increased 2.5% indicating the consumer migration from brick and mortar purchases to e-commerce. Meanwhile, Buckle's same store sales, or sales from stores open at least one year, decreased 0.9% in the most recent quarter. 

Buckle does sport a solid balance sheet to help it get through rough times. Its $192 million in cash equates to 49% of stockholder's equity. The company possesses no long-term debt which means interest expense will not serve as a drag on future profitability. 

Buckle believes in returning cash to shareholders. The company paid out 67% of its free cash flow in dividends last year.  Currently the company pays $0.88 per share per year in regular dividends translating into a yield of 1.9% plus special dividends the company occasionally pays.

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Ailing flagship
Urban Outfitters operates a portfolio of brands including Urban Outfitters, Anthropologie, Free People, Terrain, and Bhldn brands. Urban Outfitters, its oldest brand, represents an apparel retail brand that caters to young adults. Anthropologie sells apparel, footwear, and furnishings to contemporary women in the 28 to 45 age group. Free People sells private label apparel, footwear, and accessories to roughly the same demographic as Anthropologie. Free People, via its wholesale segment, distributes merchandise to other retailers. Terrain sells merchandise pertaining to the outdoors and gardening. Bhldn sells wedding related merchandise.  

Over the past five years, Urban Outfitters grew its revenue, net income, and free cash flow 59%, 28%, and 10%  respectively. In the most recent quarter, revenue grew 6% while net income declined 20%.  The Urban Outfitters brand served as a drag on overall growth in revenue and net income with brand sales declining 5% in the most recent quarter.  Urban Outfitters CEO, Richard Hayne said, "While Anthropologie and Free People continue to deliver record levels in sales and profits, Urban Outfitters had a disappointing quarter and is working diligently to regain its fashion footing." 

Like Buckle, Urban Outfitters sits on solid financial footing. The company harbored $342 million in cash in the most recent quarter equating to 25% of stockholder's equity.  Urban Outfitters possesses no long-term debt, but the company doesn't pay a dividend.

Now what?
Look for e-commerce to continue to outperform the brick and mortar segment of Buckle. Buckle represents a well run company headed by people who own a great deal of stock in the company. Over the long-term this company should do ok.    Meanwhile Buckle pays a dividend while shareholders wait for any turnaround that may happen.

Urban Outfitters needs to address the merchandising issues in its flagship brand. The company's diverse brand portfolio should enable the better performing brands to pick up the slack of the underperforming brands. This will mostly likely translate into superior long-term capital gains over the long-term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.