I'm not a market timer, and I'm certainly not a retail bull, but with Urban Outfitters (Nasdaq: URBN) trading near 52-week lows recently, I am most definitely interested. The stock has been trading lower of late even as the greater market has been moving higher, because of concerns about a weakening economy and an anticipated slowdown in consumer spending.

But Urban Outfitters increased its revenue by 21.7% in calendar 2008 and tacked on another 5.6% in 2009. The company has also seen operating margins increase each year from 2007, proving it is able to produce not only in a slowing economy, but in one of the worst we've seen since the Great Depression.

The company
Urban Outfitters sells products through four retail brands in stores, via direct-to-consumer catalogs, and through websites. It also has a wholesale segment.

  • Its flagship Urban Outfitters retail store operates in more than 150 locations in the United States and Europe, targeting the 18- to 30-year-old men's and women's demographic with fashion and home apparel.
  • Anthropologie targets women ages 30 to 45, offering casual apparel as well as home goods. There are more than 130 Anthropologie locations across North America and Europe.
  • The company has 34 Free People retail locations, targeting more casual apparel to women in the Urban Outfitters' demographic.
  • The Terrain concept offers lifestyle, home, and garden products, but comprises less than 1% of the company's total sales.

Free People is also the name of the wholesale segment of the company that sells private-label apparel to department stores such as Nordstrom (NYSE: JWN) or Macy's (NYSE: M), or even on Amazon (Nasdaq: AMZN) store Zappos.

Growth in all businesses
While Urban Outfitters has been performing much better than its competitors as a whole, it has been an equal opportunity growth machine, boasting impressive growth in each of its business segments. In the most recently reported quarter, the company saw overall same-store sales increase by 7%. The same-store sales included a 13% increase at Anthropologie, a 24% increase at Free People, and a 9% increase at Urban Outfitters. Meanwhile, the wholesale segment managed a 16% increase. More impressive was the company's 36% increase in high-margin direct-to-consumer sales. Yet the stock is trading at about the same price as when these earnings were released.

The key metric
What has made Urban Outfitters so successful, compared to some other struggling retailers, is the company's ability to maintain extremely lean levels of inventory, while keeping inventory turnover quick. The company puts new merchandise on its shelves much more frequently than its competitors do. Urban Outfitters customers are much more likely to stop into the store frequently since they know there will be new merchandise more often. High inventory turns also mean the company doesn't have to discount its merchandise as frequently.

In 2009, Urban Outfitters' average days outstanding for inventory was 56.4. Competitors American Eagle (NYSE: AEO), Gap (NYSE: GPS), and Abercrombie & Fitch (NYSE: ANF) had average inventory days outstanding of 61.7, 64.1, and 124.3, respectively.

In addition, Urban Outfitters is able to squeeze more productivity out of its pricey retail locations than its competitors. In 2009, the company's Anthropologie stores had sales of close to $750 per square foot, and Urban Outfitters retail locations came in at about $600 per square foot of retail space. When compared to Gap's sales of about $400 per square foot and Abercrombie's nearly $375 per square foot, Urban Outfitters has a significant advantage.

Outfit yourself with some shares
The recent stock price slide is surprising when coupled with the rise in the overall market and the company's superior operational management. However, as always, it's best to do your own research to determine if the stock is a good fit for your portfolio. To me, the stock looks cheap, and buying shares in a strong brand, with sound management, and a nice-looking balance sheet with no debt seems like a low-risk proposition.

Andrew Bond owns no shares in the companies listed. Amazon.com is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. The Fool has a disclosure policy. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.