Consumer Discretionary Stocks to Buy — Specialty Retail
Urban Outfitters’ (URBN) namesake brand stumbled down the stretch in the past year, delivering a same-store sales decline of 0.6% for the entire fiscal year. However, as a company, it delivered some pretty good news at a time when many consumer discretionary stocks related to specialty retail were losing their shirts.
Its billion-dollar brand, Anthropologie, increased same-store sales by 10.1% in fiscal 2014. It now accounts for 41% of overall revenue for URBN stock. In fiscal 2015, the company plans to open between 35 and 40 stores, including 13 from Anthropologie. With 511 stores open at the end of January, it’s taking a wait-and-see approach to business, and that’s a good thing. There will be plenty of time to grow once retail is on stronger footing.
In the meantime, it’s still making a decent amount of money. The company as a whole had operating profits of $429 million this past year to go along with its $3.1 billion in revenue. Its gross profit margin increased 70 basis points to 37.6% while its operating margin improved by 40 basis points to 13.8%. Generating more free cash flow than it ever has, it’s on par with Gap (GPS) while far superior to Abercrombie & Fitch (ANF), Aeropostale (ARO) and American Eagle Outfitters (AEO).
Recently, Urban Outfitters opened Space Ninety 8, a really interesting loft conversion in the Williamsburg area of Brooklyn. While only a concept store like the one it opened in L.A., it’s the kind of activity that indicates that the creative juices continue to flow in Philadelphia. For this reason, I expect URBN stock to benefit from the impending rebound in retail.