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Tickers in this Article: URBN, M, JWN, GPS, LTD
Specialty apparel retailer Urban Outfitters (NYSE:URBN) reported third quarter earnings on Monday after the market close. The bottom line beat analyst projections by only a penny, but this and steady sales trends were apparently enough to send the share price significantly higher. The rally means the shares are less appealing to prospective shareholders, but could still be worth a look given management's ambitious growth plans.

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Third-Quarter Review
Net sales jumped 13% to $574 million as same-store sales improved 6% and the company opened new stores. By major concept, comps grew 5% at Anthropologie and 5% at the namesake Urban Outfitters stores. The Free People brand, which operates 38 stores and is also a wholesale brand that is sold to other retailers including Nordstrom (NYSE:JWN) and Macy's (NYSE:M) Bloomingdales chain, saw comps jump an impressive 29%. Comps also reflect online sales that grew 31% while wholesale sales increased 13%.

Namesake stores contributed just over 46% of total quarterly sales while Anthropologie weighed in at just over 43% of the total. Urban sells apparel and an "eclectic mix of apartment wares and gifts" to a younger, edgy crowd while Anthropologie focuses on women between the ages of 30 and 45, but also sells what the company considers to be a "unique and eclectic product assortment." Combined, these two concepts help the company stand out in an otherwise extremely crowded specialty retail market.

On the profit front, gross margins fell slightly due to higher merchandise and product shipping costs. SG&A expenses also rose slightly as a percentage of sales on higher international costs. This lowered the operating income growth to 8.3% to $105.7 million, or a very healthy 18.4% of sales. Lower taxes pushed net income growth ahead to more than 17%. Net income came in at $73.1 million, or 43 cents per diluted share.

Outlook
Management refrained from offering fourth-quarter or specific forward sales and earnings guidance. It did detail that it is comfortable with the state of its business heading into the important holiday season and plans to open 16 more stores during the last quarter of the year.

For the full year, analysts currently expect sales growth in excess of 18% to $2.3 billion, and earnings of $1.67 per share.

Long-Term Growth
The company has a long-term goal to grow sales more than 20% per year. This is ambitious but attainable given the total store footprint is only about 350 locations, most of which are in the U.S. Total sales of only a couple billion also leaves plenty of room for growth. For comparison purposes, Gap (NYSE:GPS) is projected to report more than $14 billion in sales this year while Limited Brands (NYSE:LTD) should log nearly $10 billion in sales this year.

Bottom Line
The only problem with the company is its share price. The stock jumped as much as 10% after third quarter results and has pushed the forward P/E back to close to 20. The stock recently fell below $30 per share, but quickly rebounded by more than 24%. This may still be reasonable if management delivers on its growth ambitions, but it leaves less room for error going forward. (For related reading, take a look at Analyzing Retail Stocks.)

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