Specialty apparel retailer Urban Outfitters (Nasdaq:URBN) closed out its year with another double-digit sales and profit increase, but investors focused instead on weaker than expected sales during the company's fourth quarter. This likely represents a short-term blip as Urban's future remains bright, but the stock could be dead money until short-term minded investors see that the recent fashion miss is truly temporary.

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Fourth-Quarter Recap
Net sales improved a healthy 13.6% to $668.4 million. New sales from store openings and non-comparable store sales growth contributed $63 million of the $79.9 million sales increase. Comparable store sales growth accounted for the rest as total company comps grew 4%, though most of the strength was due to a 28% jump in online sales and 31% increase at the wholesale segment that sells Free People branded apparel to outside retailers including Macy's (NYSE:M) Bloomingdales chain, Nordstrom (NYSE:JWN) and privately-held Lord & Taylor.

Despite the overall solid results, many investors were jolted by tougher quarterly trends at the namesake stores, which management said, during the earnings conference call, suffered from "slower than expected January sales and early spring receipts contributed to a higher than planned quarter's end inventory level."

The sales hiccup resulted in a 3.1% decline in net income to $75.2 million, though earnings per share were flat at 45 cents per diluted share due to share buybacks. This still missed analyst estimates and sent the stock down about 15% the day after the earnings release.

Full-Year Review
Full-year sales rose 17.4% to $2.3 billion and net income jumped 24.1% to $273 million, or $1.60 per diluted share. The company ended the year with no long-term debt and $456.7 million, or nearly $2.70 per diluted share of cash on the balance sheet. No cash flow details were provided in the earnings press release.

Outlook
Management plans on opening 50 to 55 new stores during 2011 and expects low single-digit comps, which is a standard estimate it relies on. Analysts currently project full-year sales growth of 16% to $2.6 billion and earnings of $1.95 per share, or year-over-year growth of approximately 19%.

Bottom Line
The tepid fourth quarter sales trends have spooked more myopic-focused investors, but Urban's long-term track record remains stellar. Over the past decade it has grown sales more than 21% annually and earnings more than 25% each year. Sales and profit growth is firmly in the high teens over the past three- and five-year time frames and demonstrates that the company has been easily able to withstand the occasional fashion miss with a long-term perspective on growth and new store openings.

With only 176 Urban Outfitters stores, 153 Anthropologie locations and a few smaller store concepts, there is plenty of room for the company to expand. Management's long-term goals are to grow sales greater than 20%, and it remains a fraction of the size of larger retailers including Gap (NYSE:GPS) and Limited Brands (NYSE:LTD) that logged full-year sales of $14.1 billion and $8.6 billion, respectively. If Urban can deliver on these ambitious goals and log a corresponding bottom-line increase, then the shares are a steal at 16-times forward earnings, though there may not be a hurry to rush in to the stock as momentum-biased investors will wait to pile back in at the first sign sales pick back up.

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Tickers in this Article: URBN, M, JWN, GPS, LTD

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