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.

IN PICTURES: 9 Simple Investing Ratios You Need To Know

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.

Related Articles
  1. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!