Misunderstood Teen Retailers
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Following last week’s share plunges in Abercrombie & Fitch Co (NYSE: ANF) and Aeropostale Inc (NYSE: ARO) due to disappointing June same store sales, are there other ‘teen’ retailers who may have been unfairly tarred and feathered (a new hipster look maybe)? Two come to mind that have been stereotyped, and those are Buckle, Inc. (NYSE: BKE) and Urban Outfitters, Inc (NASDAQ: URBN).
Buckle is Special
Buckle is a retailer based in Kearney, Nebraska since 1948. It has been mistakenly characterized as merely a Midwestern denim retailer only patronized by youth without access to the more trendy Aeropostale, Abercrombie & Fitch or American Eagle consumers. It’s so last century to believe that the only fashion forward retailers have to be centered in NYC or LA. In truth, Buckle markets a selection of the hottest brands in the youth casual market like Ed Hardy, Roxy, Fossil and many more in 431 stores in 41 states as well as on a strong online commerce site that sells to 90 countries.
But what makes Buckle so special? First and foremost is the history of shareholder friendly special dividends for the last four years. Last years’ was announced in late September and those who bought at the 52 week low of $33.97 on September 11 and held until November 11 were able to capture a move in the share price to $45.00 as well as the $2.25 a share special dividend. And each year the special dividend amount has been raised as well as the regular dividend of 2.10%. The company has zero debt, an 11.38 P/E and a PEG of 1.19. Diluted earnings per share have close to doubled since February 2008 from $1.63 to $3.20 in January 2012.
One caveat is that despite a 60.50% institutional hold and an insider hold of 41.41% the short share of the float is a surprising 42.90%. Short sellers may be short sighted with such a shareholder friendly dividend history. Disappointing June same store sales may have temporarily given shorts some ammo but the company reports August 16 and a special dividend announcement may soon follow.
Fundamentally, the company follows a sane growth strategy and only opened 11 new stores in 2011. See Fool contributor Andrew Marder's take http://www.fool.com/investing/general/2012/08/01/the-danger-of-investing-in-the-future.aspx)
My take is that Buckle is also special for more than the dividends and can be likened to Nordstrom's for its exceptional customer service, offering free alterations, layaways and, most unusual for a ‘teen’ retailer, their Get Fitted service which is a free one hour consultation with a personal shopper at the stores. The CEO and Chairman of the Board have both been with the company for more than 30 years. The company has a strong recruitment and retainment strategy, offering college job events and promote-from-within policies for these new ‘Teammates” until at the store manager level they receive a percentage of the store’s net profits. This leads to keeping the best performing and most loyal sales associates.
Lastly, Buckle is not just teen denim; it recently announced its Buckle Kids lines and it has many more clothing options, shirts, shoes, hoodies, graphic tees and accessories. This miscasting of Buckle can be profitable until Wall Street catches on to the must have retailer.
Not Just for Hipsters
Another misunderstood teen retailer is Urban Outfitters. It was started in 1970 for a Wharton School of Business entrepreneurship assignment in Philadelphia as Free People, a store for cheap clothes and dorm furnishings. The company is still headquartered there, and one of the two founders, Richard Hayne, is back at the helm as CEO.
Like Buckle, it has a similar recruitment, training and profit sharing policy. It too has been misunderstood to be just a ‘hipster’ shopping destination. As if hipsters alone could support a $4.37 billion market cap, covered by 32 analysts. One analyst, Kim Greenberger of Morgan Stanley, just added it to their Best Ideas list, seeing a price of $36.00 by year end. It has been trading in a 52 week range of $21.47 to $31.81 and has a P/E of 25.15 but no yield.
The company has five brand profiles, each with specific customer demographics: Urban Outfitters for sophisticated teens and twenty-somethings, Anthropologie for slightly older customers, BHLDN for brides, weddings and special occasion shoppers, Free People for more casual looks and Terrain for home and garden consumers. Urban Outfitters has stores in Canada and Europe to buttress its strong US coverage for a total 430 stores. Urban Outfitters manufactures and designs much of its inventory but, like Buckle, offers many of the most fashion forward independent and brand name designers at its stores and websites.
Urban Outfitters has taken that online ball and run with it. The online presence was mentioned in the Morgan Stanley note as a strong sales driver, responsible for 20% of their sales, a remarkable result for retailers that have both brick-and-mortars and e-commerce. The web sites are very engaging and attractive, superior to most retailers’, with informative blogs as well. With plans to implement a second distribution center to quicken shipping turnaround, online sales should add even more to EPS in the future.
The company reports on August 20; it surprised analysts with a 9% rise in sales at the last earnings release. Urban Outfitters also has no debt and has an institutional hold of 81.30%, insiders at 24.61% and shares held short at 11.00%. By the way, the founder got an A on this entrepreneurship assignment.
Profit from Stereotyping
Both these companies are much more diversified than is generally understood. Urban Outfitters is not a hipster hangout nor is Buckle only a place for retail-deprived Midwestern teens to buy jeans. Both have so much more going for them than Wall Street acknowledges: Buckle with its generosity to shareholders and Urban Outfitters with its progressive e-commerce push. Either one is likely to put 10% more change in your hipster cigarette skinny jeans by year end.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Aeropostale and The Buckle. Motley Fool newsletter services recommend The Buckle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
