Esotericism at its Finest
Elizabeth is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
From first glance, Urban Outfitters (NASDAQ: URBN) is stuck in a rut. Its stock value never quite recovered from its March-October 2011 free-fall, dropping from a near-lifetime high of $38.50 on February 28 to $22.31 on September 26, losing 42% of its value in less than seven months. In 2012, it can’t seem to cling to its $30 valuation- it hit the mark in both April and May before yet again dropping to $28.51 and $25.56 within two weeks, respectively.
Since Morgan Stanley (NYSE: MS) added Urban to its “best ideas” list, doubled its projected earnings per share over the course of three years, and predicted a retail comeback aided by its massive online sales percentage of nearly 20%, we’ve witnessed the stock hit the $30 milestone yet again, and it’s currently trading at a respectable but un-extraordinary P/E of 25.83. Is the value here to stay this time, or will it fall back into its seemingly inescapable cycle?
Urban’s got a lot of factors going for it. I’m betting on its full recovery and eventual burst of growth once Wall Street realizes the company’s true potential.
Perhaps Urban’s most obvious advantage is its clear understanding of its target demographic, something few other comparable retailers are able to boast. [I’ve yet to fully figure out who Abercrombie & Fitch (NYSE: ANF) is trying to reach out to- teenagers in $80 T-shirts?] Urban prides itself on its “established ability to understand [its] customers and connect with them on an emotional level,” and as full of hot air as that sounds, I have to admit it’s worked. From selling vegan leather-alternative products and World Wildlife Fund merchandise, to interrogating future employees about their music tastes, Urban attempts to cater to twenty-something liberals on disorganized social missions- and largely succeeds.
When dealing with such a consumer base, the unique look and feel of both Urban’s merchandise and its environment cannot be overlooked. Before you even enter the store, the majority of Urban Outfitters locations are situated right on city streets and incorporated into the atmosphere of their unique cities, as opposed to retailers like Abercrombie and Gap, Inc. (NYSE: GPS) that are mainly located within homogenous malls. Mannequins wear actual feasible sizes- usually a 27-28 waist pant, unlike these ridiculously tiny jeans Gap was chastised for using last summer. (Gap blasted for using anorexic-looking mannequin in 'Always Skinny') Styles are graphic, bold, and unique, and many items are exclusive to Urban. In many ways, consumers get the best of both worlds- the immediacy to shop for exclusive items, without the usual repetition of unexciting same-store sales.
The expansion of Urban Outfitters to include Anthropologie and Free People locations is both meeting the demand for its aging original consumer base (the company was founded in Philadelphia in 1970), as well as preparing for the future reception of current Urban Outfitters advocates once they outgrow their skinny jeans and ugly hipster sweaters. In addition, the wholesale line for Free People is expanding Urban’s territory from 401 retail locations to more than 1000 specialty stores nationwide. Urban has been criticized for failing to focus its efforts on the main brand and dedicating too many resources to these lesser known sub-brands, but such Debbie Downers are failing to realize the long-term dedication of its consumer base, as well as the implications for Urban’s expansion in the future.
Will we see a lifetime high for Urban Outfitters stock anytime soon? Maybe not. While stock prices may not shoot up 25% overnight for quite a while, I’m looking forward to Urban’s realization of its lurking potential- and for Wall Street analysts to finally give the company some of the credit it deserves.
LizPowers has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.