Urban Outfitters (URBN)

mallscene

Key Statistics

Enterprise Value = $2.488 billion

Operating Income = $381 million

EV/Operating Income = 6.53x

Price/Revenue = .81x

Earnings Yield = 9.2%

Debt/Equity = 0%

The Company

Urban Outfitters is a Philadelphia based global retail company. They opened their first store in Philadelphia around the University of Pennsylvania in 1970. Since those origins, it has grown into a massive global company with 613 locations. While they are a global company, about 87% of sales originate in the US.

They currently operate a few crucial divisions. Urban Outfitters itself includes 245 stores. Urban Outfitters is an apparel retailer targeting the 18-28 year old demographic. Anthropologie represents 226 stores and 41% of sales. Anthropologie targets women aged 28 to 48. They also operate a food & beverage business focused on pizza & casual dining bought through an acquisition.

Another segment is their Free People brand,  which sells clothes and accessories to women aged 25 5o 30. Their brands are also sold in department stores like Nordstrom and Macy’s.

Urban Outfitters is cheap because of their mall locations, their connection to department stores like Nordstrom and Macy’s, and pressure in recent years on the margins. Trade jitters and late 2018 recession worries also took the stock down late last year. It peaked at $48 in September 2018 and has plummeted down to $29.59. An increase to those levels would be a 62% increase from current levels.

My Take

There isn’t much to dislike about this company. If all you knew were that this was a mall retailer and then took a look at the stock chart, you’d assume this is just another retail trainwreck.

Look closer.

This is a company that has grown sales steadily and robustly by 103% since 2010. They earn a robust return on equity for a retail company, making 21.36%. They are in impeccable financial condition. They have zero long term debt and boast $5.88 in cash per share against a price of $29.59. They are a popular brand with a loyal, niche following. They are buying back shares to a tune of 2.96% per year. F-Score is a 7/9.

This is a fast growing, financially healthy company, boasting respectable returns on capital. That’s the reality. From Mr. Market’s perspective, all that Wall Street sees is “mall retailer,” and it’s priced like it’s roadkill. In fact, the current price is around 2011 levels, when they were earning 47% less and had sales that were 57% of what they are today. Despite all of the company’s growth and tremendous success over the last decade, the stock has been stuck in a trading range for that entire time period, ignored by the market because it’s lumped in with all of the other retail carnage.

URBN’s current P/E of 10.88 compares to a 5-year average of 19.66 and an industry average of 17.89. On an enterprise multiple basis, the current 6.53x multiple compares to a 5 year average of 10.28x. An increase to this level would be a 57% increase in the stock price. At a minimum, I think the stock could return to $45/share.

PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings.  Read the full disclaimer.