Urban Outfitters (URBN): High Valuations Overshadow Earnings

Niche apparel company Urban Outfitters (Nasdaq: URBN) reported first-quarter earnings of $0.31 per diluted share on a 24.7 percent increase in revenue over the year-ago quarter. The earnings number narrowly beat analyst forecasts by a penny. First-quarter profit rose 72 percent on net income of $53 million compared to $30.8 million a year earlier.

The company’s 25-percent increase in revenue to $480 million over the year-ago period included a big jump in direct-to-consumer sales. Same store sales (revenue at stores open at least a year) rose 11 percent.

“I believe our ability to deliver this performance within the greater context of our long term goals of investing in store productivity, ecommerce penetration, international expansion and new brands is all the more impressive” said Glen T. Senk, Chief Executive Officer.

The company also improved its operating margin by 459 basis points over the year-ago period and reduced expenses. Despite these improvements, shares dropped over 2.5 percent after the earnings release. An earnings call is scheduled at 11 a.m. ET.

Comments: Share prices of retail stores have been falling recently on relatively high valuations and muted growth prospects for this sector. URBN’s niche markets (Urban Outfitters, Anthropologie, and Free People chains) are likely to fare better than most with its specialized “lifestyle” apparel aimed at higher income consumers. The company has significantly improved sales and profits, and is financially stronger with a much improved cash position. The company plans to open 45 new stores in 2010. This is a solid company with good growth prospects, but future growth is already priced into the current stock price.

Disclosure: No positions