Seeing value in Urban Outfitters (URBN) was not difficult considering the multiples the stock was trading at vis à vis the many attractive characteristics of the company - good free cash flows, no net debt and a good level of diversification among brands, to name a few.
The recent results only confirmed a positive trend that had begun when the market started to discount a softer promotional environment. With a double beat on EPS and revenue, we had a further confirmation that the market got this stock wrong, even after the several upward estimates in the past months. The stock rose 3.7% the day after the earnings release and 1.6% the following day. Although URBN had managed to maintain a healthy performance during a challenging period for the apparel industry, the recent strength has not been very company-specific. Many other peers such as Gap (GPS) and Abercrombie & Fitch (ANF) managed to perform really well too. The apparel industry is in a much better condition after brands got rid of excess inventories and engaged in many store closures to optimize their exposure to traditional stores. Less overcapacity and less excess inventories led to fewer promotions, while the expansion of the eCommerce channel and cross-channel purchase options seems to be helping create new opportunities to sell for several brands.
