Trading Urban Outfitters Inc. Ahead Of Earnings

May.20.13 | About: Urban Outfitters, (URBN)

Shares of specialty apparel retail company Urban Outfitters, Inc. (NASDAQ:URBN) are trading near all-time highs at $44.54 per share ahead of the company's first quarter fiscal 2014 earnings announcement on Monday, May 20. With the release of the company's financial results one trading session away, shares of URBN are trading only 28 cents below their all-time high of $44.82 per share, which was reached a few days ago on May 15. Since the first trading session of 2013, URBN shares have gained 13 percent year-to-date, which represents a slight underperformance when compared to the current 17.89 percent increase in the benchmark S&P 500 Index year-to-date. As the stock of Urban Outfitters continues its ascent to new highs, analysts are expecting a strong quarterly earnings report from the company with an average consensus earnings estimate of 29 cents per share on revenues of $654.94 million for the three-month period that ended on April 30. By achieving that earnings per share result, URBN will generate a respectable 26 percent increase in comparable year-over-year diluted EPS. Attaining this level of earnings would be quite an accomplishment, particularly because of the analyst estimate for revenue being a much more modest 15 percent increase and due to the reportedly dismal same-store sales results for prominent retailers in the first quarter of 2013.

For investors looking to build a position in the stock of a strong specialty retail company, the first quarter fiscal 2014 earnings announcement by Urban Outfitters will be an excellent opportunity to obtain a clear perspective into the company's most recent financial performance. Ahead of the release of URBN's May 20 financial results, a thoughtful analysis of the company's recent financial developments, technical chart indicators, and the average ratings of the 32 industry analysts providing coverage of the company's stock will contribute important insights for shareholders and potential investors.

Urban Outfitters chief executive officer Richard Hayne delivered the encouraging news about the company reporting fourth quarter fiscal 2013 earnings of 56 cents per share when URBN last shared their financial results with investors on March 11. The Q4 fiscal 2013 earnings more than doubled the year-over-year comparable 27 cents EPS from Q4 2012, which is an astonishing feat by any reasonable standard in the current retail climate. Despite the impressive earnings, shares of URBN experienced only a slight gain during the trading session following the announcement with shares closing at $41.81 per share on March 12 from a previous day's close of $41.50 per share. As astounding as the earnings growth was for Q4 fiscal 2013, the figure actually missed analyst estimates by one cent, which contributed to the tepid price action the following day. In fact, Zacks, which is one of the analyst firms that covers URBN, notes that Urban Outfitters has missed its consensus earnings estimate in three out of the last five quarters.

This information is instructive for potential buyers of URBN, because stock prices of many retail companies often tend to respond to the release of monthly same-store sales figures and other more updated developments in their evolving business climate than even blowout financial results. Analysts and savvy investors look for steady growth trends and expanding market share more than short-term quarterly variances or aberrant earnings results when they gauge the potential for a successful retail company. This seems to particularly be the case for Urban Outfitters, which is a very valuable piece of information for anyone that is interested in investing in the company's stock. Clearly, URBN stock is driven by much more than its very respectable earnings, which became plainly evident when shares gapped open on April 2, at a price of $40.45 from a previous close of $38.41 per share, on news that the company's recent filing with the Securities and Exchange Commission cited comparable same-store sales growth in high single-digits.

The company's management has also engineered a turnaround in the fortunes of Urban Outfitters with the stock doubling since it hit a low of $21.47 in early October 2011. A May 16 article in Investor's Business Daily cites the return of current chief executive officer Richard Hayne - who was head of the company until 2007 - in January 2012 as the primary reason for the success of the turnaround. Hayne moved quickly to reassemble the management team that had led Urban Outfitters to much of its growth in earlier decades by bringing former executive of the company's flagship brand, Godfrey Marlow, out of retirement to help with the effort to rehabilitate URBN's retail makeover. The shake-up and consequent brand renewal efforts appear to be paying off handsomely when investors consider the fact that the stock has doubled since late 2011. The doubling of year-over-year Q4 earnings from 2011 to 2012 provide further concrete evidence of the tremendous advancements Urban Outfitters is enjoying in its financial results as a consequence of the return of chief executive Richard Hayne.

An examination of the URBN stock chart shows shares have risen approximately 10 percent since the third week of April, which is a notable one-month rally ahead of the May 20 earnings release. Shares of URBN are currently trading 75 cents above their 8-day exponential moving average, which is important because this stock tends to align in very tight daily prices throughout 2013 that essentially trade intra-day in lockstep patterns touching this important technical indicator. Any divergences of more than five trading days have reverted to contra-directional price movements that brought URBN shares back to its 8-day EMA in their daily range. This information is valuable for investors looking for an optimal entry point for URBN as its current 8-day EMA is at $43.73 and its all-time high is at $44.82 per share. This translates into a major price move in the very near future as URBN shares are likely to either breakout to new highs or test the current 20-day EMA at $42.61 per share. The market's response to the May 20 earnings announcement will likely play an important role in determining this outcome.

Analysts providing coverage of URBN have a consensus hold rating on the stock with a current price target of $43.92, which is 62 cents below its market price on May 17. This condition is a favorable contrarian indicator, because of the likelihood that an earnings report that exceeds analyst expectations on May 20 could trigger a wave of upgrades and boosted price targets in the second quarter. For investors and potential shareholders of URBN, the May 20 earnings announcement will be a golden opportunity to evaluate its financial performance and build a position in this fast growing retail company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.