Can Urban Outfitters Continue Success After Hitting New 52 Week Highs?

Aug.21.12 | About: Urban Outfitters, (URBN)

Upscale retailer Urban Outfitters (NASDAQ:URBN) saw shares hit a new fifty two week high today after reporting a second quarter earnings beat after hours Monday. The retailer, which owns stores under Anthropologie, BHLDN, Free People, Terrain and Urban Outfitters, reported record earnings and sales for a second quarter report.

The retailer saw net sales increase to $676 million in the second quarter. Net income was reported as $61 million, representing earnings per share of $0.42. Last year, the company posted earnings per share of $0.36. Comparable same store sales were down overall, but did increase by 22% in the direct to consumer sector. Free People (+12%) and Urban Outfitters (+12%) had strong same store sales growth numbers.

Here is a look at net sales by brand for the second quarter (last year second quarter sales):

· Urban Outfitters: $310,664,000 ($272,173,000)

· Anthropologie: $281,808,000 ($272,639,000)

· Free People: $73,788,000 ($58,707,000)

· Other: $10,009,000 ($5,662,000)

· Total: $676,269,000 ($609,181,000)

In the last six months, Urban Outfitters opened a total of 28 new stores. The retailer opened 10 Urban Outfitters, 10 Free People, 6 Anthropolgie, 1 BHLDN, 1 Terrain, and closed 1 Anthropolgie during the first half of the fiscal year. For the fiscal year, Urban Outfitters will open 51 stores. An additional 11 store openings are planned for the third quarter. At the end of the quarter, the retailer had the following store counts:

· 207 Urban Outfitters

· 173 Antrhopolgie

· 72 Free People

· 2 BHLDN

· 2 Terrain

Free People is one of the key expansions for the company. Along with the 72 retail stores, the products are sold in 1400 additional retail and department stores. The company will open 15 Free People retail stores throughout the fiscal year. Urban Outfitters is also working on expanding distribution deals for the Free People brands. The company's main focus is the United Kingdom this year, with Japan being the focus for fiscal 2014.

Shares of Urban Outfitters are up 18% today, trading at $36.98. The new share price has passed the previous fifty two week high of $31.81. Shares hit an all time high of $38.38 in February 2001. Shares are now up over 12% on the calendar year.

Analysts see the retailer posting earnings per share of $1.46 on the full fiscal year. The target for fiscal year sales is $2.75 billion. With shares trading at $36.98, shares are trading at a rich price to earnings ratio of 25. Analysts see the company earning $1.81 in the next fiscal year, which would drop the price to earnings ratio down to 20. The rally today has pushed shares to a high valuation. I think shares look attractive at $35 for several key factors:

1. Growing store count: 51 new stores this fiscal year

2. Expansion into new brands: BHLDN covering upscale weddings and parties, Terrain offers upscale gardens and plants

3. Direct to consumer sales growing

4. Increasing distribution of Free People brand

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.