Chris Tomsovic's  Instablog

Tier 1 capital ratio is a nice way of gauging the financial health of financial institutions. Let's take a look at some of the ratios for some of the banks we see in the news quite often:

Tier 1 Capital Ratio
National Bank of Greece (NBG)/ 11.8%
Banco Santander (STD)/ 10.8%
Banco Bilbao (BBVA)/ 9.8%
Bank of Ireland (IRE)/ 9.7%

It may come as a surprise but National Bank of Greece has the some of the highest tier 1 capital ratio among European banks. 

 As a youngster growing up in San Francisco, Urban Outfitters (URBN) was a staple of many people's wardrobes. The clothes were hip, relatively cheaper than designer items and girls who shopped there were quite pretty. 

 

Urban Outfitters (URBN) is a retail/apparel company targeted towards young adults and free spirited people. The company operates four different retail segments: Urban Outfitters with 178 stores, Anthropologie with 156 stores, 47 Free People stores and its online retail segment. 

 

The stock is currently at its 52 week low and look like it is trading at a relative discount compared to future growth. Let's examine some of the pros and cons before we can consider URBN a real buy:

 

Pros:

- 52 week low (some may consider this a con)

- P/E 19

- Price/Sales 2.03x

- $310Million in FCF and zero long term debt

- Quick turnover of merchandise within stores (approximately two weeks)

 

Cons:

- Lack of a presence in growing markets (in particular Asia) and the company  seems fine with North American/European targeting

- Three consecutive quarters of decreasing gross profit margins

- Rising commodity prices (in particular cotton) 

- Increased competition from other retail stores

 

Conclusion:

If you hold URBN in your portfolio, it does not look like you should consider selling it quite yet. Holding onto the stock appears to be a smart move. The recent six week sell off, poor earnings from other retailers and rising commodity prices in the market has brought down many stocks, including URBN. 

 

The recent market downside does not mean that the company does not face significant challenges going forward. Competition will remain strong from other companies such as Guess (GES), Gap (GPS) and H&M. Rising commodity prices will also remain a challenge; URBN however remains in a position to overcome higher prices by keeping cotton reliance less than 50% in their clothing. Presumably the biggest challenge the company faces is a dilemma that management has "lost" its vision of what's "in", and therefore sales have taken a hit. 

 

The retail segments within the company have also turned in mixed results. Urban Outfitters has been challenged with stagnated growth in store sales yet the retail segments Anthropologie and Free People continue to grow at much more robust rates. It remains vital to keep strong growth in the namesake store and fueling growth in Urban Outfitters remains a vital long term strategy under management.

 

To conclude, URBN should not be sold for the time being. The company boasts solid balance sheets with no debt and significant cash on the books. Commodity prices and competition remain challenges that the company should be able to overcome. If one were to accumulate shares now that the current price it looks to be a good hold for the year. Retail spending will increase by the holidays and URBN should once again position itself to gain a significant chunk of holiday spending. The short term outlook for URBN remains bleak, but long term expect things to improve. URBN will be given a HOLD rating until further notice.