Trade in Groups

Step aside Abercombie (ticker: ANF), H&M, and all other prophets of all things young and hip. While other retailers saw sales predictably crumble in the face of a difficult consumer spending environment, Urban Outfitters (URBN) has been a bit of an outsider. During the fourth quarter, which included a subdued holiday shopping period, Urban Outfitters, operating under the brands Urban Outfitters, Anthropologie, Free People, and Terrain, posted record sales numbers for the fourth quarter, with a sales increase of 9% and bringing in $508 million.

While the other store brands have performed nobly, especially in this dismal economy, it has been the Urban Outfitters store brand that has been the saving grace of the company. During the fourth quarter, comparable store sales rose 3% at Urban Outfitters, compared to a decrease of 6% and 13% at Anthropologie and Free People, respectively. Total company comparable store sales decreased by just 1%, an incredible feat considering Abercrombie’s comps dropped 24%, and even J. Crew’s saw comps down in the mid-teens.Urban Outfitters’ apparel and products target a highly-specific consumer niche.   Everything about the brand is cool; it’s hip; it’s modern. Urban Outfitters is an all-encompassing lifestyle brand; not only can you dress yourself with Urban, you can also dress your significant other, as well as your apartment. A consumer can be Urban Outfitters, and that strategy has helped the brand develop a loyal fan base. Department stores, even with their lower prices, cannot compete with Urban’s message of involvement; those big stores are removed and detached from the consumer. This differentiating strategy makes it unique from many of its competitors.With the good financial news in mind, the company will continue its expansion. Urban Outfitters stores already have a prominent presence in Europe, even gracing the fashion-forward streets of London and positioning itself against slightly couture brands like Top Shop and New Look. The look is perfect for the region, with Urban’s emphasis on skinny jeans, long flowing shirts, and mod clothing, all evident hits on the London sidewalks. The first Anthropologie store, also a lifestyle brand, but exclusively for women, will open in late 2009 or early 2010 in a location as yet to be determined. Given Urban Outfitters’ success and extensive presence in the UK, the store will likely open there. As the UK’s economy suffers even more than its American counterpart, the move carries with it predictable risk. However, with its similarities to the Urban Outfitters brand, Anthropologie has a fighting chance at making itself relevant to British lifestyles.

URBN is testing the downtrend line, and whether it breaks out or not will be telling as to the market’s thoughts on apparel. As a company that has demonstrated staying power, and with a stock that typically traded for 30+x earnings, URBN should be a cautionary tale that good companies do not always make good stocks. Monitor support levels carefully, and be diligent in the usage of stops or put options to manage risk.