Summary
- Urban Outfitters has seen an excellent 2019, but ended the year on a softer note.
- Negative store comparables are set to continue for the near term.
- Store sales deleveraging and low margins for the online business will weigh on earnings in 2019, despite anticipated sales growth.
- Despite these headwinds and elevated capital spending, I see value emerging amidst low multiples, strong margins, and a very compelling net cash position.
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Urban Outfitters (NASDAQ:URBN) hit a new 52-week low as shares have been falling quite a bit, just like some other names in the retail/apparel business.
Following the 2017 carnage in the share price of these businesses, the retail category has seen an impressive comeback in 2018. Urban was no exception to this trend as shares fell from $40 to $18 in the summer of 2017. This was followed by a big recovery of shares of Urban and many of its peers. Shares rose back to $45 last summer, but ever since have fallen back to $29 again.
So, with shares of this very profitable retail business trading near 52-week lows, while the business is very well-capitalised, it is time to revisit the thesis.
