Saturday, November 05, 2005

Retailers Cross Hades and Live to Tell the Tale

Retailers have once again proven bears wrong.

In the last few days, share prices have reversed course as many retailers have reported fairly robust same-store sales. American Eagle, Abercrombie and Walmart - yes, Walmart -- have hit the street with nothing but cheerful news.

Such a turnaround was expected, since most retail stocks were mauled and trampled on after sales hiccups and three devastating hurricanes took center stage; most retailers were trading at below market P/E multiples.

That's obviously changing -- retailers are beginning to look attractively valued.

Urban Outfitters (URBN), for instance.

On several occasions, we've written favorably about the company :

URBN belongs to the "fast growers ostracized by valuation-driven bears" crowd. As long as a company is growing its earnings as fast as Urban is, we're more than happy to pay the high multiple. Urban Outfitters, which carries a relatively large market cap for such a young company, plans to open roughly 30 stores over the next 12 months. URBN's rocking numbers come from their attractive demographic: concept-driven twentysomethings with money to spend. Think Manhattan studio worm seeking chic futon. If earnings -- due out 11/4 -- surprise the Street, we should see this niche wonder climb back to its 52 week high. Buy rating on URBN with a $34 price target.

A week later we tersely added to that recommendation:

Niche retailer Urban Oufitters -- which we are still bullish on even with all that short interest clawing at the stock -- is down today. Urban Outfitters recently reiterated a strong revenue outlook...We stick to our $34 price target on URBN.

On Thursday, URBN said its 3Q third-quarter same store sales jumped 13 percent.

Shares got a little pop to the $31 level but not exactly what we were looking for.

On Saturday, we downgraded URBN to a hold.

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