The Mystery Of Urban Outfitters (URBN, AEF, ANF)

The most bizarre thing about the economic slowdown is the continued strength of Urban Outfitters Inc. (URBN).

Not only is the Philadelphia-based retailer continuing to post impressive results but its stock just hit an all-time high. The company continues to open stores as well. During the six months ended July 31, it added 24 new locations, including 10 Urban Outfitters stores, 7 Anthropologie stores, 6 Free People stores and 1 Terrain garden center. It expects to open 45 new stores during the full fiscal year. The company also boosted gross profit margins by 373 and 408 points respectively in the three and six months ended July 31.

"Improvements in initial merchandise cost, reductions in markdowns and leverage of store occupancy costs helped achieve this growth for both periods," the Philadelphia-based retailer said in its most recent earning press release.

Same store sales also rose an astounding 13 percent across its three brands during the past quarter. Friedman Billings Ramsey analyst Adrienne Tennant told investors Tuesday that shares of Urban Outfitters will continue to outperform its peers on a "relative basis", according to the Associated Press.

It strains credulity to think that the twenty-something urban trendoids who frequent the company’s stores are not feeling the effects of the recession. They apparently are so confident in their economic circumstances that they can blow $34 on a graphic t-shirt with the logo of the New York Giants on it and $12 on a set of gorilla salt and pepper shakers. Well, they certainly aren’t spending their money at the rivals of Urban Outfitters.

For instance, shares of J. Crew Inc. (JCG) are down more than 41 percent this year. Chief Executive Mickey Drexler is in the hot seat with investors after the company’s earnings missed Wall Street expectations and it lowered earnings guidance. Jim Cramer, though, is urging investors to stick with Drexler.  Abercrombie & Finch (ANF) is down more than 30 percent and American Eagle Outfitters (AEO) has dropped about 9 percent.

Urban Outfitters is up more than 35 percent, outperforming the likes of Target (TGT) and Wal-Mart (WMT) which have risen 10 and 26 percent respectively. Clearly, there is plenty of hype in the stock. Wall Street is expecting the retailer to earn 35 cents on sales of $476.4 million when it reports results in November. Unless the results are significantly better than that, shares of Urban Outfitters may be headed for a steep decline.

Jonathan Berr