Can Urban Outfitters Crush Abercrombie and American Eagle?

Urban Outfitters (URBN -2.50%) will release its quarterly report on Monday, and the teen retailer has seen its stock move jerkily in both directions over the past several months. Even with the company facing its own challenges, the big question investors have is whether Urban Outfitters can stay ahead of Abercrombie & Fitch (ANF -2.08%) and American Eagle Outfitters (AEO 0.31%) by producing sales growth that can take advantage of its rivals' sluggishness lately.

Urban Outfitters has done an excellent job of fostering growth in a challenging retail niche, as staying relevant to fashion-fickle teens is a constant struggle for every player in the industry. Yet with past success comes expectations of continued growth, and Urban Outfitters has seen many of the same difficulties that have caused revenue at Abercrombie and American Eagle to decline recently. How will Urban Outfitters fight back against those trends and keep growing? Let's take an early look at what's been happening with Urban Outfitters over the past quarter and what we're likely to see in its report.

Stats on Urban Outfitters

Source: Yahoo! Finance.

Will Urban Outfitters keep up the pace?
In recent months, analysts have cut their views on Urban Outfitters earnings somewhat, reducing estimates for the quarter ending in October by $0.02 per share and their full views for the current and next fiscal years by less than 1%. The stock has been volatile, falling 4% since mid-August but having seen bigger gains and losses at certain points during the quarter.

Urban Outfitters started off the quarter on a high note, with its earnings report for the previous period featuring a 9% jump in same-store sales that boosted net income by a full quarter, topping expectations. Despite poor results from Abercrombie & Fitch and American Eagle Outfitters, Urban Outfitters managed to avoid the trap of overly discounting its merchandise, instead effectively handling inventory to help preserve margins as much as possible.

But Urban Outfitters changed its growth tune in September, warning in a sales update that its same-store sales figures could decelerate into the mid-single digits for the latest quarter. Compared to A&F and American Eagle, that growth rate looks extremely impressive, but investors didn't take solace from competitors' woes and sent Urban Outfitters shares down more than 10%.

Much of Urban Outfitters' future growth could come from its Free People store brand, which posted much faster same-store sales gains of 38% in the quarter that ended in July than its more established namesake stores' 5% growth and its Anthropologie brand's 9% growth. With fewer than half as many Free People stores as its other major store brands, Urban Outfitters has plenty of room to expand its winning concept further. In addition, Urban Outfitters has a strong online presence, offering products not available in stores that encourage even those who shop at mall locations to visit the website as well.

In the Urban Outfitters earnings report, watch to see to what extent the company's early sales warnings show up in the final results. Even if the results aren't as strong as in the past, you should compare them to Abercrombie & Fitch and American Eagle Outfitters to make sure that Urban Outfitters maintains its relative advantage in teen retail.

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