Urban Outfitters, Inc. (URBN), The Gap Inc. (GPS): Specialty Retailer Makes Risky Expansion Push

Approximately seven years ago, Abercrombie & Fitch Co. (NYSE:ANF) CEO Mike Jeffries stated that Abercrombie & Fitch goes after the cool kids, that a lot of people didn’t belong, and that they couldn’t belong. Though old news, social media wasn’t as popular seven years ago. Once this story resurfaced, it exploded on social media, which then led to a decline in Abercrombie & Fitch’s brand popularity.

This news seems to have negatively impacted performance: same-store sales declined 13% at Abercrombie stores and 18% at Hollister-brand stores year-over-year. According to Alexa.com, page views per user at Abercrombie.com have also declined 10.1% over the past three months. The stock is trading at 15 times earnings versus an industry average of 17 times earnings, and the balance sheet is strong, but revenue and earnings have recently slipped.

Piper Jaffray surveyed 5,200 teens, and Abercrombie & Fitch Co. (NYSE:ANF)’s Hollister brand ranked number one for brands that males no longer wear. Abercrombie & Fitch ranked second for brands that females no longer wear.

Conclusion

Abercrombie & Fitch would be the riskiest investment at this time. Urban Outfitters and The Gap Inc. (NYSE:GPS) both present decent investment opportunities, but with the global economy on edge and the consumer lacking sustainable confidence, these would also be risky investments.

Urban Outfitters, Inc. (NASDAQ:URBN) is trading at 24 times earnings, whereas The Gap Inc. (NYSE:GPS) is trading at 16 times earnings, which makes Gap a better value. Furthermore, Urban Outfitters doesn’t pay any dividends, whereas Gap currently yields 1.5%. Finally, Gap is likely to be more resilient in difficult market environments due to its size and brand/geographic diversification.

The article Specialty Retailer Makes Risky Expansion Push originally appeared on Fool.com and is written by Dan Moskowitz.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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