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Urban Outfitters, Costco, Home Depot: Wednesday's Retail Roundup

Stocks in this article: URBN COST HD

NEW YORK (TheStreet) -- Retail sector stocks were mixed on Wednesday.

Urban Outfitters (URBN) shares were surging 4.3% to $37.27. The Philadelphia-based retailer disclosed Tuesday in a 10-Q filing that fourth-quarter comparable sales for the retail segment, which includes its online sales, are "mid single-digit positive" so far.

The comps are in line with Wall Street's expectations of 4% to 5% quarterly growth.

Urban Outfitters saw a 7.1% rise in comparable sales for the third quarter. Urban Outfitters sells merchandise through its flagship brand, as well as Free People and Anthropologie brands, both of which experienced double-digit comps of 30.3% and 13%, respectively, in the third quarter. Flagship Urban Outfitters comps declined 1.2% last quarter. Urban Outfitters also noted the "continued growth" of direct-to-consumer channel for all brands.

The fourth-quarter comp growth is "being driven by further weakening at the Urban brand offsetting strength at Anthropologie," Sterne Agee analyst Ike Boruchow wrote in a Wednesday note. "We believe the key to this stock's performance will be whether Urban recovers before Anthro slows. Until we receive some clarity regarding a recovery at Urban, we remain Neutral on the stock." Boruchow pointed out that sales comparisons will be tougher for the rest of quarter, especially at the Urban brand.

"We believe the Urban brand may have decelerated further, though aggressive promotions may limit the decline," the note said. "The brand operates in the most competitive segment of the mall (teen/young adult apparel), and the fashion has been off-trend recently (too 'Goth'). We continue to believe, however, that Anthropologie is one of the strongest apparel concepts out there, benefiting from a strengthened bench, on-trend fashion and efficient inventory management." In addition, Anthropologie was one of the few retailers that was less promotional for both Black Friday and Cyber Monday, Boruchow writes. He expects gross margin to be flat for the quarter as the improvement by Anthropolgie will be "completely offset" by margin deterioration at Urban.

Costco Wholesale (COST) shares were dropping 1.6% to $118.18 after the retailer posted disappointing results for its 2014 fiscal first quarter.

Costco's net income rose 2.4% to $425 million, or 96 cents a share, from $416 million, or 95 cents a share, in the year-earlier quarter. Analysts, according to Yahoo! Finance, had expected the company to report earnings of $1.05 a share in the Nov. 24-ended quarter.

Net sales rose 5% to $24.47 billion, missing analysts' expectations of $25.35 billion. Comparable sales for the first quarter rose 3% company-wide. Excluding fuel and foreign exchange, comps rose 5% across the company and 4% in the U.S.

Home Depot (HD) shares were rising 0.67% to $79.14 after the Atlanta-based home improvement giant reaffirmed its fiscal-year sales growth forecast of 5.6% and diluted earnings per share growth of 24% to $3.72. Home Depot's 2012 sales were $74.8 billion and earnings were $4.5 billion. Home Depot is holding its annual investor and analyst conference on Wednesday.

Home Depot's 2013 comparable-store sales, on a 52-week basis, are expected to be up approximately 7% for the year.

The company, with more than 2,200 stores in the U.S. and internationally, also outlined its fiscal 2014 financial outlook: expectations for sales to increase approximately 5%, open eight new stores, operating margin expansion of approximately 70 basis points and diluted EPS growth after share repurchases of about 17%, among other things. 

As for its long-term financial targets, set in June 2012, the company said Wednesday that it expects to meet the operating margin and invested capital targets of 12% and 24%, respectively, by the end of 2014, a year earlier than expected.

Home Depot set new targets for 2015 of 13% for operating margin and return on invested capital of about 27%.

-- Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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