Upgrades Light Up Urban Outfitters

Shares move higher after Wachovia and Goldman both boost their ratings.
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Shares of

Urban Outfitters

(URBN) - Get Report

climbed Friday after two brokerages upgraded the trendy-apparel retailer's stock.

Wachovia boosted its rating on the company's shares to outperform from market perform, while Goldman Sachs raised the stock to buy from neutral.

Shares were up $1.36, or 5.4%, to $26.39 in recent trading.

"We walked away from our meeting with (management) with more conviction that the turnaround at (Urban Outfitters) is well underway," wrote Wachovia analyst Lyn Rhoads Walther. "Management sees significant room for expansion driven by a combination of tighter (inventory) controls, a more balanced merchandise assortment, easy comparisons, and system enhancements."

Earlier this month, Philadelphia-based Urban Outfitters reported a roughly

flat fourth-quarter profit as markdowns to clear merchandise hurt margins. Walther wrote that management was forced to take a hard look at virtually all aspects of the business after a challenging year that saw earnings decline 10% and margins drop 560 basis points.

"What they found," she wrote, "were several areas that could benefit from improved efficiencies including real estate, store construction, and sourcing...a tough year all around, but the company is poised to come back stronger, a bit more humbled, and well positioned to post double-digit top and bottom-line growth for several years."

Walther said now that the company's Anthropologie brand is solidly on track and the Urban Outfitters chain is expected to improve in the second quarter, "we believe there could be significant upsides to the earnings and would be buyers of the stock at current levels."

Goldman analyst Margaret Mager wrote that February same-store sales showed signs of recovery, moving into the positive territory at the company's Anthropologie division.

"With consumers now on board with the long top/skinny bottom silhouette, positive low single-digit same-store sales growth is increasingly likely," Mager wrote.