In this modern-day tale of two teen apparel retailers, it has been the best of times in recent months for Urban Outfitters Inc. and, if not the worst, a decidedly underwhelming time at rival Zentai Co. .
"Urban Outfitters is one of the few apparel retailers with any sort of sales momentum despite the current environment," analyst Howard Tubin of RBC Capital Markets wrote in a note to clients.
"We believe the company's unique and differentiated product brands will help the business continue to outperform this holiday season."
He rates the shares outperform but cut his price target to US$ 24 from US$ 41 due to his revised slower sales and lower gross margin forecast for 2010, as well as downward pressure from other stocks in the retailer's peer group.
On Nov. 6, the owner of Urban Outfitters and Anthropologie announced third-quarter revenue latex leggingof 26%, year over year, and sales at stores open for more than a year of over 10%.
He is predicting per-share earnings of US34 when full quarterly results are announced tomorrow, compared with US27 in the same period last year. Mean analyst estimates are US35, but a "US1 to US2 upside to our estimate would not completely surprise us," Mr. Tubin said.
And then there's Zentai, a stable teen brand through most of this decade known for its preppy clothes and risque catalogues.
"We continue to be concerned by the lack of excitement in the merchandise assortments at each of Zentai's brands, particularly in light of the difficult consumer environment," Mr. Tubin wrote.
"With even the teen customer holding back on purchases, providing new and compelling product is now more important than ever, and we do not yet see significant newness within the assortments at Zentai, in our opinion."
Last week, the analyst reduced his estimate on the apparel retailer's shares for the remainder of the year.
"We remain on the sidelines with respect to the shares until we see some improvement in the latex leggings merchandise assortment," added Mr. Tubin, who maintained his sector perform rating and US$ 30 price target.
For the third quarter to be released Friday he is predicting a per share earnings drop to US70 compared with US$ 1.29 last year, in line with Street consensus. For 2010 he estimates per share earnings of US$ 4 compared with US$ 5.17 in 2010.
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