TO: Richard A. Hayne, CEO, Urban Outfitters Inc.

FROM: Qingqing Wei

DATE: September 9, 2015
SUBJECT: Comparative Financial Analysis for Urban Outfitters Inc.
Urban Outfitters Inc. (URBN) operates in a highly competitive environment. One of the stronger
competitors, American Eagle Outfitter (AEO), also offers a wide range of products, including
clothing, accessories at affordable prices. Both AEO and URBN have several brands and sell
merchandises through retail stores and other digital channels. They mainly target 15 to 30 years
old men and women. In this memo, the five financial factors, which cover stock price,
sale/revenues, net income, P/E ratio and EPS, will show that URBN has stronger finical position
than AEO.
Higher stock prices shows higher companys worth and demand
Figure1: Stock Price Comparison

Stock Price
$45.00

$37.79
$40.00

$39.02

$35.00
$30.86

$30.00
$25.00
$20.00

$14.08

$17.08

$17.02

Six months ago

Today

$15.00
$10.00

$5.00
$0.00
One year ago

Urban Outfitters

American Eagle

Note: URBN and AEO stock price from Yahoo Finance.

The Figure above shows URBN stock price is much higher than AEOs, which means URBN
has higher Company worth than AEO. URBN has changed dramatically within last year. From
Q4 2014 to Q1 2015, its stock price has increased from $37.79 to $39.02, which is about 3%
increase. Moreover, its stock price continually increased to $45.65 at the end of March (data not
shown in the figure). This information shows greater demand than supply in the stock market.
Thus, the price moved up so rapidly because more people want to buy the stock than sell it. The
high demand indicated that investors have high expected in further growth in earnings, which
affects investors' valuation of a company. Meanwhile, the high profit also attract potential

speculator into the market. However, URBNs stock price jumped from $ 45.65 to $30.86 in the
past several months. One of the reasons for the price dropped down is that companys sale
slowed down. URBN missed analyst and investors expectation in the last six months, and some
investors want to sell the stock based on its high risky and stock market crash in the whole
world. Moreover, the speculators sell the stock to redeem high profit earned before. Compared to
URBN, AEO stock is more stable in the last six months. From Q4 2014 to Q1 2015, the 20%
increase of stock price shows that investors had high demand in the stock market. Although
many companys stock decreased dramatically when stock market crash, the stable stock price of
AEO indicates that the investors still have confidence on this company. Higher
Increasing sale & revenue
Figure 2: Sale & Revenue Comparison

Sale & Revenue

$4.00
$3.50
$3.00

$2.79

$2.50
In Billions of USD

$2.00
$1.50
$1.00
$0.50
$0.00

Urban
Outfitters
$3.09
$3.32
2013

2014

American
Eagle
$3.48
$3.31$3.28

2015

Note: Sale & Revenue data are from marketwatch.com

Both URBN and AEO have roughly similar sale & revenue in this period, but they're sending
wildly different messages. From 2013 to 2015, URBNs sale increased 19%, while AEOs
decreased 6%. These data indicates that URBN generated far more impressive revenue growth
than AEO. For 2015, URBNs sale exceeds AEO. Considering the economic situation, that's an
impressive achievement for any retailers.

Reasonable P/E Ratio indicates increased anticipate earnings and lower risk in the future.
Table 1: P/E ratio comparison
Company Name

P/E Ratio

URBNs

18.21

American Eagle

24.84

Note: P/E ratio from Yahoo Finance

A high PE ratio generally indicates increased demand because investors anticipate earnings
growth in the future. Both URBN and AEO have reasonable P/E ratio in the range from 17 to 25.
The URBNs PE Ratio is closed to current S&P 500 PE Ratio, which is 19.36. The information
shows that this stock may be a growing stock with earnings expected to increase substantially in
the future. Companies with high P/E ratios above 25 are more likely to be considered "risky"
investments than those with low P/E ratios, because a high P/E ratio signifies high expectations.
Compared to URBN, AEOs P/E ratio is pretty closed to 25. These data indicate that AEO may
have higher expected future growth in earnings and become more risky than URBN. Meanwhile,
the stock may be the subject of a speculative bubble if its P/E ratio continually keeps high.
Steady Net Income
Figure 3. Net Income Comparison

Net Income
232.43
282.36
88.79

In Million of USD

264.1

237.31

300

82.98

2015

200

2014

100
0

2013
Urban Outiffters
2013

American Eagle

2014

2015

Note: Net Income from marketwatch.com

Net income is one of the key indicators of company profitability. The chart above shows the
performance of two companies in these three years. Net income of URBN increased 19% from
2013 to 2014, while AEO decreased 69%. The dramatic decline of AEOs net income indicated
the increasing expense and decreasing profit for the company. On other hand, these data also
predicates that the AEO may not generate enough profit to owners, and the value of shares will
plummet. Although URBNs net income also decreased 17% in 2015, its profit is still much
higher than AEOs. Compared to its competitor, the URBNs stability of net income indicate that
this company is still growing and can still earn enough profit for their stock holders. Therefore,
URBN shows stronger position than AEO in net income.
Higher EPS as higher probability to generate dividend
Table 2: EPS Comparison
Company Name

EPS

URBN

1.71

American Eagle

0.68

Note: EPS is from yahoo finance

The table above shows both companies have positive earing per share, which means companies
generate the profit to their shareholders. Compared to AEO, URBN EPS is much higher, which
indicated that URBN has higher probability to generate dividend for stock holder. If an investor
is primarily interested in a steady source of income, he/she will choose a higher EPS ratio. Based

on EPS, URBN also has stronger position than AEO, because more and more people want to get
dividends from companies.
Conclusion
Based on the comparison of two companies, URBN shows stronger financial position than AEO.
Although the apparel industry has witnessed slow growth in the last few years because of
economic slowdown, URBN still shows the excellent performance in the apparel industry.

Reference:
Urban Outfitters, Inc. SWOT Analysis. (2014). Urban Outfitters, Inc. SWOT Analysis, 1-8
American Eagle Outfitters, Inc. (2015). American Eagle Outfitters, Inc. MarketLine Company
Profile, 1-27.
Urban Outfitters Inc. (n.d.). Retrieved September 7, 2015. Retrieved from
http://www.marketwatch.com/investing/stock/urbn/financials
American Eagle Outfitters Inc. (n.d.). Retrieved September 7, 2015. Retrieved from
http://www.marketwatch.com/investing/stock/AEO/financials
Urban Outfitters Inc. (n.d.). Retrieved September 7, 2015. Retrieved from
http://finance.yahoo.com/q?s=URBN
American Eagle Outfitters, Inc. (n.d.). Retrieved September 7, 2015. Retrieved from
http://finance.yahoo.com/q?s=AEO
P/E ratio. (n.d.). Retrieved September 7, 2015. Retrieved from
http://www.investorwords.com/3656/P_E_ratio.html#ixzz3l53aAybN
McGrath, Maggie, (Jan, 2014), Urban Outfitters And American Eagle Top Retail Picks For 2014,
Jefferies Says. Retrieved September 8, 2015, Retrieved from

http://www.forbes.com/sites/maggiemcgrath/2014/01/02/urban-outfitters-and-american-eagletop-retail-picks-for-2014-jefferies-says/