While I rarely highlight the gains/losses of the Russell 2000 (IWM) as the group has been mostly a dog for the last year-plus, last week the small-cap index came alive on Thursday and Friday, far outpacing its index peers with a gain of 5.25% on the week.
And while the other indexes couldn’t keep up with the IWM, the S&P 500 gained 0.8%, the Dow rallied 1.5%, and the Nasdaq fell 0.35%.
The Stock – Urban Outfitters (URBN)
Persistent inflation, high interest rates and ballooning credit card debt have caused American shoppers to pull back and be more selective when it comes to retail spending this year, resulting in softer sales for the overall fashion apparel industry. But Urban Outfitters, which focuses on fashion apparel, footwear and accessories for younger adults (particularly Gen Z women), didn’t get that memo.
The lifestyle retailer has fought against a rather harsh retail sales backdrop in recent quarters, yet it managed to set revenue and earnings records for fiscal Q1 (ended April). Company-wide sales of $1.2 billion increased 8% from a year ago, while earnings of 69 cents beat estimates by 16 cents and lifted 23% from last year’s tally. Total retail segment revenue increased 6%, with comparable retail segment sales rising 5%, driven by continued strength across the Anthropologie (up 10%), Free People (up 17%) and FP Movement (up 25%) brands. Additionally, gross margin increased from higher initial merchandise markups (which were somewhat offset by markdowns at the Urban Outfitters brand). Indeed, a softer wholesale business led to weaker results at the Urban Outfitter brand, which saw sales decline 14%.
But the firm’s Nuuly segment stole the show: The monthly women’s apparel subscription rental service saw revenue boom by 51%, largely thanks to a “robust” 56% year-over-year increase in subscribers in Q1 (up 9% from Q4), while the brand’s active subscriber count is now over the quarter million milestone. The service allows women to rent six different pieces of clothing each month, with the firm taking care of repairs and laundry, with the option to buy anything at any time. The company also just transitioned to a new facility in Missouri, which management said will support future subscriber growth by tripling the brand’s total capacity. (The firm expects Nuuly to be profitable on a full-year basis for fiscal 2025.)
What’s more, despite the lackluster sales for its namesake brand, the company still opened four more Urban Outfitter stores, two Anthropologies and two Free People stores in the quarter. Analysts see earnings up 20% or so this year, which could prove too low given the recent earnings beats.
Technical Analysis
Unlike many of its retail peers, URBN managed to maintain an upward trajectory during last fall’s broad market weakness. It twice tested the 200-day line—in September and November—and after confirming the uptrend, continued strengthening into 2024. URBN gapped higher shortly after the calendar flipped, shooting up to a multi-year peak just below 48. Since then the stock has built a fresh launching pad, and after a late-June shakeout, has tried to move to new highs before Friday’s reversal. Stop — 42.5
The Covered Call Trade
Buy Urban Outfitters (URBN) Stock at 47, Sell to Open August 47 Strike Calls (exp. 8/16) for $1.75, or a Net Price of 45.25 or less
Static Return: $175 per covered call (3.86%)
Breakeven: 45.25
Covered Call Return (if assigned): $175 per covered call (3.86%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 45.25 or less. (In this case 47 minus 1.75 = 45.25. Or another example is you could pay 47.15 for the stock and sell the call for 1.90, which also equals 45.25)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Pinterest (PINS) | 41.5 | 41.5 | 35 | July 41 -- $2.75 | $0.85 |
| Dutch Bros (BROS) | 36.35 | 42 | 31 | July 37.5 -- $1.65 | $5.00 |
| Sweetgreen (SG) | 30.45 | 26.5 | 25 | July 32 -- $2.10 | $0.10 |
| Howmet Aerospace (HWM) | 83.15 | 80 | 74 | July 85 -- $1.90 | $0.05 |
| Guardant Health (GH) | 30.75 | 32 | 24 | July 30 -- $2.40 | $2.00 |
| Hims & Hers (HIMS) | 23 | 23.5 | 17.7 | July 23 -- $1.85 | $1.00 |
| Carnival (CCL) | 17.75 | 18.5 | 16 | August 18 -- $0.85 | $1.25 |
| Pan American Silver (PAAS) | 21.6 | 23 | 19 | August 22 -- $1.05 | $2 |
The next Cabot Profit Booster issue will be published on July 16, 2024.
Copyright © 2024. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.
