GM’s Defect Debacle In Rearview Mirror; Overseas Deal Might Have Big Impact Here; Zen-tastic Quarter for Lululemon;

Emboldened or embattled?

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Score one for GM, the not-so-embattled-anymore auto company that just won a second lawsuit in a series of bellwether cases. In case you have been hanging out in another solar system for the last couple of years, tons of drivers are filing tons of lawsuits against GM because they got into accidents which they say can be blamed on GM’s faulty ignition switches. After a two week trial and a single day of deliberations, two Louisiana plaintiffs, who crashed their car back in 2014 during a freak ice storm, will not be awarded any damages despite their automobile’s defect. This win bodes well for GM and it’s a good thing because there are hundreds more waiting in the legal wings.This case is the second in a series of six cases that will be used to test strategies, with each side getting to choose three cases to argue. This case was GM’s selection and the next bellwether case is scheduled for May. GM already paid out a lofty $2 billion to resolve a slew of legal claims against it, in addition to recalling millions of vehicles. That includes a $900 million settlement to Uncle Sam so that the government would graciously agree to drop its criminal probe into GM. Another $575 million was paid out to settle close to 1,400 civil cases. Then GM set up a $95 million victims compensation fund. In the meantime, 15 people were fired over the defect debacle – that would have cost a buck to fix, by the way –   as GM CEO Mary Barra has been on a mission to change the company culture. Good luck with that one.

Deal or no deal…

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You might not be so familiar with a Taiwanese company called Foxconn but it’s more than likely you’re using its product. That is, if you happen to use a very popular mobile device known as an iPhone. Turns out Foxconn assembles those nifty little phones. But that’s not news. What is news is that the company is set to snap up Japanese company, Sharps Electronics for $3.5 billon. And if you can believe it, some analysts think it’s a bad move. And that’s even after Foxconn knocked a couple of billion off of their initial offer when it was discovered that Sharp has literally billions of dollars worth of problems. But, oh well. In any case, if and when the deal goes through, it will be the biggest acquisition by a foreign company in Japan. But that’s beside the point. Foxconn is unofficially hoping that this acquisition, however fiscally risky it may be, will help give it an edge, albeit a slight one, for its production contracts with Apple, especially considering that Apple uses Sharp screens. Foxconn is well aware that Apple has been giving out production contracts to other companies too, and competition like that can’t be all that good for Foxconn. Hence, besides assembling the phone, Foxconn would also own the company that supplies the screens and well, wouldn’t that put Foxconn in a nice, cozy, almost secure spot with Apple.

Make lemonade yoga pants!

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Lululemon doesn’t seem to be bothered by increased competition from Nike and Under Armour, as evidenced by its fourth quarter earnings which were nothing short of…zen. And by zen, I mean that the athleisure company beat the Street’s predictions. The athletic apparel company enjoyed a nice little holiday shopping season with increased sales that gave it a profit of $117.4 million with 85 cents added per share. Analysts predicted the company would pick up just 80 cents per share. Maybe those analysts need to pick up some new Lululemon yoga pants, no? Revenue kicked up to $704.3 million, up from last year’s $602.5 million, and again, analysts only expected $692.6 million this quarter. Last year the company only earned $111 million and 78 cents per share. Lululemon is expecting to whip out a fourth quarter that is sure to please investors by picking up earnings between $483 million to $488 million and adding 28 cents to 30 cents a share. However, the perennial buzzkiller we call Wall Street would rather see Lululemon rake in $486.1 million adding 37 cents per share. In what might seem like an awfully bold statement, the yoga apparel company plans on doubling its earnings by 2020. In the meantime, it expects its full fiscal 2016 year to gain between $2.05 and $2.15 a share and that’s nothing to sneeze at. Except that Wall Street is hoping for earnings that will look more like $2.16 per share. Lululemon is pulling out all the stops to improve its margins and part of that means switching over to ocean freight as opposed to air freight. Apparently, air freight is a gigantic margin-money eater. Who knew.

Rate Hike? What Rate Hike?; Chipotle’s Rocky Road to Recovery; McCormick’s Spicy Good Earnings

Easy does it?

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Well, if you’re looking for the Fed to raise rates, don’t hold your breath. Despite the fact that the Fed’s next meeting is planned for April 26th and 27th, experts think a move like that probably wont happen before July. It was initially believed that there would be four rate hikes over the course of the year, after the Fed raised the rates for the first time in nine years back in December. But now it looks like there will be just two.  Federal Reserve Chair Janet Yellen is still promising a gradual pace of rate increases, but even she admits that the economic climate just isn’t quite impressing these days. The Central Bank is paying very close attention to all the annoying economic issues going on in the world, like the global economic slump, the very very low oil prices and a relatively volatile stock market. Of course, it wouldn’t be right not to mention China’s own economic downturn.  Plus the Fed’s not too stoked about the rate of inflation, which has been holding steady at about 1% when its target is closer to a 2% rate. Add to that weak consumer spending and you’ve got a Fed that’s not looking to stir any fiscal trouble. Hence, the Fed has assured the country that it plans to “proceed cautiously” in its rate hike plans, which is awfully considerate, according to some people, anyway.

Burned burrito…

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Free burritos or not, Chiptole’s road to fiscal recovery is looking very far off.  Wedbush Securities analyst Nick Setyan came out with a new report that says he doesn’t expect the fast food chain to recover before 2018 – calling it “the best case-scenario” – and even lowered Chipotle’s price target from $450 – $400. Ouch. Before the food safety crisis, each Chipotle restaurant was pulling down $2.5 million in sales on average. But that’s not expected to happen again for quite some time, especially given the fact that Chipotle’s operating costs are only going to get higher and higher because of its more comprehensive and stringent food safety measures. And even though the company sent out coupons for nine million free burritos, with another 21 million free burrito vouchers en route, Chipotle will still eat a $62 million tab for that, as a burrito typically costs $7.10. But hey, whatever it takes to try and erase the ugliness of E. Coli and norovirus outbreaks, right? Even with all those vouchers being sent out, the company only expects that a quarter of them will actually get redeemed. Naturally, news of the report sent shares south when the stock is already down 37% since August. Shares of Chipotle closed today at 460.10.

Spice spice baby…

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Of all the companies to report earnings lately, this one’s pretty…spicy. Yes. I had to go there. McCormick & Co. just released its first quarter results and considering that the company’s products aren’t items typically used in bulk, the $13 billion company pulled in some very impressive figures. In the process, McCormick & Co. even managed to raise its 2016 outlook, and unlike other major food producers that have been struggling to keep up with a health/organic revolution,  McCormick hasn’t faced quite the same challenges. In fact, its stock is up around 28% in the last twelve months with a little help from some recent acquisitions. The spice-maker was expecting to earn between $3.65 to $3.72 per share. But now it’s looking like it’ll pick up between $3.68 and $3.75 per share for the year. Incidentally, despite China’s economic downturn, the country still managed to give McCormick some boffo growth. Perhaps there’s a correlation between economic stress and and a desire for spicy food? Hmm. Will have to explore that one…In any case, McCormick picked up a profit of $93.4 million on $1.03 billion in revenue and adding 73 cents per share. Analysts only expected 69 cents on $1.03 billion in revenue while the year before the company took in a profit of $70.5 million on $1.01 billion in revenue with 55 cents added per share. And if that’s not enough, McCormick also scored a new 52 week high today of 99.90.

Housing Posts Impressive Digits; Banker Gone Bad; Anbang: Be Our Guest!

Pending your review…

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The National Association of Realtors is presumably in good spirits today thanks to some fantastic data from pending sales on previously-owned homes. Turns out, that figure is up 3.5%, with the pending home sales index clocking in at 109.1. That’s a nice little welcome after the previous month’s cringe-inducing 3% decline and index reading of 105.4, which by the way, was larger than the initially reported figure. It also marks a 5% increase in sales over the same time last year. What’s even better about this increase is that analysts only predicted sales would go up 1.2%. It’s always kind of fun when analysts get it wrong like that. With employment gains, a healthy labor economy and low borrowing costs, sales are up in most parts of the United States. Unfortunately, not in the Northeast where sales took a super-slight dip. But the Midwest more than made up for it by kicking up 11.4%. The median price of an existing home now stands at $210,800. Previously-owned homes make up 90% of the housing market and there was a nice supply of about 1.88 million homes up for grabs in February.

Bankers behaving badly…

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It’s been a bad day for Andrew Caspersen and he’s got a whole bunch those ahead of him. Caspersen, who was until very recently a partner at PJT Partners, was arrested for trying to defraud investors out of $95 million. Apparently, the misbehaved banker raised money using all kinds of fraudulent means and illegal tactics, including fake email accounts and even fake employees. He told an unsuspecting hedge-fund employee that he was looking to raise $80 million for a private equity fund so that it could buy stakes in companies owned by other private equity firms. Got that? He then explained that he already raised $30 million and, with that, the hedge-fund employee forked over $25 million from his hedge fund’s charity. The hedge-fund employee also ponied up an additional $400,000 from his own personal funds. The very smarmy Caspersen then took $8 million of his new found cash to cover money he already lifted from PJT – without authorization, of course. As for the rest of the money, Caspersen plopped it right into his own brokerage account. But the fun doesn’t stop there, because Caspersen lost all of it by trading stock options. After that, Casperesen hit up the hedge fund employee for another $20 million infusion, weaving into his tale the aformentioned fake employee, fake email address and domain. However, Caspersen told the hedge-fund employee that the fake employee worked for a very real private equity firm. The unnamed hedge-fund employee called the very real private equity firm to verify some details about the fake employee and that’s when Caspersen’s fraudulent cookie started to crumble. Classy, huh.

Ante up…

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You may not have heard of Anbang Insurance Group but you might just end up staying at one of their properties in the not too distant future. The China-based company, together with a consortium that includes J.C. Flowers & Co. and Primavera Capital, just raised their offer for Starwood Hotels and Resorts, the company that also owns Sheraton hotels, the St.Regis and W Hotels, to a whopping $14 billion. All in cash. That price tag easily trumps Marriott International Inc.’s $13.6 billion offer. Anbang is willing to shell out $82.75 per share of Starwood, easily making Marriott’s $78 per share offer chump change in comparison. But, for now anyways, Starwood shareholders are still seriously considering Marriott’s offer and are set to vote on it come April 8. There’s no word yet on whether or not Marriott will even attempt to raise and match Anbang’s offer. But if Starwood does diss Marriott in favor of Anbang’s very generous and enticing offer, Starwood would have to fork over a $450 million break-up fee to Marriott. Marriott would really love to add Starwood to its collection, that also includes Ritz-Carlton, so that it could become the world’s largest lodging company, with over 5,700 hotels. But Anbang’s goal is to simply increase its real estate assets in the United States, like it did last year when it scooped up New York’s Waldorf Astoria to the tune of $1.95 billion. If Anbang does manage to snap up Starwood, whose real-estate is rumored to be valued at $4 billion, it would be the biggest acquisition by a Chinese company in the United States. Of course, a deal that big by a foreign investor would have to go through the ringer by the Committee on Foreign Investments in the United States (CFIUS), a group that basically reviews deals of this magnitude to determine if they pose a threat to national security. But spoiler alert: experts think it’ll pass muster.

 

Global Markets Fight Back Terrorists; Lumber Liquidators Whacked with Another Settlement; Starbucks Feeds America’s Hungry

The terrorists have not won…

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Markets all over the world took a beating because of the cowardly terrorist attacks in Belgium that left dozens dead and many more wounded and forever haunted. Companies dealing in travel and hospitality industries suffered the most today with Royal Caribbean losing almost 4% and Carnival Cruise Lines taking its own 3% hit. Online booking site Priceline Group endured a 3% loss as airlines like Delta Airlines and American Airlines Group lost a couple of percentage points, as well. It’s no surprise, I suppose, that healthcare stocks actually saw increases, as did material stocks. But in a big f.u. to terrorism, the Dow Jones actually picked up a point as global markets rebounded later in the day, even those in Europe. Gold also rose, because well…gold always rise. Investors consider the precious metal as a perennially safe bet. Seems fair.

Tiiiiiiimmmmbbbberrrr…

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The settlements just keep coming in for Lumber Liquidators Holdings. Today’s award goes to the California Air Resources Board (CARB) – I laughed at the acronym too – in the amount of $2.5 million. The number seemed a bit low to me, especially since 40 of Lumber Liquidators 375 stores are in California, not to mention, the company’s flooring has the potential to cause cancer from the high levels of formaldehyde present in them.  Not exactly minor details, I feel. But the other reason I’m scratching my head is because there was no formal finding of any violation, nor was there any admission of wrongdoing by Lumber Liquidators. Just saying. This settlement, by the way, has nothing to do with Lumber Liquidator’s previous settlement with the DOJ that had the flooring company shelling out $10 million to the government agency. Naturally, shares of Lumber Liquidators are up by almost 16% and closed at $13.93. But considering that shares lost more than 70% of their value since that scathing “60 Minutes” report last March, and there are still plenty of class-action suits headed toward Lumber Liquidators, you probably don’t want to hold your breath waiting for the company to fully fiscally recover. In fact, if you ask Kase Capital’s Whitney Tilson,  who is a big fan of shorting Lumber Liquidators, he thinks the flooring company actually has a 50% chance of going bust.

Bon appétit…

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Don’t feel so bad skipping that sandwich you’ve been eyeing at Starbucks. If nobody buys it, you might just help feed someone who is considered “food insecure.” The plan came from baristas and now the coffee chain has made a pledge to donate 100% of its unsold food through FoodShare and Food Donation Connection (FDC). It’s all in an effort to feed the 48 million Americans who don’t have the luxury of knowing if or when their next meal is coming.  It is estimated that 15% of American households are considered “food insecure” while at the same time an estimated 70 billion of food waste is produced by Americans that are far more fortunate. Starbucks had already been donating pastries and other types of foods that had longer shelf lives since 2010. The challenge, however, was how best to preserve the highly perishable products like salads and sandwiches. But now the FDC will send refrigerated vans to all of Starbucks 7,600 plus U.S. locations, pick up all those unsold goodies and fill the bellies of those who could really use them. Starbucks plans to have given out 5 million meals by the end of 2016.

 

Economy Cools on Coal; Saving Chipotle One Burrito at a Time; Morgan Stanley Made a Mistake and Admits It!

Hot or coal?

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Feel free to play it naughty this year as Santa may not be able to scrounge up some coal to put in your stocking anyway. That’s because Peabody Energy, the largest American coal miner, might just be going bust, joining a slew of other coal companies. The company announced that it will be delaying a $71 million interest payment that’s due this week – and that, my friends, often signals that a company could be on the brink of filing for Chapter 11 bankruptcy protection. Not that this would come as any great surprise since the stock lost over 95% of its value in the last twelve months and today tanked over 40%. Two years ago the company’s stock hit a high of $299.10. Now it’s barely hanging on as it closed at $2.20 today. The fact is that the global economy is slow enough to wreak havoc on major industries, in this case, coal. Only 33% of power came from coal in 2015. The coal industry has had to contend with stricter environmental standards that have put a major crimp in production. With natural gas being used more and more, seeing as how its cheaper and less polluting, several other coal companies have already gone under. And while nobody is crying over less pollution, it does mean that thousands of people will be out of jobs. Tens of thousands. As for Peabody Energy, the company has thirty days to make that $71 million or face default.

Burritos for all….

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It appears all is not lost at Chipotle as the food joint managed to recoup about 30% of its sales with the help of some free food – burritos, in fact. There is a lot of irony at work here. According to Chipotle CFO Jack Hartung, “Free burritos—turns out it works. It brings people into the restaurants.” It’s a good thing something is bringing folks back into the restaurants after that ugly E.Coli outbreak that sent millions of customers scrambling as far away from the restaurants as possible. As part of the company’s turnaround plan, Chipotle sent out coupons for free burritos to about 7 million customers. Then it decided that maybe sending out 21 million more coupons might not be such a bad idea. It wasn’t since 5.3 million customers already downloaded the first coupon and then, 2.5 million actually walked into a Chipotle, picked up their free burrito and, presumably, purchased a couple of other items off the menu as well. Hey, once you get ’em in the door…In any case, this quarter marked the first time that Chipotle actually forecasted a quarterly loss. Ever. Naturally, the company is still reeling from the losses over the outbreak. However, it’s also expecting to incur some heavy expenses for marketing and, of course, free burritos.

Um, about that price target…

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Wall Street insiders made a mistake and they are actually admitting it. Analysts at Morgan Stanley used to just love LinkedIn and thought the world of the platform. But that love has waned and thus the brokerage has downgraded the stock, savagely slashing the price target from $190 to $125. After all, LinkedIn’s earnings didn’t impress. Far from it, in fact, and the stock has gone down a whopping 54% in just the last three months. Morgan Stanley analyst Brian Nowak eloquently said of LinkedIn, “With its current product offering, LinkedIn isn’t likely to be as big of a platform as we previously thought.” That was harsh, I tell you. And just like that, shares of the company went down on all because the brokerages had a fiscal change of heart.

Things are Getting a Little Seated at Yahoo!; IRS Has Close to $1 Billion Up for Grabs; Wall Street’s Crazy ‘Bout a Sharp-Dressed Man

Board to tears……

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Yahoo added two directors to its board, bringing the grand total to nine seats, all in the hopes of making things that much more difficult to deflect attacks from hedge fund Starboard Value. Starboard Value has not been shy about expressing its disapproval over the way CEO Marissa Mayer has been handling matters at the tech giant. Starboard is on a mission to make an attack and win seats on the board so it can run the company in its own special way. The new folks coming to fill those seats are former Morgan Stanley executive Catherine Friedman and former Broadcom Corp CEO Eric Brandt. The seats originally belonged to tech entrepreneur Max Levchin and Charles Schwab. Yes, that Charles Schwab. But both vacated their seats amidst all the squabbling at Yahoo over how to run the company without losing tons of cash in the process. Board re-election comes later in the year but nominations are due this month and the process should be a fun little corporate spectacle as Yahoo has been under some fierce pressure to sell off its core web assets, including Yahoo Sports and Yahoo Mail. Among the potential suitors who are rumored to be interested in picking up those core assets are Verizon and Time, And now, instead of looking to grow the company, Marissa Mayer has switched courses and would be really happy to just execute a $400 million cost-cutting plan. That’s in addition to shareholder pressure of trying to spinoff of the company’s sizable share in Alibaba, without actually having to pay any taxes on the deal. That effort should be entertaining in and of itself.

In it to claim it…

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The IRS is sitting on close to $1 billion in outstanding refunds from 2012. The question is, can you claim any of it? Well there are an estimated one million taxpayers who qualify for a piece of that pie since they apparently failed to file their 2012 IRS tax return. Taxpayers get a three-year window to file a claim based on the return due date which this year happens to be April 18, 2016. All you’ll need to do is fill out the 2012 1040 form and collect the w-2, 1098, 1099 or 5498 from that same year. Just check out the IRS website if you don’t believe me. But filer be warned: If you didn’t bother filing your 2013 and 2014 return, then don’t bother collecting your refund just yet as it may just get withheld. The IRS, however, wants you to claim your refund, otherwise all that cash goes into the hands of the U.S. Treasury. IRS Commissioner John Koskinen said, “We especially encourage students and others who didn’t earn much money to look into this situation because they may still be entitled to a refund.”And I guess the IRS just isn’t that into the treasury if they are so eager for you to claim that money. Texas and California are the states with the most unclaimed refunds. And the average refund that could be collected clocks in at $718. So what are you waiting for?

A little less dapper…

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Tailored Brands, a.k.a. the company that owns Men’s Wearhouse and Jos A. Bank, finally experienced some Wall Street lovin’ as the stock jumped more than 11% today. The company hasn’t had a jump like this in two years and it’s all because the company announced that it would be closing about 250 of its stores this year out of over 700 that are dotted all over the country. It’s not that Wall Street didn’t care for the company’s merchandise, it’s that Wall Street didn’t like that consumers weren’t buying enough of it and the company was bleeding money. The company’s revenue took a nasty beating after brass decided to chuck Jos A. Bank’s “Buy One Get Three free” promotion back in October. This move apparently upset consumers who shopped at the chain for just that reason. Executives felt, however, that the promo cheapened the line, especially when the promo ended up in an “SNL” skit where the apparel was called “effectively cheaper than paper towels.” Ouch. Cheap or not, customers let the company know how they felt by sending sales down 32%, while Men’s Wearhouse managed to take in a 4.3% gain. The stock lost 30 cents a share in its fourth quarter, which was miraculously not as bad as the 37 cents analyst predicted the stock would lose.

Whole Foods is Getting a Whole Lot Sunnier; Nothing Like a Good Shareholder Fight; Urban Outfitter Pleasantly Surprises

Here comes the sun…

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Whole Foods is getting solar with a little help from Elon Musk’s Solar City and NRG Energy.  Of its 430-plus locations, up to 184 Whole Foods stores will get the solar treatment and with the stashes of money it is expected to save over the long run, maybe the organic grocer will start pricing their merchandise a little more cost-friendly. Whole Foods went with both companies so as not to be limited. Sounds fair. With a disappointing fourth quarter that saw a $432 million loss and a slower rate of growth, SolarCity’s stock needed this deal which gave its stock a solid 6.3% lift. Because oil prices have been so low, consumers haven’t exactly felt the fiscal pinch to get cost-effective solar installations and SolarCity’s been feeling that effect in its numbers. No word yet on which locations will get the solar experience but the move will put Whole Foods in the same company as Costco and Walmart for being among the top 25 corporate companies to go solar.

United they fall…

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United Airlines has had better…decades, as two investment funds, who together own a 7.1% stake in the airline, are gearing up to turn the airline’s board of directors on its head. PAR Capital Management Inc. and Altimeter Capital Management LP aren’t happy with the way things have been going at the airline, which happens to be ranked as the third largest carrier by traffic and boasts 85,000 employees. The firms have nominated 6 new directors for the United Continental Holding Inc. board in hopes of undoing the “poor performance and bad decisions over the last several years.” Ouch. Because they feel the board is ineffective, one of the board members they are looking to bring in is former CEO Gordon Bethune, who ran the ship from 1994 – 2004, and is credited with turning the airline around back then. Shareholders will vote on the issue at the company’s annual shareholder meeting in the spring. Judging by the company’s low-employees morale, poor customer service, spate of electronic glitches and its inability to improve its on-time performance, there’s probably a whole lot of ugly going on there. The fact is that most of the other big airlines are cranking out huge billion dollar profits, while United Continental is still figuring out how to play catch-up, even after its 2010 merger, which is still plagued by tons of kinks. This news comes just two days after CEO Oscar Munoz announced that he’d be returning to his post on March 14, after being on medical leave since his October heart attack. Oscar Munoz came on board back in September, on the heels of former CEO Jeff Smisek stepping down after it was disclosed that there was a federal investigation involving United Continental and the Port Authority of New York and New Jersey.

So trendy…

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Urban Outfitters’ stock rallied today close to 17% and for a few good reasons. First, the company took in a profit of $72.9 million, adding 61 cents per share. Even though last year the company took in $80.3 million and 60 cents a share, it was still a Wall Street beat since analysts predicted that this time around the retailer would only add 56 cents per share. Boom. The company flat-lined in terms of its net sales, posting $1.01 billion, but it was the improved margins that had Wall Street tongues wagging. There are few things that Wall Street loves more than improved margins and execs are expecting more improvement on the Urban Outfitter fiscal horizon. The trendy apparel company also scored big with customers by adding some new beauty products that it started selling both online and in 70 shops within the stores. In fact, that rollout proved to be such a success that 60 more stores will get to revel in that retail experience.  Investors were so wowed by Urban Outfitters results that over a dozen brokerages even raised their target prices for the company’s stock, with some brokerages predicting those shares could go as high as $38 a share.  Not every analyst was as generous, however, the stock did close today at 32.69.