We’ve all heard the statistics about America’s ever worsening obesity problem. Yes, it’s true we are overweight and we do eat too much but we still need clothes to work and play in that make us look half flattering; a reality met head on by United Retail Group (URGI), who operate 485 stores in 37 states catering to plus-size women between the ages of 25 and 55. Not only do they provide fashionable clothes that flatter larger women, they do so at reasonable price points. An excellent combination in my opinion and that’s exactly why I love this stock, well, that and the stock is incredibly undervalued.

The company originally was a division of the Limited (LTD) until 1992 when its initial public offering created a separate business. It’s been run by CEO Raphael Benaroya ever since. It hit a rough patch between 2002 and 2004 losing money in three consecutive years. This led the company to change its strategy introducing a larger variety of fashion forward merchandise more frequently, providing better customer service through increased employee training, a repositioning of the marketing message to reflect the fashion choice rather than the value pricing, closed both the catalog and underperforming stores and generally put the focus squarely on the customer experience. The result was two profitable years in a row, which brings us to the present.

Today, the company announced mediocre first quarter results. The CEO explained that the cold weather significantly hurt sales of their seasonal merchandise leading to much larger than expected markdowns, eliminating profits. As anyone knows who invests in retail, weather is often an excuse to hide deeper problems. In this case, I believe management when they say the concept remains sound and growth is still very much on track. Benaroya points to four key initiatives to grow the company for the remainder of 2007 and beyond. They include making the existing stores more productive, opening new ones, expanding the intimates’ side of the business and continuing to build online sales. I’m extremely confident they will succeed.

Here are the Top 5 reasons to like this stock:

1. The target market is expanding (pardon the pun), not decreasing. Yes, they do have a much bigger competitor in Lane Bryant but they are more than capable of winning this competition for the customer’s disposable income.
2. Crescendo Partners announced on May 17 that they had acquired 9.8 percent of the company’s stock, citing an attractive valuation as the primary reason for the investment.
3. The company’s online sales continue to grow at breakneck speed. The unit is a juggernaut that enhances the customer experience while providing bigger margins. Despite overall sales being flat, online they increased 51 percent in the first quarter. These numbers will continue for several years in my opinion.
4. Same store sales growth, with the exception of two months has been positive since early 2005. They are reloading and will be back on track in the second quarter.
5. The CEO has been with the company since its beginning in 1987. He owns 18 percent of the company. He’s definitely a motivated employee.

I’ve watched this company and its stock for a long time. It’s a great business with a great demographic and a stock priced to move. If you look past these very short-term events, you’ll see a world of opportunity for the company. It won’t be on sale forever.

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