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Bear of the Day: Urban Outfitters, Inc. (URBN)

Benjamin Rains

Shares of Urban Outfitters, Inc. (URBN) have plummeted 30% over the last six months and its earnings estimate revision activity has tumbled in the wrong direction, especially in the near-term, on the back of lower-than-expected Q1 guidance. The company also operates in a quickly-changing portion of the already fickle fashion industry, which has made owning URBN stock relatively difficult over the past decade.


Urban Outfitters operates a somewhat sizable brand portfolio that includes Anthropologie, Free People, its namesake segment, as well as a food and beverage unit called the Vetri Family. The company saw its full-year fiscal 2019 revenue jump 9.2% to reach $3.95 billion. More specially, the Urban Outfitters division jumped over 10%, with Anthropologie up roughly 8%, and Free People up nearly 11%. Meanwhile, full-year food and beverage sales dipped marginally.

Despite this strong growth over the last year, URBN stock has hardly performed well—down 18%. Some of this might be blamed on larger industry trends that have impacted the likes of Macy's (M), JC Penney (JCP), Victoria's Secret owner L Brands (LB), and others. With that said, Urban Outfitters’ price chart over the last 10 years shows us that URBN stock has swung pretty violently, even compared to its industry’s volatility.

As we mentioned at the top, shares of Urban have tumbled 30% in the past six months, which is worse than its industry’s 20% average decline. URBN stock closed regular trading Tuesday at $29.59 a share. This represented a roughly 44% downturn to its 52-week high of $52.50 per share.



Outlook & Earnings Trends

Urban Outfitters’ management earlier this month provided subdued first quarter fiscal 2020 guidance on the company’s conference call with analysts. The company said that its sales started out the year weaker than it had anticipated. This prompted URBN executives to call for its retail segment’s comparable sales to come in flat or decline by low single digits in Q1. “If comp sales do come in low-single digit negative, we believe URBN's gross margin rate for the first quarter could decline by approximately 150 basis points,” CFO Frank Conforti said on its earnings call.

“The decline in gross profit margin could be due to higher markdown rates in order to keep inventory current and allow for necessary new receipts.”

With that said, our current Zacks Consensus Estimate calls for the company’s first-quarter revenue to come in flat at $855.75 million. Jumping ahead, the firm’s fiscal 2020 revenue is projected to jump 2.72% to reach $4.06 billion. This would clearly come in below 2019’s 9.2% top-line expansion.

At the other end of the income statement, URBN’s adjusted quarterly earnings are projected to sink 31.6% to reach $0.26 per share. Furthermore, the company’s second-quarter EPS figure is expected to slip by 3.6%. Maybe more importantly, Urban Outfitters’ earnings estimate revision activity has trended almost completely in the wrong direction recently. The company’s Q1 estimate fell $0.14 from $0.40 per share to its current $0.26 over the last 90 days, while its full-year estimate sunk 12% from $2.93 a share to $2.60.  



Bottom Line

Urban is a Zacks Rank #5 (Strong Sell) at the moment due, in large part, to its recent wave of negative earnings revision activity. This shows investors that analysts are more bearish on the company’s near-term earnings outlook.

Plus, the company’s stock price has fluctuated pretty widely despite solid growth, which might make it more of a trader’s stock than an investor’s right now. URBN also doesn’t pay a dividend, so there are limited silver linings to owning it when its price continues to fall.  

Investors still interested in the industry might instead look to other retailers, such as Abercrombie & Fitch (ANF), Boot Barn (BOOT), Nordstrom (JWN), Foot Locker (FL), and Canada Goose (GOOS), which are all either Zacks Rank #1 (Strong Buy) or #2 (Buy) stocks at the moment.

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Urban Outfitters, Inc. (URBN) : Free Stock Analysis Report
Macy's, Inc. (M) : Free Stock Analysis Report
L Brands, Inc. (LB) : Free Stock Analysis Report
Nordstrom, Inc. (JWN) : Free Stock Analysis Report
J. C. Penney Company, Inc. (JCP) : Free Stock Analysis Report
Canada Goose Holdings Inc. (GOOS) : Free Stock Analysis Report
Foot Locker, Inc. (FL) : Free Stock Analysis Report
Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report
Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
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