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Urban Outfitters' Fall Continues: What's Hurting the Stock?

Zacks Equity Research

Are you still holding shares of Urban Outfitters, Inc. URBN and waiting for a miracle to take the stock higher in the near term? If yes, then you might lose more money as chances are very slim that the stock, which lost its value by 48.5% in the past six months, will take a U-turn in the near term. Meanwhile, the Zacks categorized Retail-Apparel/ Shoe industry declined 33.6%. Let’s delve deeper and try to find out what is taking the stock down the hill.

Ever since this Zacks Rank #5 (Strong Sell) company reported weaker-than-expected first-quarter fiscal 2018 results on May 16, the shares have declined more than 11%. Moreover, Urban Outfitters’ earnings missed the Zacks Consensus Estimate for the third consecutive quarter while its revenues missed the estimate for the fourth straight quarter.

Investors are also concerned by management’s remark over gross margin, which is anticipated to decline year over year in second-quarter fiscal 2018 on account of rise in delivery and logistic expenses, higher markdowns and lower initial mark up.

In first-quarter fiscal 2018, the company’s gross margin contracted 284 basis points (bps) to approximately 31.5% primarily due to deleverage in customer delivery and logistics expense rates along with higher markdowns due to dismal performance of women’s apparel and accessories product at Anthropologie and Urban Outfitters. We noted that, gross margin had contracted 142 bps and 15 bps in the fourth and third quarter of fiscal 2017 to 33% and 34.8%, respectively.

Let’s look at Urban Outfitters earnings estimate revisions in order to get a clear picture of what analysts are thinking about the stock. In the past 30 days, the Zacks Consensus Estimate for the second quarter and fiscal 2018 declined 13 cents and 21 cents to 45 cents and $1.53, respectively.

Stocks to Consider

Better-ranked stocks worth considering in the retail space include Aaron's, Inc. AAN, Best Buy Co., Inc. BBY and The Children's Place, Inc. PLCE. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aaron's has reported better-than-expected earnings in the trailing four quarters, with an average beat of 10.6%.

Best Buy has an impressive long-term earnings growth rate of 11.8% and has also surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average earnings beat of 33.8%.

The Children's Place has reported earnings beat in the trailing four quarters, with an average of 36.6%.

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