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Urban Outfitters Rallying Hard on Bourses: Let's Explore Why

Zacks Equity Research
·4 min read

Shares of Urban Outfitters, Inc. URBN have been tracking up the charts lately, thanks to a robust second-quarter fiscal 2021. The company amazed investors with surprising profits buoyed by immense strength in its digital channel and disciplined cost-control actions, amid such trying times. In fact, this lifestyle retailer delivered earnings of 35 cents per share in fiscal second quarter whereas the Zacks Consensus Estimate stood at a loss of 33 cents.

Robust strength in its digital channel largely offset the weakness across its store channel in fiscal second quarter. This momentum persisted in the first three weeks of August, and management expects this to continue in the back half of fiscal. Additionally, Urban Outfitters’ strategic growth initiative, FP Movement, appears encouraging. Markedly, shares of the Philadelphia, PA-based company surged a whopping 60.4% and outperformed the industry’s 19.2% rally in the past one month.

Delving Deeper

Speaking of e-commerce, Urban Outfitters’ overall digital business recorded solid double-digit comp sales in each month of the reported quarter. Notably, all the categories including apparel, intimates, movement shoes and accessories delivered positive regular-price comparable sales within digital. Also, the company witnessed improved conversions, and the total new digital customers across all its brands increased 76% year over year. Management further cited that all of the company’s brands enter the fall selling season with lean inventories. Urban Outfitters’ Retail segment is also performing slightly ahead of its second-quarter performance for fiscal third-quarter-to-date.


 

Although lower sales coupled with higher delivery and logistics costs on account of penetration of the digital channel hurt gross margin, leveraged SG&A as a rate of sales aided operating-margin expansion. During second-quarter fiscal 2021, SG&A expense plunged 29.1%, while as a percentage of net sales, the metric leveraged 372 basis points (bps) to 21%. This upside is attributed to a disciplined store-payroll management, cost-control measures and gains from the pandemic-related government-relief packages. This drove operating margin expansion of 50 bps to 8.6% in the reported quarter. For the fiscal third quarter, management anticipates SG&A to decline by nearly 10%.

Detailing Urban Outfitters’ strategic actions further, its FP Movement initiative is worth a mention. In fiscal second quarter, the FP Movement customer base increased 175%, with the Movement Free People's activewear line surpassing the overall brand growth and remaining positive across all channels. Management has been making investments in the Movement with digital and creative brand prospects. The company is excited to open its first FP Movement standalone store in Los Angeles this fall, followed by a location in Boulder, CO, in fiscal fourth quarter. With a unique position in the fitness and wellness space, the FP Movement initiative remains an important opportunity for Urban Outfitters and is expected to boost Free People’s brand revenue. Notably, comparable Retail segment net sales at Free People grew 11% in the most recent quarter.

Encouragingly, Urban Outfitters currently has a Zacks Rank #3 (Hold).

3 Better-Ranked Retail Stocks

Big Lots BIG has an expected long-term earnings growth rate of 7.1% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sprouts Farmers Market SFM has an expected long-term earnings growth rate of 9.2% and a Zacks Rank #2 (Buy).

Dollar General DG, also a Zacks Rank #2 stock, has a long-term earnings growth rate of 12.5%.

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Zacks Investment Research