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How Urban Outfitters (URBN) is Placed Ahead of Q4 Earnings

Zacks Equity Research

Urban Outfitters, Inc. URBN is scheduled to release fourth-quarter fiscal 2020 results on Mar 3, after the closing bell. Notably, the company has trailing four-quarter positive earnings surprise of 7.3%, on average. However, it reported a negative earnings surprise of 1.8% in the preceding quarter.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 63 cents, which suggests a decline of 24.1% from 83 cents earned in the year-ago quarter. Moreover, the consensus mark has moved down by a couple of cents in the last 30 days.

Urban Outfitters, Inc. Price and EPS Surprise

 

Urban Outfitters, Inc. Price and EPS Surprise

Urban Outfitters, Inc. price-eps-surprise | Urban Outfitters, Inc. Quote

Key Factors to Note

Any deleverage in SG&A expenses may show on Urban Outfitters’ fourth-quarter fiscal 2020 earnings. In its third-quarter earnings call, management guided SG&A expenses increase of roughly 6% in the fourth quarter owing to elevated digital marketing investments to drive digital channel sales. While the total retail segment SG&A is anticipated to increase approximately 3%, the remaining SG&A increase can be attributed to new business initiatives, including Nuuly, expansion in China, and European facilities expansion.

During its holiday sales announcement last month, management stated that the company is likely to witness weaker-than-expected gross profit margin in fiscal fourth quarter. It further cited that Anthropologie and Urban Outfitters businesses were driven in part by higher promotional activity in apparel, which is likely to hurt gross margin more than originally envisioned. The company had guided gross margin contraction of roughly 200 basis points for the final quarter at its last earnings call.

Q4 Sales

Nevertheless, Urban Outfitters recently came up with robust sales numbers for fourth-quarter fiscal 2020, thanks to higher comparable Retail segment sales, and impressive performance of Anthropologie Group, Urban Outfitters and Free People brands. Moreover, the company experienced growth at its digital channel. However, top-line growth was somewhat offset by lower sales at the Food and Beverage unit, and Wholesale segment.

Urban Outfitters reported fourth-quarter net sales of $1,169.6 million, surpassing the Zacks Consensus Estimate of $1,161 million. The metric also increased 3.6% year over year. At Anthropologie Group, net sales were up 5.7% to $491.1 million and the same at Free People grew 3.1% from the prior-year quarter to $215.8 million. At Urban Outfitters, net sales inched up 0.5% from the year-ago quarter to $449.9 million. However, Food and Beverage net sales came in at $6.8 million, down 9.3% from the prior-year quarter. Nuuly, the subscription rental service for women’s clothes, contributed roughly $6 million to net sales.

Segment-wise, Urban Outfitters reported net sales of $1,090.6 million at the Retail Segment and $73.1 million at the Wholesale Segment. Net sales at the Retail Segment grew 4.1% on growth in the digital channel, partly offset by lower retail store sales.

In terms of brands, comparable net sales at the Retail segment jumped 9% at Free People and 6% at Anthropologie Group, while the metric remained flat year over year at Urban Outfitters. However, Wholesale segment sales declined nearly 10% from the year-ago quarter owing to a 12% drop in Free People.

Again, management commented that promotional activity was higher than expected. However, this was required to clean the ending Retail segment inventories across all its brands. As a result, the company is well prepared for the spring season. It is to be seen whether Urban Outfitters’ impressive top-line performance and inventory-management efforts provide some cushion to the bottom line in fiscal fourth quarter.

What Does the Zacks Model Say?

Our proven model does not predict an earnings beat for Urban Outfitters this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Urban Outfitters carries a Zacks Rank #3, its Earnings ESP of -1.42% makes surprise prediction difficult.

Stocks With a Favorable Combination

Here are a few companies you may want to consider, as our model shows that these have the right combination to post an earnings beat:

G-III Apparel Group GIII has an Earnings ESP of +5.62% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco COST has an Earnings ESP of +0.20% and a Zacks Rank #2.

Burlington Stores BURL has an Earnings ESP of +0.02% and a Zacks Rank #2.

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