This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
Investment Overview for Urban Outfitters (NASDAQ:URBN)
- Urban Outfitters Stores EBITDA Margin: Urban Outfitters Stores EBITDA Margins increased in 2012 to 24.4% with the gradual decline in cotton prices. They further improved to 24.8% in 2013 as the company kept a check on promotional activities by delivering appealing merchandise. However in 2014, due to certain off pitch fashion calls, Urban Outfitters struggled to attract customers and ultimately ushered heavy markdowns to compensate for low store traffic. This drove its margins down to 21.7%. Nevertheless, going forward we expect this figure to increase gradually and stabilize at 23.1%, backed by an improvement in the company's merchandise portfolio. However, if the U.S. apparel industry remains highly promotional, and the company faces problems of inventory hangover due to an imbalance in merchandise mix, its margins can decline. If the figure plummets to 20% by the end of the Trefis forecast period, there could be 5% downside to our price estimate. Conversely, if manufacturing costs come down, Urban Outfitters maintains tight control over its inventory and operates with more full priced sales, its margins can improve. If the figure increase to 25%, there could be 5 % upside our price estimate.
- Urban Outfitters Stores & Internet Revenue per Square Foot: Urban Outfitters revenue per square foot declined sharply to $693 in 2011 due to company's slow moving women's apparel business. In 2012, the figure improved to $737 due to the retailer's enhanced focus on women's merchandise and growth in online revenues. Revenue per square foot fell once again in 2013 as the brand made a few off-pitched fashion calls resulting in botched up launch of new collections. The figure fell to $695 in 2013 and improved only slightly to $696 in 2014. Going forward, we expect the brand's revenue per square foot to increase steadily and reach $860 by the end of our forecast period, driven by fewer promotional activities, growth in online revenues and development of omni-channel platform.
However, fierce competition in the U.S. apparel industry and any further merchandise goof-ups can cost the company its market share. If the revenue per square foot remains at the current levels through to the end of the Trefis forecast period, there can be 10% downside to our price estimate. On the other hand if Urban Outfitters carry forward the improvement in its product mix, taps lucrative U.S. and international markets for expansion, and builds a strong omni-channel platform, the figure can improve. If the revenue per square foot increases to $980 by the end of Trefis forecast period, there can be 5% upside to our price estimate.
Urban Outfitters Inc. is a leading lifestyle specialty retail company that operates under its Urban Outfitters, Anthropologie, Free People, Terrain and BHLDN brands, and sells collections of fashion apparels, accessories and home goods in inviting and dynamic store settings. Its core strategy is to provide unified store environments that establish emotional bonds with the customer. It also operates a wholesale segment under the Free People and Leifsdottir brands. In addition to retail stores, the company offers its products and markets its brands directly to consumers through its e-commerce websites and catalogs.
Urban Outfitters generates the most value for the company, followed by Anthropologie and Free People and Other stores.
Ratio of Free People & other stores revenues to store revenues is increasing rapidly
The ratio of Free people & other stores revenues to store revenues has increased from around 3% in 2009 to 10% in 2014, driven by rapid growth of Free People and continued expansion. With increasing brand popularity, this business is expected to contribute better to the company's revenue stream in the future.
Higher Revenue Per Square Foot for Anthropologie is Offset by a higher number and average size of Urban Outfitters stores
The Anthropologie stores have revenue per square foot of around $995, which is higher than revenue per square foot of $696 for the Urban Outfitters stores. Anthropologie's high revenue is offset by Urban Outfitters' greater number of stores and higher average retail space. The store count for Urban Outfitters was 234 versus 196 for Anthropologie as of 2014.
Significant scope for expansion in the U.S.
Currently, Urban Outfitters brand operates 194 stores in North America, out of which, 179 are in the U.S. Apart from California, New York and Texas, the brand does not have a double-digit store count in any other state in the U.S. or even Canada. In comparison, players such as Aeropostale and American Eagle Outfitters operate close to 900 stores in the region. The U.S. apparel market is highly competitive and stands big at more than $300 billion. Therefore, it makes sense for Urban Outfitters to continue its expansion in the region, to better compete with its peers and gain market share by leveraging its store presence and omni-channel portfolio.
Even Anthropologie operates less than 200 stores in the U.S. and Free People and other stores have their presence limited to 100 stores. Hence, there is substantial room for store growth for the company in the U.S.
Although Urban Outfitters' store business has not been at its best in the recent past, online business is continually outperforming. Web traffic and average order value across the brands is on a rise and the proportion of full-price sell-throughs is also increasing. Urban Outfitters' brand image and appealing portfolio are partially responsible for this rise. Remaining can be attributed the the industry wide shift in store to web shopping. According to eMarketer, online sales of apparel and accessories will grow from $52 billion in 2014 to $86 billion in 2018. We believe that Urban Outfitters will remain at the forefront of this growth with its omni-channel and other online initiatives.
Omni-channel retailing refers to providing customers with a seamless shopping experience by integrating the inventory pool across channels. This concept allows companies to attract customers irrespective of their preferred shopping channel. The entire U.S. retail industry is gradually adopting this retailing format and Urban Outfitters is no exception. The company is looking to deploy web, mobile and omni initiatives around website optimization, check out, search, personalization and many mobile and mobile app enhancements. It is also expanding its store base gradually that will provide it with an optimum presence in the country necessary for omni-channel retailing.
Scope for expansion in Asia
Along with its domestic expansion, it makes sense for Urban Outfitters to turn its attention towards international growth. The company took an important step on this front, when it announced its debut in Hong Kong in 2014. While retail expansion in Hong Kong and China appears a valid move, it will not be able to contribute much to Urban Outfitters’ revenues in the near future.
To propel its international growth, the company must leverage its partnership with World Co. Ltd. A few years back, Urban Outfitters entered an exclusive distribution agreement with World Co. Ltd. to market and sell its Free People brand in Japan. We believe that this partnership has reached a stage, where Urban Outfitters can look to sell its other brands in World Co. Ltd. stores across Asia.
Trefis Forecast Rationale for Internet & Catalog Orders Revenues
This refers to the company's revenues from its Internet & Catalog Orders business.
The Internet & Catalog Orders revenues increased from nearly $205 million in 2007 to $662 million in 2012 driven by growth in online sales due to increasing internet penetration. We expect it to increase to around $1.89 billion by the end of our forecast period as the company further increases the reach of its direct (online) channel and growing popularity of its e-commerce business.
Trefis considered the following factors for its forecast:
Back to Company Overview
- Industry growth in the U.S.
- Historically, online apparel sales in the U.S. have grown at a healthy pace driven by growing Internet usage and proliferation of smartphones and tablets.
- eMarketer forecasts the online apparel sales in the U.S. to increase to $90 billion by 2016 up from $45 billion in 2012.
- Exclusive web products
- Urban Outfitters is adding more product categories online and is also offering a number of web-exclusive products.
- In Q1 fiscal 2014, the retailer expanded its product assortments on the Internet by almost 46%, which worked well. Free People’s intimate apparel line saw healthy growth and now contributes over 15% to the brand’s e-commerce revenues.
- Urban Outfitters’ web launch of Anthropologie petites garnered excellent customer response and forced the retailer to test this product in its stores.
- Other investments and initiatives
- Urban Outfitters has increased investments in fulfillment capabilities, technological advancements, creative catalog designs and seasonal products offerings.
- The pick, pack and ship initiative, which allows the fulfillment of web orders with inventory from the nearest located store, has also been successful.
- Last year, Free People launched ‘FP Me’ website to improve customer engagement. Within the first three months, more than 10,000 photos of people wearing the brand were uploaded on the site.
- Later this year, the company is planning to launch an e-commerce channel in Japan.
- Urban Outfitters is gaining popularity through web-based channels
- The company has a growing following on social networking sites like Facebook and a growing customer base on its mobile commerce channel.
- The company is making significant investments in new marketing initiatives, which include offering engaging offers and promotions through its direct channels.
- Urban Outfitters is using the core products of Adobe Flex and the e-commerce expertise of Allurent to enhance its service offerings to customers.
- Additionally, the company also runs separate websites for its Urban Outfitters' and Anthropologie's European customers. These website captures the spirit of its European stores by offering a similar yet broader selection of merchandise as found in its European stores.
- The benchmark KPIs for the direct to consumer channel are expected to become more competitive
- In order to remain competitive in the direct to consumer segment, the company would need to continuously optimize its supply chain to keep in line with industry benchmarks for Key Performance Indicators (KPI) like lead time, turnaround time, etc.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
View All Help Topics