Urban Outfitters (NASDAQ:URBN) is scheduled to release its Q4 fiscal 2013 earnings on March 11. According to a recent press release, the retailer will report substantial growth of 17% in its revenues for the fourth quarter.  This can be attributed to its record holiday sales and growth in its direct-to-consumer business. Despite the weak holiday season in the U.S., Urban Outfitters grew its business driven by the brand strength, seasonal offerings and edgy holiday catalogs.
Record Sales Despite The Weak Holiday Season Will Boost The Results
The holiday season in the U.S. was weak for retailers due to fiscal cliff concerns and hurricane Sandy. The increase of 2% in payroll taxes further discouraged holiday shopping. Despite these issues, Urban Outfitters was able to deliver promising results. The retailer’s revenues reportedly increased by 15% during the months of November-December, mainly due to the success of its seasonal offerings. 
During the holiday season, Urban Outfitters launched a number of themed holiday sweaters featuring embroidered dinosaurs, traditional diamond and striped patterns as well as Christmas trees. It also offered sweaters and cardigans with reindeer, snowflakes, polar bears and Kitsch Christmas emblems.  Additionally, the retailer added some retro-style products such as an mp3 player resembling a Sony Walkman from 1980′s to attract customers.  Urban Outfitters also launched some edgy Christmas catalogs and gift wrapping paper, which received a good response from its teenage customers.  The retailer’s products resonated well with the season and allowed it to differentiate its brand and keep the customers interested.
Strong Growth In Direct-To-Consumer Business Will Continue
Currently, the apparel industry in the U.S. is being driven by growth in the direct-to-consumer channel. Key players such as Abercrombie & Fitch (NYSE:ANF), Gap (NYSE:GPS) and American Eagle Outfitters (NYSE:AEO) have reported substantial growth in their direct-to-consumer businesses in their recent results. Urban Outfitter’s own direct-to-consumer revenues increased by an annual average of 26% during 2008-2011 and further surged by 36% in Q3 fiscal 2012.  For the fourth quarter, the retailer will report a staggering jump of 44% in this segment’s revenues.  This implies that Urban Outfitters has not only benefited from the ongoing direct-to-consumer shift in the apparel industry, but its growth has accelerated in the recent past.
We believe that Urban Outfitters’ initiatives such as the creative design of catalogs, seasonal products offerings, increasing product categories and its web-based exclusive products have played a vital role in its growth.  Furthermore, shipping from both its stores and the fulfillment centers helped resolve the inventory issues and maintain delivery responsiveness and quality. With the increasing popularity of online shopping and the launch of Urban Outfitters’s e-commerce channel in Europe, we expect this segment to be a strong growth driver in the future. In Q3 fiscal 2013, the retailer saw an increase of 66% in the international web orders. 
The direct-to-consumer business constitutes about 40% of Urban Outfitters’ value as per our estimates.
Our price estimate for Urban Outfitters stands at $38, which is roughly in line with the market price.Notes:
- Urban Outfitters Reports A 17% Sales Jump, Urban Outfitters, Feb 7 2013 [↩] [↩]
- Urban Outfitters Reports Record Holiday Sales, Urban Outfitters, Jan 10 2013 [↩]
- Where to buy a holiday sweater on a budget, Daily Collegian, Nov 30 2012 [↩]
- Retro Products Made New Again-Always a Cool Gift Idea, Consumer Affairs, Dec 4 2012 [↩]
- Hip Retailer Urban Outfitters Drops F-Bombs In Christmas Catalog, CBS Chicago, Dec 4 2012 [↩]
- Urban Outfitters’ SEC filings [↩]
- Urban Outfitters’ Q3 fiscal 2013 earnings transcript, Nov 19 2012 [↩] [↩]