How Will Urban Outfitters Perform In The Second Quarter Of Its FY 2017?

Urban Outfitters is expected to release its second quarter results on August 16, 2016.

Key Factors To Consider:

1. Importance Of Its Free People Brand

Urban Outfitters’ Free People brand, which is targeted to young contemporary women aged 25 to 30, has been driving sales growth for the company in recent years. In FY 2016, year ended January 2016, the comparable net sales growth of the retail segment was 1.6%, with that of Free People increasing at a rate of 9%. Similarly in FY 2015 and FY 2014, while comps growth for the company was 1.6% and 6%, that of its Free People brand was 19.2% and 31.7%, respectively. In the future, we expect this trend to continue, where the Free People’s growth outpaces that for the rest of the company.

2. Increasing Store Count

While several retailers have been undertaking store closures, Urban Outfitters still seems to be in an expansion phase. According to the CEO Richard Hayne, the US is overstocked in the apparel category, with approximately ten times more retail space per capita than in Europe. A factor working in URBN’s favor is that it does not have a sprawling store footprint; instead, it undertook a cautious approach, which is serving them well now. During FY 2017 (year ended January 2017) as well, the company plans to open 24 net new stores, including an expected three in Europe. The majority of these are its Free People Brand. The expected capital expenditure for the company during FY 2017 is $170 million, with the majority of it being allocated to relocating and expanding stores.

3. Anti-Trump Merchandise

Urban Outfitters seems to have struck gold with its anti-Trump merchandise with the message ‘IDK Not Trump Tho’, which means ‘I don’t know, not Trump though,’ and ‘Vote Trump 20NEVER’ which is plastered on t-shirts and coffee mugs, which the company created after a licensing deal with comedian Dave Ross, who came up with the slogan. The first run of 300 shirts was sold out in under 24 hours, prompting the store to order thousands more. Another product, a book entitled ‘Quotations From Chairman Trump,’ modeled along the lines of Chinese communist leader Mao Zedong’s ‘Quotations From Chairman Mao,’ is also flying off the shelves. The author, Carol Pogash, believes the purchasers not only include those looking for comic relief at the hands of Trump, but also his followers who would want to read his quotes. The store initially ordered 5,000 copies of the book, but the publisher has been told to print an additional 20,000. The political move of the company resonates with its target demographic – the millennials – who have been most likely responsible for the surprising success of these products. As per a poll by GenForward, Donald Trump is wildly unpopular among young adults. Moreover, only 19% of young people have a favorable view of him, as opposed to three-quarters who have a “dim view” of him.  Quirky antics such as these may give a boost to the company’s earnings.

Have more questions about Urban Outfitters? See the links below:

• How Has Urban Outfitters Revenue Composition Changed Over The Last Three Years?
• What Are The Changes Urban Outfitters Is Implementing To Differentiate Itself?
• Why Is Urban Outfitters Increasing Its Store Count While Its Peers Are Cutting Down?
• Earnings Review: Why Were Urban Outfitters’ Results Impressive?
• What Is Urban Outfitters’ Revenue & Net Income Breakdown In Terms of Different Operating Segments?
• How Has Urban Outfitters’ Revenue Composition Changed In The Last Five Years?
• What Is Urban Outfitters’ Fundamental Value Based On Expected 2016 Results?

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