Why Has Urban Outfitters’ Share Price Declined After Soaring For Most Of 2016?
Urban Outfitters‘ (NASDAQ:URBN) stock was one of the highest performers in the S&P 500 in 2016, rising over 70% till November 22. However, the company’s third quarter results of FY 2017 (ended October 2016), declared on November 22, missed out on consensus estimates for revenue and EPS, sending its stock price on a downward trend. Further in the third quarter, the unexpected purchase of a pizza chain sent the stock price tumbling further to $20. The company turned around its business subsequently, which was reflected in the rising share price of the company, primarily driven by the improving comparable sales and operating margin. But, after a brief spurt in the beginning of December, the share price has continued to tumble. This was further hampered by the release of a weak Holiday sales report on January 9. These factors have been explained further below.
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1. Missing Out On Consensus Estimates
Urban Outfitters was hit hard after the release of its third quarter results. The company reported an earnings per share of $0.40, down from its EPS of $0.42 in the same period of the previous year. It also missed out on the consensus estimate of 44 cents for the quarter. While the revenue for the quarter increased year-on-year, it missed on analysts’ estimates by close to 1%. The company’s other metrics also worsened when compared to the corresponding prior year period. The company’s Anthropologie brand was at the heart of the problems in the quarter, which had a comparable sales decline of 2.7%. This was driven primarily by fewer transactions and lower AUR (Average Unit Retail). Moreover, a shift in fashion silhouette, a trend which has its roots in Europe, and which benefited the Urban and Free People brand, worked to the detriment of the Anthropologie brand. Lackluster response to the apparel category of the brand forced higher markdowns. The increased pressure on the margins was due to an increase in the company’s direct-to-consumer business. This resulted in customer delivery and overall logistics expense rates for the quarter increasing.
2. Weak Holiday Sales Update
While the company’s retail segment posted a growth in its comparable sales in the holiday period, due to double-digit growth in the direct-to-consumer channel, partially offset by lower than expected retail store comparable sales, the wholesale segment reported a 4% decline, from the same period in the year prior. The company attributes this to a couple of factors. The first reason was that the company faced a larger than expected shift in demand by the channel, caused by lower store traffic. This resulted in lower store sales, and necessitated the need for higher promotional activity to boost the demand. The second factor was a larger than anticipated shift in product mix, that saw customers respond more favorably to lower margin products and categories.
Urban Outfitters isn’t the only company with a weak holiday performance. Department store chains such as Macy’s and Kohl’s both dropped their profit projections last week, after a holiday period which was worse than expected. Furthermore, American Eagle, a retailer that has been performing well this year, also said its fourth quarter comparable sales to date have been flat, since “the holiday season was choppy and highly promotional.” Teen-focused retailers have been hurt recently as mall traffic has declined, as a result of growing internet penetration, proliferation of smartphones, and a rise in online retailing. This has prompted retailers to offer deep discounts to lure customers back into their shops. Moreover, slow sales may be causing a build up of inventory, resulting in an increased level of clearances. These factors are hurting the already pressured margins, and could mean a big discount to the company’s bottom line.
Have more questions about Urban Outfitters? See the links below:
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- How Will Urban Outfitters Perform In 2016?
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- Why Has Urban Outfitters’ Stock Price Risen 66% In 2016?
- Higher Comparable Sales Helps Urban Outfitters Beat Consensus Estimates
- How Will Urban Outfitters Perform In The Second Quarter Of Its FY 2017?
- How Has Urban Outfitters Revenue Composition Changed Over The Last Three Years?
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