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)

${header:whathaschanged}

1. Latest Earnings
   • Urban Outfitters delivered a strong financial performance in fiscal 2018. The apparel retailer’s revenue surged by 9.3% year-over-year to reach approximately $4 billion, with record sales across brands. The company also recorded its highest annual net income of $300 million since the economic downturn. The retailer’s fourth quarter comparable sales rose by 4%, marking the sixth straight quarter of each of the brands’ positive retail segment comp growth. Digital channel sales continued to lead the way, posting a double-digit sales increase in Q4 2018. The apparel retailer reported strong growth in all three of its brands, noting positive comps for each of them in all four quarters reported in FY 2018, as a result of increased average unit selling price and higher units per transaction. In the retail segment, sales increases were seen in both the online and offline channels, with the former leading the way with double-digit growth in each of the brands. Higher sales and reduced markdowns helped to improve the margins, which together with a substantial decline in the tax rate, helped boost the earnings.

2. Rise Of Omnichannel Retailing
   • The shift toward the online space has been pretty evident, with the digital penetration of URBN's retail segment sales reaching 40% of the retail sales, with all three brands reporting double-digit sales increases. Free People and Anthropologie have benefited the most with this shift, and their digital penetration has increased to over 50%. To take advantage of the popularity of the online channel, URBN re-platformed its website, enabling better functionality for customers, including in-store pick-up capabilities, improved delivery options, a more responsive site, faster load times, and the addition of Apple Pay and Afterpay as alternative payment methods. The company is also concentrating on its loyalty and rewards programs. While the successful implementation of these initiatives resulted in strong growth in the quarter, its benefit can be expected to continue in the future, as well.

3. International Growth Potential
   • URBN believes Anthropologie has the potential to derive half of its sales from outside the United States in the long term. Currently, almost all of the international sales are obtained from the U.K., but the brand is in the process of expanding in other countries, including opening its first store in Israel later this year. For its eponymous brand, two new stores were opened in the third quarter – one in Europe and one in North America – and a third franchise store in Tel Aviv. The company plans to open additional stores in Europe, as well as several additional franchised stores in Israel. For its Free People brand, the company opened its first store in Amsterdam early in the fourth quarter, and intends to open a store in London before the end of the financial year. In Europe, the retailer plans to open 10 to 20 new stores across all brands in each of the next two years. With a current base of 63 stores, the plan is for its European store count to exceed 100 in three years.

${header:potential}

1. Retail Segment EBITDA Margin

Retail Segment EBITDA Margin: Retail Segment EBITDA Margins have fallen from 24.9% in FY 2014 to 19.6% in FY 2018. Urban Outfitters struggled to attract customers and ultimately ushered heavy markdowns to compensate for low store traffic. A greater focus on the online channel is another factor negatively impacting the margins. Going forward, we expect the metric to further decline before stabilizing, given the fact that increased consumer confidence has resulted in a reduced need for markdowns. However, this positive aspect may be offset by the continued shift to the online space. Consequently, while margins are expected to go down in the short term, they may improve in the long term.

If as a result of a better assortment, higher consumer spending, and disciplined inventory control, the company manages to improve the margins to levels higher than expected, there is a significant upside potential. On the contrary, 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 instead decline. If the figure plummets to 16.1% by the end of the Trefis forecast period, there could be an almost 8% downside to our price estimate.

${header:summary}

Urban Outfitters offers lifestyle-oriented general merchandise and consumer products and services through a portfolio of global consumer brands comprised of Anthropologie, Bhldn, Free People, Terrain, and Urban Outfitters brands and its Food and Beverage division. The company also operates a Wholesale segment under the Free People and Anthropologie brands. URBN has over 47 years of experience creating and managing retail stores that offer highly differentiated collections of fashion apparel, accessories and home goods in inviting and dynamic store settings. Its core strategy is to provide unified environments that establish emotional bonds with the customer. In addition to its retail stores, the company offers its products and markets its brands directly to the consumer through its e-commerce websites, mobile applications, and catalogs. The Free People wholesale division develops private label apparel lines of young women’s casual wear that are sold through better department and specialty stores, third-party websites and its own retail stores, while the Anthropologie wholesale segment is focused on the sale of home goods. The Food and Beverage division includes pizza and casual dining concepts.

${header:trends}

Significant scope for expansion internationally

URBN believes Anthropologie has the potential to derive half of its sales from outside the United States in the long term. Currently, almost all of the international sales are obtained from the U.K., but the brand is in the process of expanding in other countries, including opening its first store in Israel later this year. For its eponymous brand, two new stores were opened in the third quarter – one in Europe and one in North America – and a third franchise store in Tel Aviv. The company plans to open additional stores in Europe, as well as several additional franchised stores in Israel. For its Free People brand, the company opened its first store in Amsterdam early in the fourth quarter, and intends to open its second store in London before the end of the financial year. In Europe, the retailer plans to open 10 to 20 new stores across all brands in each of the next two years. With a current base of 63 stores, the plan is for its European store count to exceed 100 in three years.

Online growth

Although Urban Outfitters' store business has not been at its best in the recent past, the online business is continually outperforming. Web traffic and average order value across the brands is on the 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. The online growth can also be attributed to the industry-wide shift from store to web shopping. According to statista, Apparel and accessories retail e-commerce in the U.S. is projected to generate over 138.7 billion U.S. dollars in revenue by 2022. We believe that Urban Outfitters will remain at the forefront of this growth with its omnichannel and other online initiatives.

Omni-Channel retailing

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 omnichannel retailing.

Addition of a pizza chain

In 2015, Urban Outfitters unveiled the acquisition of The Vetri Family group of restaurants, which included the award winning Pizzeria Vetri for an undisclosed amount. Given the rapid growth of consumer spending on fast-casual dinning, the retailer stands to gain directly from this acquisition. However, indirect gains are also in the cards as Urban Outfitters can leverage the pizza outlets to improve the shopping experience and thus drive store traffic. In the wake of the growing customer disconnect with brick-and-mortar stores and increasing use of online shopping, retailers across the industry are trying hard to win customers back. And this acquisition by Urban Outfitters is a move on that front.

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?

1. We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
2. 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