Urban Outfitters (URBN) Last Update 9/3/21
Related: AEO ANF TPR GPS
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Urban Outfitters
STOCK PRICE
DIVISION
% of STOCK PRICE
Retail Segment
81.9%
$28.91
TOTAL
100%
$35.28
$35.28
Yours
Trefis Price
N/A
$30.25
Market
 
Top Drivers for Period
Key Drivers
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Urban Outfitters Company

VALUATION HIGHLIGHTS

  1. Retail Segment constitutes 82% of the Trefis price estimate for Urban Outfitters's stock.

WHAT HAS CHANGED?

  1. Urban Outfitters Tops Estimates in Q1
With vaccinations ramping up and more people shopping in stores once again, retailers are enjoying a rebound in demand for their wares. Urban Outfitters Q1 revenue rose 57.6% to a record $927 Mil, beating consensus by $26.91 Mil, fueled by a 51% jump in comparable-store sales. The gains were broad-based. Comps for the company's three core brands- Free People Group, Anthropologie Group, and Urban Outfitters rose 77%, 50%, and 42%, respectively. In addition, a net income of $54 Mil and record EPS of $0.54, compared to a loss of $1.41 per share in the year-ago period, beat consensus by $0.37.

  1. Free People Brand Helped To Boost Sales
A women's bohemian apparel and lifestyle brand - Free People performed extremely well during Q1, with retail segment comparable sales rising 44%, boosted by strong digital demand. Impressively, the brand had positive comps across all of its categories combined with record low markdowns in 2020 as well.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

  1. Retail Segment EBITDA Margin
Retail Segment EBITDA Margin: Retail Segment EBITDA Margins have fallen from 9.4% in FY 2020 to 3.9% in FY 2021, due to the negative impact of the pandemic. 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 stabilize, given the fact that vaccine rollouts will have increased consumer confidence, resulting 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 improve in the short term, and then remain flat 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 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 declines to 11% by the end of the Trefis forecast period, there could be an almost 10% downside to our price estimate.

BUSINESS 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.

KEY 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, a bulk of international sales are obtained from the U.K., but the brand is in the process of expanding in other countries. For its eponymous brand, in Europe, the brand opened its first freestanding store in Paris in February 2018, and a first franchise store in the outskirts of Tel Aviv was launched in April. The company plans to open additional stores in Europe and facilitate the opening of several additional franchise stores in North America.

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 are 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. We believe that Urban Outfitters will continue to benefit from 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.