Why Has Urban Outfitters’ Stock Price Increased 50% In The Past Three Months?

-18.92%
Downside
43.42
Market
35.20
Trefis
URBN: Urban Outfitters logo
URBN
Urban Outfitters

Urban Outfitters’ (NASDAQ:URBN) stock price has seen a V-shaped recovery this year, after losing about half of its value in the first seven and a half months. The recovery seen since the middle of August has been a result of a beat in both earnings and revenues in the second and third quarters. Furthermore, the company disclosed its fourth quarter comparable retail segment sales are up at a mid-single-digit rate so far in an SEC filing. While the Q4 results aren’t due until March 2018, the positive comps news further pushed up the share price. URBN’s solid performance in the third quarter, posting comparable sales growth in all three divisions, is impressive given the weak mall traffic. Furthermore, this has also placed the company in a good position to build the momentum in the important holiday quarter. In this article, we’ll highlight the main factors that have helped Urban Outfitters to maintain a healthy performance.

1. Improving Retail Trends

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URBN’s impressive performance for a majority of this year cannot be attributed to company-specific factors alone, as it is not the only player in the retail industry that has shown strength in recent months. Companies such as Gap and Abercrombie & Fitch, which were assumed close to dead, have posted a recovery this year, spurred on by an improving economy. With unemployment rates at their lowest levels since February 2001, and consumer confidence on a high, the retail sector was bound to be a beneficiary. Moreover, apparel companies have made a considerable effort to rid themselves of excess inventory, and undertaken store closures to better optimize their footprint due to a move seen towards the online space. These factors aided in a reduced need for promotions, resulting in greater sales of full-price items and less pressure on margins.

2. Omnichannel Investments Paying Off

The main factor driving growth in recent quarters has been the strong performance of its online segment, with the digital penetration increasing by 400 basis points in the third quarter, eclipsing the previous record high posted in Q4 2016. The segment, which increased by double-digits, accounts for over 50% of the retail segment sales. The momentum in the channel was a result of an improved digital marketing effectiveness, and a broader assortment. Looking ahead, as the company enters the holiday season, it aims to improve the digital penetration even further. To achieve this, URBN is spending more digital marketing dollars for each of its brands. The goal of this strategy is not just to increase the sales, but also targets customer acquisition and retention.

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Notes:

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2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Urban Outfitters
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