Urban Outfitters Disappoints With Its Holiday Comps

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

Much was expected from Urban Outfitters’ (NASDAQ:URBN) holiday period, as the company had disclosed in an SEC filing in December that its fourth quarter comparable retail segment sales were up at a mid-single-digit rate. However, in a recent press release, Urban Outfitters has reported a 3.6% increase in net sales, and a 2% rise in the comparable retail sales for the two months ended December 31, 2017, over the corresponding period of 2016. Furthermore, the retail comps growth was driven by double-digit growth in its direct-to-consumer segment, while its brick-and-mortar stores noted negative comps. This news sent the stock price of the company tumbling over 6% in after-hours trading. In better news, all three of its retail segments – Urban Outfitters, Anthropologie, and Free People – delivered positive comps growth at 1%, 2%, and 5%, continuing the momentum delivered in the third quarter, while its wholesale segment carried on with its strong growth, with net sales rising 6.8%.

We have a $34.50 price estimate for Urban Outfitters, which is slightly higher than the current market price.

Why Was More Expected?

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No doubt, a high rate of growth was expected from the digital channel as it has been the main factor driving growth for the company in recent quarters. The digital penetration increased by 400 basis points in the third quarter, eclipsing the previous record high posted in Q4 2016. The segment, which increased by double-digits in Q3 as well, accounted for over 50% of the retail segment sales. The momentum in the channel has been a result of an improved digital marketing effectiveness, and a broader assortment. Looking ahead, Urban aims to improve the digital penetration even further, and has been spending more digital marketing dollars for each of its brands to achieve this. The goal of this strategy is not just to increase the sales, but also targets customer acquisition and retention.

On the other hand, given the improving retail trends, a higher retail comps growth was predicted, while the negative comps from its traditional stores were not something that was anticipated. With unemployment rates at their lowest levels since February 2001, and consumer confidence on a high, the brick-and-mortar stores were expected to be a beneficiary. Positive expectations regarding the apparel retail sector in the holiday quarter had sent stock prices of many such companies on an upswing. However, disappointing updates from other companies besides Urban, such as L Brands, Cato, and Buckle, have sent the stock prices slumping again.

Urban, although, did note that a more effective inventory management system has placed the company in a better position, from an inventory-standpoint, as it heads into the spring season.

See our complete analysis for Urban Outfitters

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Notes:

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