Online Sales Growth To Drive Improvement For Urban Outfitters In The First Quarter

by Trefis Team
Urban Outfitters
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Urban Outfitters (NASDAQ:URBN) is set to post its first quarter results on May 22, wherein a rise in both revenue and earnings is expected. While all segments are expected to witness comparable sales growth, Free People should be the standout performer, given the increased digital penetration of this segment. The earnings are projected to grow from 10 cents in the corresponding quarter of last year to 30 cents in Q1 2019 (three months ended April 2018). Higher sales, a reduced promotional environment, benefiting from improved consumer confidence, and a lower tax rate are the main factors that should drive the earnings growth.

We have a $40 price estimate for Urban Outfitters, which is in-line with the current market price. The charts have been made using our new, interactive platform. You can click here for our interactive dashboard to modify our driver assumptions to see what impact it will have on the company’s revenues, earnings, and price estimate.

Factors That May Have An Impact In The Quarter

1. Strong Sales Trend Reported: In its fourth quarter earnings conference call, the management stated that the strong sales trend witnessed in January had continued into the first quarter of FY 2019 (year ended January 2019), with the retail segment comps up “very high single-digits.” Moreover, based on this, the company expects its gross margin rate to improve by 100 basis points, driven by lower markdowns.

2. Latest Thomson Reuters Same Store Sales (SSS) Index: Analysts polled by Thomson Reuters are increasingly bullish on consumer spending in the wake of strong holiday sales, which they feel have  continued into the first quarter. The Thomson Reuters Same Store Sales Index has shown a stronger comparable sales growth in Q1 2018 versus Q1 2017. Besides improving consumer confidence, retailers can also be expected to benefit from easier comparisons, given a weak first quarter last year. Urban, and its other divisions, have also been slated to have “strong SSS estimates.”

3. Higher Retail Sales: According to the U.S. Census Bureau, retail sales were up 4.7% in April. Categories with strong growth included clothing/clothing accessories, which rose 4.1% as compared to the previous year, a factor that should bode well for apparel retailers. Macy’s, which posted its first quarter results recently, reported strong consumer spending as a factor that resulted in the company raising its full year earnings guidance. This should put some confidence back into the retail industry.

4. Growth in Digital Sales: The shift toward the online space was reflected in Urban’s online sales growth in the fourth quarter, with the digital penetration of its retail segment sales exceeding 40% for the first time. Free People has benefited the most with this shift, and its 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, and faster load times. While its successful implementation resulted in a double-digit increase in digital sales for the brand in the fourth quarter, its benefit can be expected to continue in the future.

5. Increasing Store Count: Urban expects to open 17 stores in FY 2019, while shuttering 11. The store openings are limited to the Anthropologie brand and its Food and Beverage division, and of the 17, six openings are planned in Europe. While international expansion makes sense, opening in the U.S. where there are already plenty of retail stores, the traffic is undergoing a decline, and the company is reporting negative store comp sales, may not be the right move. To overcome the decline in traffic, apparel retailers should concentrate on building an omnichannel presence, with features such as Buy Online and Pick Up in Store.

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