Did Urban Outfitters’ Digital Segment Drive Growth In Q1?

by Trefis Team
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URBN
Urban Outfitters
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Urban Outfitters (NASDAQ: URBN) is set to announce its first quarter results on May 21, followed by a conference call with analysts. The clothing and accessories retailer is expected to post quarterly earnings of $0.26 per share while revenues are expected to come in around $857 million (marginally up from the year-ago quarter). Higher revenues are likely to be driven by expansion in the company’s digital segment, which posted double-digit sales growth across brands in Q4 2018.

Per Trefis estimates, Urban Outfitters’ shares have a fair value of $37 which is about 35% ahead of the current market price. We have summarized our key expectations from the earnings announcement in our interactive dashboard – How Is Urban Outfitters’ Likely To Have Fared In Fiscal Q1?  In addition, here is more Trefis Textiles, Apparel and Luxury Good Industry Data.

A Quick Look at Urban Outfitters’ Revenue Sources

URBN reported $4 billion in Total Revenues in Fiscal 2018. This included 2 revenue streams:

  • Retail Segment: $3.6 billion in FY 2018 (91% of Total Revenues). Retail segment contains the Anthropologie, BHLDN, Free People, Terrain and Urban Outfitters brands, as well as the company’s Food and Beverage division.
  • Wholesale Segment: $357 million in FY 2018 (9% of Total Revenues). The wholesale segment sells Free People, Anthropologie and Urban Outfitters branded products through department and specialty stores worldwide, digital businesses and the retail segment.

Digital Sales Channel Will Continue To Drive The Top Line

  • The digital channel continued to lead the way for Urban Outfitters, posting double-digit sales growth across brands in Q4, primarily driven by an increase in user sessions and conversion rate. The digital channel drove a bulk of the increase in retail sales in Q4.
  • Although average order value and units per transaction declined in Q4 2018, we expect the company to make significant marketing investments to support digital channel sales growth going forward. This should help the digital channel to drive overall revenue growth for Urban Outfitters in the future.

Anthropologie Holds Strong Growth Potential

  • Urban Outfitters’ wholesale segment sales grew 3% in Q4 primarily driven by growth in Anthropologie’s home wholesale business while Anthropologie Group reported a 2% increase in retail segment comp fueled by growth in women’s apparel and accessories.
  • Anthropologie home wholesale is one of the brand’s new growth initiative and was recently launched in North America, in partnership with Nordstrom following the success of Anthropologie wholesale in the U.K. in 2017. In the fourth quarter of 2018, this business generated $2 million in wholesale sales from its two main partners, Nordstrom in North America and John Lewis in Europe. Going forward, we expect the company will continue to focus on growing its home wholesale business internationally as this business holds strong growth potential.

Macroeconomic Environment Will Likely Impact Performance In Q1

  • The company delivered a solid performance in the international market in 2018. While the company’s operations achieved positive growth in China and North America in Q4 2018, a slowdown in China over the first quarter would have weighed on Urban Outfitters’ Q1 results
  • Also, total EU comps for the company’s Urban Outfitter brand were negative for the first time in 12 quarters in Q4 2018. The company expects the demand in European countries to be low due to the ongoing Brexit uncertainty, which in turn will be adversely impact the company’s results. However, over the next few years, the company plans to ramp up its European operations, which should provide a stable long-term growth opportunity once the Brexit-related uncertainty subsides.

Trefis Price Estimate

  • Based on our forecast, Urban Outfitters’ EPS for full-year 2019 is likely to be around $2.63. Using this figure with our estimated forward P/E ratio of 14x, this works out to a price estimate of $37 for the company’s shares, which is about 35% ahead of the current market price.

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