Urban Outfitters’ Revenue Growth Rate Expected To Reach Multi-Year Low

by Trefis Team
Urban Outfitters
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Urban Outfitters (NASDAQ: URBN) has seen solid growth over recent years. Strong digital sales and an increasing focus on women’s apparel have been the primary reasons behind URBN’s growth. The company’s revenues surging 9.3% in fiscal 2018 to reach approximately $4 billion, with record sales across brands. Trefis captures trends in Urban Outfitters’ Revenues over recent years in an interactive dashboard along with our forecast for the current year. We believe that apparel industry headwinds will be a hurdle to the company’s growth momentum, and will lead to revenue growth slowing down to 4-year low of just 1.3% for FY’19. You can view the Trefis interactive dashboard to better understand the revenue trends and division-wise revenue performance, and alter the assumptions to arrive at your own estimate for the company’s revenues.

A Quick Look at Urban Outfitters’ Revenues

URBN reported $3.95 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.

How Has URBN’s Historical Revenue Trended? 

  • URBN has added more than $500 Million to total revenue since 2015 at an average annual rate of 4.7% driven by steady growth all operating brands
  • Digital Channel has been the largest growth driver-contributing a bulk of the company’s growth during the last four years.
  • Going forward, we expect Urban Outfitter’s revenues to increase marginally and cross $4 billion in FY 2019.

A Detailed Look At URBN’s segment performance and revenue change over the years:

Retail Segment Is URBN’s Largest Segment-Accounting For A Majority Of The Company’s Revenues

  • This segment consistently contributes a majority of the top line, with an average revenue share of more than 91% in the last four years.
  • However, the segment’s share has declined from than 92% in 2015 to 91% in 2018 due to faster growth in the wholesale segment.
  • The segment grew by 8.9% in fiscal 2018, contributing approximately $295 million to total incremental revenues.
  • We expect the segment to witness negligible growth and generate around $3.6 billion in revenues in FY 2019.
  • Revenue gains are expected to be mainly led by growth in the Anthropologie brand and continuous expansion of the digital segment, although weak overall apparel industry demand will weigh on the gains
  • The digital channel has remained a key growth driver for Urban Outfitters. Notably, the contribution of Digital segment revenues has significantly increased over the years, which should continue in the foreseeable future.

Wholesale Segment Has Achieved Robust Growth Over The Years

  • Wholesale segment has achieved robust growth in the last few years, adding approximately $85 million of revenue over 2015-2018 (CAGR of 9.4%).
  • This growth has been achieved due to growth in domestic sales to department stores, specialty stores and digital businesses due to growth in several categories, including women’s apparels and intimates.
  • We expect this segment to continue its growth trajectory, with revenues increasing at a rate of 4.5% to more than $370 million in FY 2019.
  • Moreover, the segment’s contribution to total revenues has steadily increased over the years, which is expected to continue in the foreseeable future.

Based on our forecast, URBN’s adjusted EPS for fiscal 2019 is likely to be around $2.32. Using this figure with our estimated P/E ratio of 12x, this works out to a price estimate of $28 for URBN’s stock, which is similar to the current market price.

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