Why Urban Outfitters Looks Poised To Regain Its Pre-Covid Level

by Trefis Team
Urban Outfitters
Rate   |   votes   |   Share

Based on a comparison of Urban Outfitters’ stock (NASDAQ: URBN) trajectory over recent months with that around the 2008 recession, we believe that the stock can potentially gain 35%, to reach almost $27 once fears surrounding the coronavirus outbreak are put to rest. A detailed comparison of Urban Outfitters’ stock performance vis-à-vis the S&P 500 is available in our interactive dashboard analysis, How Did URBN Stock Fare vs. The S&P 500 in 2008 and now?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. Urban Outfitters stock lost 50% of its value (vs. about a 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 39% over recent weeks (vs. about 50% gain in the S&P 500) to its current level around $19. Despite partial gains, the stock is still down 30% since the beginning of the year.

The Sharp Movements In Urban Outfitters’ Stock Were Triggered By Several Underlying Factors

The decline in Urban Outfitters’ stock is understandable, considering the impact that the outbreak and a broader economic slowdown are having on consumer spending and on the global apparel industry in particular. The company’s first-quarter was wiped out due to the outbreak of coronavirus, which has forced people to stay indoors, resulting in a steep decline in the demand for the company’s products. Moreover, dwindling consumer demand reduced discretionary spending, and stay-at-home orders resulting in stores remaining closed, continue to take their toll on the company’s stock. The effects of Covid-19 were clearly evident in the company’s Q1 2020 earnings (ending April) resulting in the company’s revenues plunging by 32% y-o-y to $588 million. However, gradual store openings and some resurgence in discretionary spending have provided a boost to the company’s stock.

But How Does The Movement This Time Around Compare With The Trend During The 2008 Downturn?

  • We see Urban Outfitters stock declined from levels of around $22 in October 2007 (the pre-crisis peak) to levels of around $17 in March 2009 (as the markets bottomed out) – implying the company’s stock lost as much as 25% from its approximate pre-crisis peak -less than the broader S&P, which fell by about 51%.
  • However, Urban Outfitters stock recovered strongly post the 2008 crisis to about $35 in early 2010 – rising by 110% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period

Will Urban Outfitters’ Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that Urban Outfitters stock fell roughly 50% from the market peak on February 19 to the low on March 23, compared to the 25% decline during the 2008 recession, we believe it can potentially recover by 35% to levels of $27 once economic conditions begin to show signs of improvement. This would mark a full recovery to the $27-level the stock was at before the coronavirus outbreak gained global momentum.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture and complements our analyses of Coronavirus impact on a diverse set of Urban Outfitters’ multinational peers – from Coronavirus impact on L Brands to impact on competitor Columbia Sportswear and Coronavirus impact on Gap stock. The complete set of coronavirus impact and timing analyses is available here.

Want out-performance? Try guessing the % returns for our Pershing-inspired portfolio – based on billionaire Bill Ackman’s firm Pershing Square – vs. the S&P over the last 1 week, 1 month, 3 months, YTD or even 3 years. Our portfolio combines high growth, quality, and risk mitigation criteria in an interesting way.


See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

Rate   |   votes   |   Share


Name (Required)
Email (Required, but never displayed)
Be the first to comment!