What To Expect From Urban Outfitters’ Stock in Q3?

URBN: Urban Outfitters logo
Urban Outfitters

Urban Outfitters (NASDAQ: URBN) is scheduled to report its fiscal third-quarter results on Monday, November 23. We expect Urban Outfitters to likely beat the revenue and earnings expectations, driven by improved demand in digital retail. The company is also adjusting to updated consumer preferences such as more casual clothing for working from home. We expect the company to navigate well based on these trends in Q3.

Our forecast indicates that Urban Outfitters’ valuation is around $24 a share, which is 16% lower than the current market price of around $29. Look at our interactive dashboard analysis on Urban Outfitters’ Pre-Earnings: What To Expect in Q3? for more details.

(1) Revenues expected to be ahead of consensus estimates

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Trefis estimates URBN’s Q3 2021 revenues to be around $940 Mil, 2% ahead of the consensus estimate of $924 Mil. While in-store revenue was heavily impacted due to Covid-related store closures, the improved demand from digital helped offset much of this headwind, leading to a sales decline of 16.5% year-over-year (y-o-y) in Q2 2021 (with almost 33% of North America stores closed). Urban Outfitters’ comparable retail segment sales also fell 13%, but the company’s digital business was strong and all brands were profitable, largely helped by smart inventory management. It should be noted that Urban Outfitters’ total digital business had double-digit comparable sales growth during each month of the Q2 – with this strength continuing into August. In addition, its total new digital customers across all brands jumped by 76% on a y-o-y basis in Q2. All this indicating that the digital channel will continue to produce robust growth during the back half of the year. Also, URBN’s Free People’s activewear was more successful than the overall brand in Q2 as customers favored athleisure and comfortable clothing for spending more time at home. This trend will also likely continue into Q3.

2) EPS also likely to be ahead of consensus estimates

URBN’s Q3 2021 earnings per share (EPS) is expected to be 46 cents per Trefis analysis, almost 5% above the consensus estimate of 44 cents. Urban Outfitters’ net income of $34 million in Q2, was a big improvement from its $138 million loss in Q1. It should be noted that a higher percentage of sales in digital hurts the company’s bottom line as it still has to pay for its under-utilized retail locations along with the added cost of shipping online.

For the full-year, we expect a 15% y-o-y decline in Urban Outfitters’ revenues and a diluted EPS loss of 30 cents.

(3) Stock price estimate lower than the current market price

Going by our Urban Outfitters’ Valuation, with a revenue estimate of around $3.4 Bil and P/S multiple of 0.7x in fiscal 2021, this translates into a price of $24, which is 16% lower than the current market price of around $29.

Although the coronavirus outbreak will have a sizable impact on Urban Outfitters’ revenues in fiscal 2021 due to lower discretionary spending, store closures, and increased unemployment; we believe the demand for apparel and athleisure products will rebound as the spread of the virus subsides. Furthermore, Urban Outfitters’ well-established digital business is helping to mitigate the impact of store closures on the company’s top-line.

Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year

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