14% Gains Left For Urban Outfitters Stock?

[Updated: 10/06/21] URBN Stock Update

Urban Outfitters (NASDAQ: URBN) recently released its Q2 2022 report, wherein revenues came in 5% above and earnings per share (EPS) were a large 60% above our estimates. The company’s revenues grew a strong 44% year-over-year (y-o-y) to $1.16 billion, driven by an easy comparison to last year. That said, the company’s revenue was also 20% above pre-pandemic levels from Q2 2020 (the calendar year 2019). URBN’s revenues were driven by strong double-digit growth in digital sales but partially offset by marginally negative retail store sales growth due to reduced store traffic. To further break down sales by brands – comparable retail net sales grew 53% at the Free People Group, 20% at Urban Outfitters, and 14% at the Anthropologie Group, compared to Q2 2020.  In addition, URBN established a new record low markdown rate with all three brands in Q2. This helped to generate outstanding merchandise and gross profit margins despite large increases in delivery and logistics expenses. The combination of strong gross profits with tightly controlled SG&A expenses led to record Q2 operating income and earnings per share of $1.28, more than twice the pre-pandemic quarter. Separately, Urban Outfitters also announced the launch of an online store allowing customers to sell used goods. Sellers can list products from any brand and will be allowed to transfer earnings directly to their bank account or redeem it for Nuuly Cash, which can only be used at the Urban family of brands. In a way, the retailer will compete here with online resellers such as ThredUp and Poshmark.

We have updated our model following the fiscal Q2 release. We now forecast Urban Outfitters’ Revenues to be $4.5 billion for fiscal 2021, up 30% y-o-y, compared to a prior forecast of a 29% y-o-y growth in revenues. We also expect EPS to come in at $3.23 compared to our prior estimate of $2.68. Given the changes to our revenues and earnings forecast, we have revised our Urban Outfitters’ Valuation at $35 per share, based on $3.23 expected EPS and a 10.9x P/E multiple for fiscal 2022 – 14% higher than the current market price. The company’s stock is up 25% year-to-date.

[Updated: 08/20/21] URBN Q2 Pre-Earnings

Urban Outfitters (NASDAQ: URBN), a lifestyle retailer focusing on young adults and teenagers, is scheduled to report its second-quarter fiscal 2022 (year ending January) results on Tuesday, August 24. We expect the company to likely beat revenue and earnings expectations, driven by improved demand in digital retail. With vaccinations ramping up and more people shopping in stores once again, the retailer enjoyed a rebound in demand in Q1 – fueled by a 51% jump in retail comparable-store sales. These comparable sales gains were broad-based across its three brands, Free People Group, Anthropologie Group, and Urban Outfitters growing 77% year-over-year (y-o-y), 50%, and 42%, respectively. We expect the company to continue this growth momentum into Q2 as well. Our forecast indicates that Urban Outfitters’ valuation is $39 a share, which is 8% higher than the current market price of around $37. Look at our interactive dashboard analysis on Urban Outfitters’ Pre-Earnings: What To Expect in Q2? for more details.

(1) Revenues expected to be marginally ahead of consensus estimates

Trefis estimates URBN’s Q2 2022 revenues to be around $1.10 Bil, slightly higher than the consensus estimate. Urban Outfitters Q1 revenue rose 57.6% to a record $927 Mil, beating consensus by $26.91 Mil. Going forward, the company expects retail segment sales growth to land in the mid-teens range – driving total company sales in the low double-digit range in the upcoming Q2. However, this retail comps growth is likely to be offset by negative wholesale segment sales due in part to the realignment of the Free People brand customer base to focus more on regular price selling.

In Q1, the retailer’s gross margins increased to 32.4% from 31.1% in the prior-year period. Based on the Q1 sales performance and forecast, the company expects its Q2 gross margins to also show over 100 basis points y-o-y improvement. Much like the first quarter, this improvement could be largely driven by lower markdown rates as a result of improving consumer demand, strong product performance, and disciplined inventory control.

2) EPS also likely to be ahead of consensus estimates

URBN’s Q2 2022 earnings per share (EPS) is expected to be 80 cents per Trefis analysis, compared to the consensus estimate of 78 cents. Urban Outfitters’ net income saw a 99% decline in 2020 to a mere $1 million, due to store closures in the first half of the year. However, the company saw its Q1 net income at $54 Mil and recorded EPS of $0.54, compared to a loss of $1.41 per share in the year-ago period, beating consensus by $0.37.

For fiscal 2022, we expect a 29% y-o-y growth in Urban Outfitters’ revenues. In addition, diluted earnings per share (EPS) could likely come in at $2.68.

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

Going by our Urban Outfitters’ Valuation, with an EPS estimate of around $2.68 and P/E multiple of 14.7x in fiscal 2022, this translates into a price of $39, which is 8% higher than the current market price of around $37.

For further comparison among peer groups, it is helpful to see how they stack up. URBN Stock Comparison With Peers shows how Urban Outfitters compares against peers on metrics that matter.

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