Urban Outfitters (NASDAQ: URBN), a lifestyle retailer focusing on young adults and teenagers, is scheduled to report its fourth-quarter fiscal 2022 (year ending January 2022) results on Tuesday, March 1. We expect the company to likely beat revenue and earnings expectations, driven by improved demand in digital retail. The company reported a 15% growth in the two months (Nov-Dec) of total company net sales in a recent update. It also mentioned that the comparable retail segment net sales increased 14%, driven by strong double-digit growth in digital channel sales, partially offset by high single-digit negative retail store sales primarily due to reduced store traffic.
Our forecast indicates that Urban Outfitters’ valuation is $31 a share, which is 16% higher than the current market price. Look at our interactive dashboard analysis on Urban Outfitters’ Earnings Preview: What To Expect in Q4? for more details.
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(1) Revenues expected to be marginally ahead of consensus estimates
Trefis estimates URBN’s Q4 2022 revenues to be around $1.4 Bil, slightly higher than the consensus estimate. Sales at Urban Outfitters hit $1.13 billion in the third quarter of 2021, up about 16.5% from the same period in 2020 and 14.5% from 2019, before the coronavirus pandemic got the better of its business. Clearly, the company’s brands are still on target with consumers. The retailer saw a 14% jump in retail comparable-store sales in Q3, which was broad-based across its three brands, Free People Group, Anthropologie Group, and Urban Outfitters growing 55% year-over-year (y-o-y), 9%, and 7%, respectively. Going forward, a similar trend is expected to continue into Q4 as well. 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. For fiscal 2022, we expect Urban Outfitters’ Revenues to grow 30% y-o-y to $4.5 billion.
In Q3, URBN’s gross margin rose to 34.5% from 33.3% a year ago – driven by a record low Q3 merchandise markdown rate in the retail segment and leverage in-store occupancy expense. This was due to the increased penetration of the digital channel in retail segment net sales. Based on current sales performance, the company’s management expects Q4 gross profit margins to show approximately 100 bps of improvement to the fiscal year 2020. This improvement could be largely driven by a lower markdown rate as a result of strong consumer demand, offsetting increased freight and commodity price increase, and deleverage in delivery and logistics expenses.
2) EPS likely to be comfortably ahead of consensus estimates
URBN’s Q4 2022 earnings per share (EPS) is expected to be 54 cents per Trefis analysis, compared to the consensus estimate of 50 cents. The company earned $0.89 per share, up from $0.78 in the third quarter of 2020 and $0.56 the year before that. URBN could see rising costs on the digital side of its business as logistics – including higher wages for warehouse employees – and shipping costs increased. These headwinds could impact profitability in Q4 and more so in fiscal 2023 (year ending January 2023).
(3) Stock price estimate higher than the current market price
Going by our Urban Outfitters’ Valuation, with an EPS estimate of around $3.49 and P/E multiple of 8.8x in fiscal 2022, this translates into a price of $31, which is 16% higher than the current market price of around $27.
It is helpful to see how its peers stack up. URBN Peers shows how Urban Outfitters compares against its peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
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|S&P 500 Return||-3%||-8%||96%|
|Trefis MS Portfolio Return||-1%||-11%||252%|
 Month-to-date and year-to-date as of 2/28/2022
 Cumulative total returns since the end of 2016