Urban Outfitters (NASDAQ: URBN), a lifestyle retailer focusing on young adults and teenagers, is scheduled to report its first-quarter fiscal 2023 (year ending January 2023) results on Tuesday, May 24. We expect the company to likely beat revenue and earnings expectations marginally. Urban Outfitters has performed well in recent years, where in its FY 2022 (year ended Jan 2022) revenues grew 32% to $4.5 billion and earnings per share grew to $3.17 from a mere 1 cent in FY 2021. URBN’s stock is down 11% in the last week after Target (NYSE:TGT) warned of rapid changes in consumer spending during the first quarter. While supply chain and inflationary pressures are a major headwind for URBN as well for the upcoming quarter, we believe that URBN’s stock drop came without reward to its individual revenue or expenses considerations. And, that this sell-off in URBN stock might be a tad overdone.
Our forecast indicates that Urban Outfitters’ valuation is $21 a share, which is 5% higher than the current market price. Look at our interactive dashboard analysis on Urban Outfitters’ Earnings Preview: What To Expect in Q1? for more details.
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(1) Revenues expected to be marginally ahead of consensus estimates
Trefis estimates URBN’s Q1 2023 revenues to be around $1.1 Bil, slightly higher than the consensus estimate. Sales at Urban Outfitters hit $1.33 billion in the fourth quarter of 2021, up about 22% from the same period in 2020 and 14% 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 Q4, which was broad-based across its three brands, Free People Group, Anthropologie Group, and Urban Outfitters – growing 49% year-over-year (y-o-y), 14%, and 3%, respectively. Going forward, a similar trend is expected to continue into Q1 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 2023, we expect Urban Outfitters’ Revenues to grow 8% y-o-y to $5 billion.
2) EPS likely to be slightly ahead of consensus estimates
URBN’s Q1 2023 earnings per share (EPS) is expected to be 43 cents per Trefis analysis, compared to the consensus estimate of 42 cents. In Q4, the company earned $0.41 per share, up from $0.29 in the fourth quarter of 2020 and $0.20 the year before that. In Q4, URBN’s gross margin fell 22 basis points, driven by lower initial merchandise markups and an increase in delivery and logistics expenses. Going forward, URBN could see rising costs on the digital side of its business as logistics – including higher wages for warehouse employees – and shipping costs increase. These headwinds could impact profitability in Q1 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 $3.09 and P/E multiple of 6.8x in fiscal 2023, this translates into a price of $21, which is 5% higher than the current market price of around $20.
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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