Urban Outfitters’ Stock To Likely See Little Movement Past Q1

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URBN: Urban Outfitters logo
URBN
Urban Outfitters

Note: Urban Outfitters’ FY’23 ended on January 2023.

Urban Outfitters (NASDAQ: URBN), a lifestyle retailer focusing on young adults and teenagers, is scheduled to report its first-quarter fiscal 2024 (year ending January 2024) results on Tuesday, May 23. We expect the company to likely beat revenue expectations marginally and match earnings expectations in Q1. While the company’s fourth quarter achieved record revenue, tight margins, and high freight costs continued to pressure the company’s bottom line. Going forward, the teen clothing retailer is projecting a solid year in fiscal 2024 with an expectation of positive comparable store sales for the company’s Anthropologie nameplate. However, the company’s namesake brand had a difficult year-end in fiscal 2023, with comparable sales down 10% in the fourth quarter. While an improvement in supply chain speed times should likely benefit the company this year, it could still see declines for the Urban Outfitters brand. Meanwhile, the Free People brand is also expecting to see sales decline as its department store customers continue to struggle. Together, the Urban Outfitters and Free People brands make up 55% of the retailer’s sales. That said, there’s uncertainty about the company’s namesake brand and weakness expected at Free People in FY 2024.

Due to URBN’s comparatively younger demographic, there are also risks associated with pricing pressure due to high inflation. Moreover, the company has several segments that are not traditional fits, like Nuuly (a rental apparel app) and Menus & Venues (a restaurant business), and management will need to think differently to ensure strong growth. Our forecast indicates that Urban Outfitters’ valuation is $28 a share, which is almost in line with 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 slightly above consensus estimates

Trefis estimates URBN’s Q1 2024 revenues to be around $1.1 Bil, slightly above the consensus estimate. In FY’23, Urban Outfitters sales rose 5.4% year-over-year (y-o-y) to $4.8 Bil. Despite that top-line result, the retailer faced material headwinds in 2022 because of inflation. Urban Outfitters’ gross profit margin declined from 32.8% in fiscal 2022 to 29.8% in fiscal 2023, a full 300-basis-point drop. For fiscal 2024, we expect Urban Outfitters’ Revenues to grow 4% y-o-y to $5 billion.

2) EPS likely to match consensus estimates

URBN’s Q1 2024 earnings per share (EPS) is expected to be 35 cents per Trefis analysis, in line with the market estimates. In FY 2023, the company earned $1.70 per share, down from $3.13. The company blamed increased inbound freight costs and the long-standing supply chain issues for this decline.

(3) Stock price estimate in line with the current market price

Going by our Urban Outfitters’ Valuation, with an EPS estimate of around $2.42 and a P/E multiple of 11.6x in fiscal 2024, this translates into a price of $28, which is almost in line with the current market price.

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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 Returns May 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 URBN Return 0% 14% -5%
 S&P 500 Return 1% 9% 87%
 Trefis Multi-Strategy Portfolio 0% 9% 242%

[1] Month-to-date and year-to-date as of 5/22/2023
[2] Cumulative total returns since the end of 2016

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