Urban Outfitters Stock To Likely See Little Movement Post Q2

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Trefis
URBN: Urban Outfitters logo
URBN
Urban Outfitters

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

Urban Outfitters (NASDAQ: URBN), a lifestyle retailer focusing on young adults and teenagers, is scheduled to report its second-quarter fiscal 2024 (year ending January 2024) results on Tuesday, August 22. We expect the company to likely match revenue and earnings expectations with consensus in Q2. The company grew Q1 revenue and margins despite weak consumer spending. With an affluent customer base and a low wholesale exposure, the company will likely be able to maintain a positive outlook in the near future. There is a lot of momentum behind Nuuly, Urban Outfitters’ apparel rental business, and it could grow significantly in the long term. Due to Nuuly’s growing subscriber base, Urban Outfitters is expanding their fulfillment network to accommodate 600,000 subscribers in the future. This infrastructure will be built in-house by Urban Outfitters, rather than through partnerships (thereby increasing capital expenditure from $199 million in FY 2023 to over $225 million for FY2024). There are execution risks that could hinder the company’s return on investments, whether in the form of delays, expensive overruns, or underperformance of subscriber numbers. Moreover, the company has several segments that are not traditional fits, like Menus & Venues (a restaurant business) and Nuuly, and management will need to think differently to ensure strong growth.

Notably, URBN stock had a Sharpe Ratio of 0.3 since early 2017, which is lower than the figure of 0.6 for the S&P 500 Index over the same period. Compare this with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

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Our forecast indicates that Urban Outfitters’ valuation is $35 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 Q2? for more details.


(1) Revenues expected to come in line with consensus estimates

Trefis estimates URBN’s Q2 2024 revenues to be around $1.25 Bil, matching the consensus estimate. In Q1, Urban Outfitters sales rose 5.9% year-over-year (y-o-y) to $1.1 Bil. By brand, comparable retail segment net sales were up 17% at the Free People Group, rose 13% for the Anthropologie business, and decreased 13% at Urban Outfitters. Wholesale segment net sales decreased by 11%, driven by a 14% decrease in Free People Group wholesale sales due to a decrease in sales to department stores and specialty customers. Also, Urban Outfitters’ gross profit margin grew 260 basis points to 33.3% in Q1 2024, driven by higher initial merchandise markups at all three brands primarily driven by lower inbound transportation costs. 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 Q2 2024 earnings per share (EPS) is expected to be 89 cents per Trefis analysis, in line with the market estimates. In Q1 2023, the company earned $0.56 per share, up from $0.33.

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

Going by our Urban Outfitters’ Valuation, with an EPS estimate of around $2.85 and a P/E multiple of 12.3x in fiscal 2024, this translates into a price of $35, 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.

Returns Aug 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 URBN Return -4% 47% 23%
 S&P 500 Return -5% 14% 95%
 Trefis Multi-Strategy Portfolio -9% 17% 276%

[1] Month-to-date and year-to-date as of 8/18/2023
[2] Cumulative total returns since the end of 2016

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