Rising 15% This Year, Will Urban Outfitters’ Strong Run Continue Following Q1 Results?

+0.94%
Upside
45.20
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Trefis
URBN: Urban Outfitters logo
URBN
Urban Outfitters

Note: Urban Outfitters’ FY’24 ended in January 2024.

Urban Outfitters (NASDAQ: URBN), a lifestyle retailer focusing on young adults and teenagers, is scheduled to report its first-quarter fiscal 2025 (year ending January 2025) results on Tuesday, May 21. We expect the company stock to likely trade higher with revenue and earnings beating market expectations in Q1. The company grew its 2023 revenue and earnings despite weak consumer spending. For FY 2024, URBN’s sales grew more than 7% year-over-year (y-o-y) to 5.15 billion, and earnings grew by 79% y-o-y to $3.05 per share. 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 $200 million in FY 2024 to approx $210 million for FY2025). 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.

URBN stock has seen extremely strong gains of 60% from levels of $25 in early January 2021 to around $41 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. However, the increase in URBN stock has been far from consistent. Returns for the stock were 15% in 2021, -19% in 2022, and 50% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that URBN underperformed the S&P in 2021.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could URBN face a similar situation as it did in 2021 and underperform the S&P over the next 12 months – or will it see a strong jump?

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Our forecast indicates that Urban Outfitters’ valuation is $46 a share, which is 12% 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.

(1) Revenues expected to come in ahead of consensus estimates

Trefis estimates URBN’s Q1 2025 revenues to be around $1.25 Bil, ahead of the consensus estimate. In Q4, Urban Outfitters sales rose 8% y-0-y to $1.5 Bil, driven by a total Retail segment revenue increase of 6%, Nuuly segment revenue increase of 48%, and Wholesale segment revenue increase of 3%. The Retail segment comp was driven by a high single-digit positive digital comp and a low single-digit store comp. By brand, comparable retail segment net sales were up 19% at the Free People Group, rose 12% for the Anthropologie business, and decreased 14% at Urban Outfitters. It should be noted that strong performance at Free People and Anthropologie brands, represented 70% of the business. Also, Urban Outfitters’ gross profit margin grew 293 basis points to 30.2% in Q4 2024, led by higher initial merchandise markups driven by lower inbound transportation costs.

2) EPS likely to beat consensus estimates

URBN’s Q1 2025 earnings per share (EPS) is expected to be 54 cents per Trefis analysis, ahead of the market estimates. GAAP profits for Q4 were $0.50 per share, up 50% y-o-y. Its adjusted EPS was up 82% y-o-y to $0.69 in Q4 2024.

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

Going by our Urban Outfitters’ Valuation, with an EPS estimate of around $3.57 and a P/E multiple of 12.8x in fiscal 2025, this translates into a price of $46, which is almost 12% higher than 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 May 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 URBN Return 6% 15% 45%
 S&P 500 Return 5% 11% 137%
 Trefis Reinforced Value Portfolio 6% 6% 651%

[1] Returns as of 5/20/2024
[2] Cumulative total returns since the end of 2016

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