Earnings Scorecard: Urban Outfitters - Analyst Blog

By Zacks Equity Research,

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Urban Outfitters Inc. ( URBN ), the retailer of apparel, footwear and accessories, posted its second-quarter 2013 results on August 20. Here we will discuss the company's scorecard, based on the recent earnings announcement, subsequent estimate revisions by analysts as well as the Zacks Rank and long-term recommendation for the stock.

Last Quarter Synopsis

Urban Outfitters posted better-than-expected second-quarter 2013 results. The quarterly earnings of 42 cents a share, surpassed the Zacks Consensus Estimate of 33 cents, and surged 20% from 35 cents delivered in the year-ago quarter. Lower shares outstanding as well as top-line growth benefited the bottom line.

After registering revenue growth of 8.6% in the first quarter of 2013, Urban Outfitters said that total net sales climbed 11% to $676.3 million during the second quarter, and also came ahead of the Zacks Consensus Estimate of $673 million on the back of new store openings, healthy Direct-to-Consumer sales and strong wholesale operations. The company is also managing inventory effectively, resulting in lower merchandise markdowns.

Net sales by brands grew 14.1% to $310.7 million at Urban Outfitters, 3.4% to $281.8 million at Anthropologie and 25.7% to $73.8 million at Free People.

The company now plans to open 51 stores during fiscal 2013, including 18 Urban Outfitters, 15 Free People, 16 Anthropologie and 1 BHLDN and 1 Terrain. For the third quarter, the company expects to open 11 stores.

(Read our full coverage on this earnings report: Urban Outfitters Tops Estimate )

Agreement of Estimate Revisions

The agreement of estimate revisions indicates that majority of the analysts were unidirectional, following Urban Outfitters' second-quarter 2013 results.

In the last 30 days, 10 out of 26 analysts covering the stock raised their estimates, whereas 9 analysts lowered the same for the third quarter of 2013. For the fourth quarter, 17 analysts made upward revisions, whereas only 3 analysts trimmed their estimates.      

For fiscal 2013 & 2014, 25 and 22 analysts, respectively, revised their estimates upward, and none lowered the same in the last 30 days.

What Drives Estimate Revision

Clearly, a positive sentiment is palpable among most analysts, who remain optimistic on Urban Outfitters' performance. Following the earnings release, the Zacks Consensus Estimate has been portraying an upward trend with majority of the analysts remaining bullish on the stock.

Analysts remained confident about the stock outperforming in the near term betting on the company's strategy. Management remains committed to sustain investments in direct-to-consumer business in order to drive growth. The company has undertaken initiatives such as customer retention and acquisition, fulfillment of online or in-store orders through any store and expansion of online merchandise offerings to spur growth. Direct-to-Consumer penetration augmented 190 basis points to 20% during the second quarter.

Magnitude of Estimate Revisions

The magnitude of estimate revisions by the analysts is clearly reflected through changes in the Zacks Consensus Estimates.      

The Zacks Consensus Estimate for the third quarter of 2013 remained constant at 41 cents in the last 30 days, as the revisions made by the analysts had a neutral impact on the Zacks Consensus. The Zacks Consensus Estimate for the fourth quarter moved up by a penny to 51 cents in the same time frame.   

For fiscal 2013 & 2014, the Zacks Consensus Estimate jumped by 10 cents and 8 cents to $1.57 and $1.90, respectively, in the last 30 days.

Let's Conclude

Being a multi-brand and multi-channel retailer, Urban Outfitters offers a flexible merchandising strategy. The company also has a significant domestic and international presence with rapidly expanding e-commerce activities. It remains committed to improving comparable-store sales performance, adding new brands and optimizing inventory levels.

Further, to strengthen its customer base, the company plans to augment store openings in North America and Europe, open retail outlets in Asia, enhance online and mobile marketing endeavors, increase wholesale distribution in Europe and Asia, and considerably expand direct-to-consumer business worldwide. Moreover, the company's debt-free balance sheet also augurs well for future growth.

Fashion obsolescence remains the key concern for Urban Outfitters business model, which includes a sustained focus on product and design innovation. This may adversely impact the company's comparable-store sales and margins.

Currently, we have a long-term "Neutral" recommendation on the stock. However, Urban Outfitters, which competes with Gap Inc. ( GPS ) and Abercrombie & Fitch Co. ( ANF ), retains a Zacks #1 Rank that translates into a short-term "Strong Buy" rating, and well defines the company's better-than-expected results, initiatives undertaken to keep afloat in this sluggish environment, and store expansion plans.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These "Earnings Estimate Scorecard" articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education

ABERCROMBIE (ANF): Free Stock Analysis Report
GAP INC (GPS): Free Stock Analysis Report
URBAN OUTFITTER (URBN): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: ANF , GPS , URBN

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