Bear of the Day: Urban Outfitters (URBN)

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It has been a very challenging environment for mall based retailers due to declining traffic, rising trend for online shopping and increasing competition from off-price fashion chains. Many of them have seen declining sales of late despite improving labor market.

About the Company

Founded in 1970 and headquartered in Philadelphia, PA, Urban Outfitters ( URBN ) is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gifts products.

The company's merchandises, focused mainly on youth, are generally sold directly to consumers through stores, catalogs, call centers and e-commerce platforms. The company has operations in the US, Canada and Europe.

Weak Holiday Sales

The retailer provided holiday sales update earlier this month. Total sales for the two months ended December 31 increased 3% year-over-year. However, wholesale segment net sales declined 4%. The company expects gross margin to be affected by 1) decrease in store traffic, resulting in lower store sales and increased promotional activity and 2) increase in demand for lower margin items.

They had delivered a negative earnings surprise of 9.1% in the recently reported quarter. Further, the company's revenues also missed the Zacks Consensus Estimate in the quarter.

Plunging Estimates

Analysts have slashed their estimates for the company after weak results and lower holiday sales update. Zacks Consensus Estimates for the current and next fiscal year have plunged to $1.92 per share and $2.03 per share from $1.99 and $2.15 respectively, 60 days ago.

Declining estimates sent the stock to a Zacks Rank #5 (Strong Sell).

The Bottom Line

In addition to disappointing consumer spending and mall traffic, the retail space is going through a shift toward online shopping. With tightening labor markets, "wage pressure' has also started hurting retailers. Further, incoming administration's proposed tax policies are likely to hurt apparel retailers.

Zacks Industry Rank of 230 out of 265 (Bottom 13%) for "Retail-Apparel and Shoes" and the Sector Rank of 15 out of 16 (Bottom 6%) for "Retail and Wholesale" indicate more pain ahead.

However, some retailers have been able to deliver much better-than-expected results Investors could look at a better ranked retailer Tilly's (TLYS), which currently has a Zacks Rank #1 (Strong Buy). The company reported a huge beat and shares surged after the results.

More Stocks to Sell. Now.

Beyond our Bear Stock of the Day, today's list of 220 Zacks Rank #5 Strong Sells demand even more urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. Many appear to be sound investments but, since 1988, such stocks have actually performed more than 11X worse than the S&P 500.

See today's Zacks ""Strong Sells"" absolutely free >>.

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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