Urban Outfitters jumps after reporting earnings, sales beat
Shares of Urban Outfitters (URBN) rose in Wednesday’s trading after the retailer reported better than expected second quarter earnings per share and sales, although its comparable store sales declined.
After the market close on Tuesday, Urban Outfitters reported Q2 EPS of 44c on revenue of $873M, handily beating analysts’ estimates of 37c and $861.78M, respectively. However, comparable retail segment net sales, which include the comparable direct-to-consumer channel, decreased 4.9% for the quarter.
By brand, comparable retail segment net sales increased 2.9% at Free People, but decreased 4% at the Anthropologie Group and 7.9% at Urban Outfitters.
The company said the decline in was due to negative retail store sales, which was partially offset by continued sales growth in the direct-to-consumer channel.
The company also reported an increase of wholesale segment net sales of 10% and a gross margin of 34.1%. “While we are disappointed in our second quarter performance, we have a number of initiatives underway including: speed to customer, international growth, wholesale expansion and digital investments,” CEO Richard Hayne said in a statement. “We believe these initiatives combined with encouraging fashion apparel trends could lead to improved topline performance in future quarters.”
Prior to the earnings, shares of Urban Outfitters were trading at a 52-week low. Shares have been shorted heavily into the earnings report. The short ratio, short interest ratio (SIR) or float short for a public company is the ratio of tradable shares being shorted to shares in the market, or the float. It is an indirect metric of investor sentiment.
A short squeeze is a rapid increase in the price of a stock that occurs when there is a lack of supply and an excess of demand for the stock. Short squeezes result when short sellers cover their positions on a stock, resulting in buying volume that drives the stock price up.
SunTrust analyst Pamela #Quintiliano reiterated a Buy rating on the stock saying the Q2 results and conference call were “encouraging” and the company’s comments about the positive momentum of its apparel business “bodes well” for 2H17.
Jefferies analyst Randal #Konik also kept a Buy rating and upped his price target to $25 from $23 saying he sees long-term opportunity as improved execution, cost savings and plans to invest in higher return areas are expected to drive margin recovery.
KeyBanc analyst Edward #Yruma kept a $26 price target and an Overweight rating on Urban, saying there are “reasons to believe that Urban Outfitters is finally turning the corner,” as the company’s “controlled store count, 35%+ e-commerce penetration, and focus on differentiated merchandise” are “attractive,” and the company’s selling of more products at regular prices could be “an early indicator of a turn.”
In addition, Baird analyst Mark #Altschwager said with its better earnings visibility, lean store base, clean balance sheet, brand-level operational improvements underway, and undemanding valuation metrics, he likes the 12 month risk/reward. Altschwager reiterated his Outperform rating and raised his price target to $22 from $21.
GOLDMAN STILL SAYS SELL
Goldman Sachs analyst Lindsay Drucker Mann said Urban Outfitters’ Q2 report showed a notable improvement in business relative to its mid-quarter comp update in early June; however, the analyst remains Sell rated given structural pressures impacting specialty retailers and said it’s too early to have conviction for sustained positive momentum.
Drucker #Mann stills sees risk to the downside and said negative sentiment across the group should keep a cap on multiples. The analyst raised Urban’s price target to $18 from $16.
Mall-based retailers and department stores have been hurt by the increasing popularity of fast-fashion retailers like Zara, Forever 21 and H&M, as well as an increase in online shopping on sites such as Amazon (AMZN).
After the company reported weak Q1 results, Urban CEO Hayne commented that sluggish sales are “impacting virtually all U.S. brick-and-mortar retailers. There are simply too many stores and too many malls in North America.”
Nordstrom (JWN) said in June that members of its founding family formed a group to explore the possibility of pursuing a “going private” transaction, but WWD recently said that the retailer is not in negotiations with “anybody” regarding a potential sale.
Macy’s (M) last week reported another quarter of declining comps, though its EPS and revenue were above analysts’ estimates. While Macy’s backed its guidance for FY17, it forecast Q3 comp sales on an owned plus licensed basis down 2.5% “or worse” and fall season comp sales on an owned plus licensed basis to be down 0.8% to down 2.6%.
Kohl’s (KSS) also reported earnings last week, with EPS and revenue narrowly beating estimates, though its comp sales declined 0.4% from the year ago period.
J.C. Penney (JCP) reported a larger than expected loss for the latest quarter, with its comp sales dropping 1.3%.
Earlier in the year, Gap (GPS) said it would take steps to better position the company for improved business performance and that it was identifying opportunities to streamline its operating model to be “more efficient and flexible.”
Meanwhile, bebe (BEBE) secured deals with landlords in May to shutter all of its stores, allowing it to avoid bankruptcy and continue to sell products online.
Urban Outfitters rose 17.5% to $19.76 in Wednesday’s trading. Shares are down nearly 29% year-to-date.
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