Why Urban Outfitters Does Not Look So Promising? - Analyst Blog

Estimates for Urban Outfitters Inc. URBN have been portraying a downtrend since the company posted fourth-quarter fiscal 2014 results on March 10, 2014. It seems that analysts have become less constructive on the stock's future performance, which has slipped nearly 3% since the earnings announcement.

This is evident from the movement witnessed in the Zacks Consensus Estimate that tumbled 3.8% to $2.04 for fiscal 2015 and 2.9% to $2.37 per share for fiscal 2016 in the past 30 days.

Urban Outfitters' total net sales came in at $905.9 million that fell short of the Zacks Consensus Estimate of $911 million. Sales were affected due to sluggish performance of the Urban Outfitters brand attributable to adverse weather conditions and weak product execution. Moreover, management hinted that the headwinds faced by the Urban Outfitters brand may impact its performance in the first quarter of fiscal 2015.

Net sales at the Urban Outfitters brand fell 4.2% to $398 million during the quarter, whereas comparable retail segment net sales declined 9%.

Fashion obsolescence remains the key concern for Urban Outfitters' business model, which includes a sustained focus on product and design innovation. The taste and preferences of people are ever changing, and thus it is challenging to constantly revamp its assortment in the fear of losing market share against other big players, which may flood the market with more in trend collections.

However, what is still providing cushion to this Zacks Rank #3 (Hold) stock is the better-than-expected bottom-line results, wherein earnings of 59 cents a share beat the Zacks Consensus Estimate by 7.3% and jumped 5.4% year over year. The company has registered positive earnings surprise over the trailing four quarters with an average beat of 7.1%. Moreover, total net sales of Urban Outfitters climbed 5.7% during the quarter.

We believe that the company's focus on increasing customer count, store expansion, online and mobile marketing endeavors, and direct-to-consumer business acted as catalysts.

Other Stock Worth Considering

Other better-ranked retail stocks that look promising and are expected to continue with their upbeat performance include Michael Kors Holdings Limited KORS and Hanesbrands Inc. HBI both sporting a Zacks Rank #1 (Strong Buy), along with G-III Apparel Group, Ltd. GIII holding a Zacks Rank #2 (Buy).