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Urban Outfitters Soars as Fossil Drops on Downgrade

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Struggling for many months leading up to its second quarter earnings call, Urban Outfitters (NASDAQ: URBN) pulled off a beat that had traders frantically snatching up shares on Monday in after-hours trading. Conversely, Fossil (NASDAQ: FOSL) was downgraded from Buy to Hold on Tuesday morning as the retailer finds itself at a branding crossroads.

With Christmas a few months down the road, seasonality has begun to affect the retail market in a mostly positive way. Companies ranging from Gap (NYSE: GPS) to Foot Locker (NYSE: FL) and DSW (NYSE: DSW) have experienced positive results following recent earnings reports.

While some may blame the change of seasons for Urban Outfitters' upturn as well, how does the cooling weather apply to Fossil's downgrade? As we slink away from the summer months and the holidays begin to shift front and center, many would think the watchmaker is more likely to see increased sales and heightened investor confidence. That is not the case this time around, according to Omar Saad of research firm ISI Group -- but it actually has nothing to do with the weather at all.

Saad says that watches have the opportunity to become the next handbag in terms of accessories – which is great news for Fossil. However, the retailer is currently facing a high-risk, high-reward opportunity as it attempts to take control of the industry.

"Opportunity to build a designer watch category comes once in a lifetime," Saad wrote in Tuesday's research report. "We think FOSL is poised to capitalize on this unique opportunity and actually create the aspirational watch category ($200-1,000 price point) and ultimately replicate Sunglass Hut's success in eyewear."

ISI's downgrade was not implemented to determine Fossil's holiday success, but rather was put in place to allow investors to wait out the situation. In fact, ISI believes that Fossil could see monopoly-esque growth in the near future.

Those who choose to sit on the sidelines with Fossil shares can find solace in other retail stocks that are on the mend. Urban Outfitters jumped over 15 percent in after-hours trading on Monday as the company reported net income of $61.29 million, or $0.42 cents per share, compared to $56.69 million, or $0.35 cents per shares, in the same quarter one year prior.

Urban Outfitters exceeded many analysts' expectations for the first time this year, leaving those at research firms such as Piper Jaffray and Sterne Agee to raise price targets. The retailer has been reporting good news throughout the month of August, as Urban Outfitters recently signed a deal with Viacom's (NASDAQ: VIA) (NASDAQ: VIAB) Comedy Central to promote the 2012 presidential election through hilarious t-shirts, cups and posters.

Urban Outfitters continues to rise in pre-market trading on Tuesday morning as the company is up almost 15.5 percent at $36.15. Comparatively, Fossil is trading around $87, down 1.57 percent in pre-market trading.

Latest Ratings for URBN

DateFirmActionFromTo
Sep 2014Buckingham ResearchInitiates Coverage onNeutral
Aug 2014BairdUpgradesNeutralOutperform
Aug 2014Bank of AmericaUpgradesHoldOutperform

View More Analyst Ratings for URBN
View the Latest Analyst Ratings

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