Urban Outfitters Is Fed Up With Teenagers

Urban Outfitters, Inc. URBN is fed up with teenagers.

"We aren't getting as many young kids... but that's by design," CEO Richard Hayne told analysts Monday. "... We don't want the young teen that we started catering to several years ago."

The company hopes to shift its Urban Outfitters customer base to young adults willing to pay more for clothing than teenaged buyers and their parents.

But same-store sales at its flagship retail brand fell 7 percent in the recent period and company-wide profits tumbled 33 percent.

Relatively strong third-quarter performance at its smaller Anthropologie and Free People brands failed to offset weak results from Urban Outfitters, and the company offered an outlook below Wall Street's expectations.

Urban Outfitters fell 9 percent in recent trading Monday, to $28.11 per share.

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Mizuho's Betty Chen downgraded Urban Outfitters recently to Neutral, from Buy, citing inconsistency among the company's brands and a lack of market-share recovery by Urban Outfitters.

"Investors are focused on merchandise-driven earnings power," Chen said, noting a weak consumer response to Urban Outfitters' product assortment.

Investors "need to gain confidence that the Urban Outfitters division has stabilized," Wedbush's Morry Brown said in a note maintaining a Neutral rating. "It's unlikely the market will give them the benefit of a doubt."

Brown expects "continued turbulence" as the company tries to shift its appeal to young adults and delays its expected turnaround.

Wunderlich's Eric Beder acknowledged there are "few positives in the near-term" for Urban Outfitters. But Beder maintained a Buy rating and $42 target.

The company's strategy to attract a "more fashion-driven core customer base" by raising prices will hurt short-term results, but boost earnings over the long term, Beder said.

Similarly, Brean Capital's Liz Pierce maintained a Buy rating and $40 target. Urban Outfitters "does seem to be getting back its 'hipster' young adult customers, which sets the stage for margin improvements," Pierce said in a research note.

The company is among the "most compelling retail investment opportunities," according to Pierce, who expects a turnaround in the second half of 2015.