Is Anthropologie Killing Urban Outfitters? New Data Shows It Might Be

In a report published Friday, BMO Capital Markets analyst John D. Morris downgraded the rating on

from Outperform to Market Perform, while reducing the price target from $53 to $30, citing near-term challenges related to Anthropologie. "Up until now our rating was premised on signs of traction and significant opportunity for operating margin recovery at the Urban Outfitters division," analyst John Morris said. While the Urban division's turnaround seems to be "recovering nicely," the Anthropologie division appears to be "struggling to regain traction coming out of 2Q and heading into fall, based on our field research and proprietary Sale Rack Index," Morris added. The analyst said that the Anthro division was taking longer to stabilize than was earlier expected. This division makes a "meaningful" contribution to the company's sales – account for about 40 percent of sales, because of which there is now "less visibility in a total-company turnaround." The EPS estimates for FY15 and FY16 have been reduced from $1.98 to $1.88 and from $2.50 to $2.15, respectively. In the report BMO Capital Markets noted, "For longer-term investors, we believe URBN remains a compelling story. We continue to see a more favorable sector backdrop overall, including a clearer fashion cycle, as well as an improving macroeconomic backdrop with lower unemployment, lower gas prices, and improving housing trends." The report also pointed out that Urban Outfitters had a blue-chip management team, a "best-in-class omni-channel," a strong supply chain as well as healthy financials, including a robust balance sheet and strong cash flow generation.