Urban Outfitters Inventory Continues To Improves, Citi Raises Target To $42

Urban Outfitters, Inc. URBN reported its Q2 results significantly ahead of expectations, with better EPS, sales and gross margin. Citi’s Paul Lejuez maintained a Buy rating on the company, while raising the price target from $35 to $42. The analyst commented that gross margin should improve going ahead, since inventories “are in great shape.”

Urban Outfitters reported its EPS at $0.66, significantly ahead of the consensus estimate of $0.55 and the Citi estimate of $0.51. Sales grew 3 percent, and comps came in at +1 percent, beating expectations.

Positives In The Quarter

The UO brand recorded comps of +5 percent, marking the highest comps in 5 straight quarters. Although Anthro comps were at -2.5 percent, the brand delivered near record merch margins. This, along with UO’s strong merch margins, enabled Urban Outfitters to report its “highest merch margin in recent history,” analyst Lejuez mentioned.

Inventories Decline

The company’s EBIT margin improved +130bps to 13.3 percent, with GM up +180bps and SG&A down 50bps. Inventories declined by 4 percent, with UO down 2 percent, Anthro down 6 percent and FP down 8 percent, analyst Lejuez noted.

With inventories being “in great shape,” Urban Outfitters should continue to generate gross margin expansion, Lejuez stated. He added, “We believe merch margins can exceed prior peak levels at all brands as inventory turns continue to improve and higher private label penetration acts as a tailwind.”

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