Urban Outfitters Cooks Up A Q3 Miss, Inventory High Going Into Q4

Reviewing the third-quarter results of Urban Outfitters, Inc. URBN, BMO Capital Markets noted that the results were disappointing, as momentum at its namesake division was not adequate to offset the weakness in the Anthropologie division. The firm also noted high inventory levels heading into the fourth quarter.

3Q Metrics Analyzed

Analyst John Morris said comps growth at 2 percent missed expectations by 1 percentage point, primarily due to the struggling apparel category at Anthro division. Even as Urban reported 5 percent comp growth, Anthro and Free People posted comps in negative low-single-digits, the analyst added.

On other metrics, the analyst noted that gross margin contracted 15 basis points due to unfavorable channel shift and higher markdowns at Anthro, partially offset by better promotional activity at namesake stores.

Gross Margin To Contract

BMO noted that inventory levels at the end of the third quarter were slightly elevated. Therefore, the firm said it remains cautious about gross margin and models a 10 basis point contraction in the fourth quarter gross margins due to the higher risk of elevated markdown activity.

Remaining On Sidelines

Going forward, the firm said it remains on the sidelines due to choppiness at Anthro and near-term gross margin headwinds that could lead to a disappointing fourth quarter, heading into spring.

As such, the firm said it remains Market Perform on the shares of Urban Outfitters, with a $34 price target.

At time of writing, shares of Urban Outfitters were sliding 9.61 percent at $35.24.