The Urban Outfitters Q3 Print: Jefferies' Likes And Dislikes

Teen apparel retailer Urban Outfitters, Inc. URBN seems to have weathered sector-wide headwinds, as reflected by its strong quarterly report.

The company reported third quarter results Monday that showed higher revenues and flat bottom-line results. Comps were up 1 percent and were 2 percent higher excluding the impact of hurricanes.

The Analyst

Jefferies analyst Randal Konik maintained a Buy on Urban Outfitters and raised the price target from $25 to $34.

The Thesis

A return to positive comps at Anthro, cross-channel momentum at Free People, sequential improvement at the Urban Outfitters brand and a clear commitment to expense discipline were the highlights of the report, Konik said in the note. (See Konik's track record here.) 

The margin pressure at the direct-to-consumer segment and store channel weakness were the sore points, Konik said. 

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Near-term, Jefferies projects a sustained turn in women's apparel will reduce markdowns and lead to higher margins. Long-term, the firm sees international, wholesale and BHLN/Terrain as incremental drivers of margin recovery once scaled.

Urban Outfitters is well-positioned into the holiday seasion, with total inventories up 0.9 percent compared to 3.5 percent sales growth at the end of the quarter, Konik said. 

"Momentum is forming and we see LT opportunity as improved execution, cost savings from the store reorganization project and investments toward higher return areas (digital, int'l, wholesale, BHLN/Terrain) drive margins over time," the analyst said. 

"Also attractive is that URBN is not overstored and has high DTC penetration vs. peers."

The Price Action

In early trading, Urban Outfitters shares were rallying 1.34 percent to $28.65. For the year-to-date period, the shares were nearly flat, with a slight negative bias.

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