Market Overview

Urban Outfitters Gets a Dressing Down

Could it be that consumers have finally realized that you do not have to pay a crazy amount of money for a Ramones t-shirt? Do shoppers now know that retro Pabst Blue Ribbon shirts are only cool if they really are old, rather than made to look ragged? Are people catching on to the fact that images of penguins wearing rocket packs or pugs on drugs are not that funny? Nobody needs their cell phone to look like a jar of jelly beans, and nobody needs their toothbrush to be held up be a giraffe.

Above all, it is about time people realized there is nothing alternative, rock 'n' roll or punk about buying crazy stuff at the mall (take note Hot Topic (NASDAQ: HOTT)). Maybe that is why consumers have chosen not to give Urban Outfitters (NASDAQ: URBN) the benefit of the doubt following the sudden departure of CEO Glen Senk on Tuesday.

According to Reuters, shares in URBN fell approximately 17 percent on Wednesday immediately after the announcement about Senk's departure. So highly regarded is Senk that Citi downgraded URBN to Sell.

Citi analyst Jeff Black wrote in a report that, “Say what you will about Glen Senk's tenure as CEO of Urban, his abrupt departure puts a major dent in our near-term confidence that a turn is indeed at hand.”

The new CEO is Richard Hayne, URBNs chairman and co-founder. Black is not confident in his abilities though, noting that Hayne has not had a hand in day-to-day management.

Still, Senk is far from the first CEO to resign from a retail operation, and most of them manage to carry on without skipping a beat. So why is URBN so different?

The store was an odd idea to begin with. It is like a thrift store for people who want thrift store items without having to go to the trouble of sifting through the old-man-pants to get to the one gem. The point is though, that was the rewarding part.

So maybe initially, the idea of having all of those retro gems in one place without having to do the work but with paying a lot more might be appealing. It seems, though, that something as simple as the departure of a CEO sees confidence rattled to a disproportionate degree, because the URBN brand is not the solid, teen-attracting thing that it once was.

Kids, get out to your local charity shop and find an AC/DC or Rolling Stones shirt that really is from the ‘70s. You'll likely pay less and, while it might take some searching out, you will be a lot cooler for it.


ACTION ITEMS:

Bullish:
Traders who believe that Urban Outfitters will pick up again might want to consider the following trades:
  • Star with URBN. It is an established brand, and this could be a temporary blip.
  • Hot Topic is another store that overprices punk and goth items, but it is still in most malls. Get on that train.
Bearish:
Traders who believe that URBN will continue to slide may consider alternative positions:
  • Go for any other clothing store. Sadly, thrift stores are not public.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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