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Oppenheimer Downgrades Urban Outfitters, Says It's Never Just A One-Time Miss

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In a report published Tuesday, Oppenheimer analysts downgraded the rating on Urban Outfitters, Inc. (NASDAQ: URBN) from Perform to Outperform. The price target was lowered from $44 to $35. The company posted lower-than-expected sales and margin for 1Q15.

"Seldom do all brands work at the same time for fashion retailers, and after six quarters of challenges, improvement at Urban division is offset by fashion misses at Anthro, causing both sales and margin miss in 1Q15," the analysts said.

However, this was not the first miss reported by the company. Urban Outfitters missed the 3Q14 earnings expectations as well, while the gross margin guidance was lowered. The analysts believe that following the negative earnings revisions by the company, the business model is becoming less predictable.

On the other hand, although there was some improvement in May, it was likely to have been driven by an increase in promotions and marketing. The women's apparel segment is also becoming increasingly competitive, which is likely to prove the positive comp guidance too optimistic.

"Across department stores, 1Q15 sales/inventory turning negative bodes poorly for competitive pressures in the space; with inventories still elevated and lack of differentiated product, Anthro (will be) forced to play more with competitors," the analysts added.

While Urban Outfitters is beginning to focus on the Anthro business, the analysts expect any positive impact to take time to become visible. The EPS estimate for 2015 has accordingly been revised down.

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Nov 2017BMO CapitalMaintainsMarket PerformMarket Perform
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