Urban Outfitters...The Day After

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Shares of Urban Outfitters, Inc. URBN fell Monday following disappointing Q1 results.

Following Tuesday’s open, the stock traded at $34.76, down 14.64 percent.

Wall Street analysts weighed in on the results. Below are highlights along with current ratings and price targets.

Oppenheimer - Perform, $35 price target

“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. While May improved (we think Anthro comps up LSD/MSD, after down HSD in April), this is likely driven by step-up in promotions/marketing shift; given top-line misses at department stores, backdrop for women's apparel is becoming more competitive, making positive comp guidance optimistic, in our view.”

Related Link: Specialty Retailers Wedbush Is Following

Barclays - Equal Weight, $37 price target

“During 1Q, we estimate FX negatively impacted sales by ~ 140 bps, while the challenges at the company’s new distribution center shifted $2 million of sales into May. By brand, comps increased 17% at Free People, 5% at Urban Outfitters brand, and 1% at Anthropologie—a result we believe was well-below investor expectations. In fact, management noted several category miscues at Anthropologie, notably dresses and accessories.”

Morgan Stanley - Equal-weight, $38 price target

“We believe the slowdown was driven by several different factors: 1) Easter shift into March and out of April; 2) shift of a catalog drop date out of April into May; 3) weakness in dresses (not enough casual, opening price point items); and 4) weakness in accessories (although this has been a trend for the past few quarters). We believe management has accurately identified all of the issues and should be able to course-correct by 3Q. Notably, URBN still has 50% of its open-to-buy three months out, suggesting management should be able to fix its dress assortment issues by 3Q.”

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Wunderlich - Buy, $49 price target

“More positives than negative within the Anthropologie group. BHLDN and Terrain brands have done very well with triple digit sales growth and double digit comp sales, respectively. Anthropologie will introduce a home website, which includes improved navigating, enhanced delivery service and rates (which could cut back into margins), and content. Finally, management has stated that the new home catalog and new products have improved Anthropologie sales so far this month; May had seen a material improvement from 1Q.”

Wedbush - Neutral, $34 price target

“The UO division performed well during 1Q15, comping +5% and ending the quarter with half the level of markdown inventory compared to last year. Notably, the women’s apparel business returned to positive comps during the quarter. IMU issues continued to weigh on margins, but executives see IMU trends flattening out in 2Q15 and expect YOY improvement during 2H15. We are encouraged by the results at UO and expect continued progress through the balance of the year.”

RBC Capital Markets - Outperform, $40 price target

“While we expect URBN shares to trade off sharply following the 1Q15 print, looking out, we believe estimates have been appropriately derisked given: 1) the Anthro brand has demonstrated improvement QTD; 2) the gross margin guidance embeds markdowns at Anthro similar to 1Q15 for the remainder of the year; 3) inventory is clean (up 14% vs. 8% top line increase in 1Q15 but down 5% on a unit basis); and 4) IMU becomes a real tailwind in 2H15 (estimated ~125-bps YoY).”

Mizuho - Neutral, $36 price target

“Similar to our suspicion that prior gross margin target of 100 bp gain TY may be overly optimistic, management reduced the outlook to 25-50 bp of gain amidst efforts to turn UO and as Anthro raised markdowns. While we are encouraged by cleaner inventory (units -5%), we expect 2Q gross margin erosion, clouding visibility around a turnaround with strength in all brands, especially as UO & Anthro’s domestic growth begins to near a ceiling.”

Bank of America - Buy, $45 price target

“Trends have improved in early May as new receipts arrived, the catalog dropped and promotional days were added. We expect trends to improve modestly to +2% in 2Q; although the improvement will be at the expense of GM as the company uses promotions to drive sales. Anthro’s management expects dresses to on trend by June and accessories by the Fall, supporting 2H growth.”

UBS - Neutral, $37 price target

“We view URBN as a leader in ecommerce with sales penetration of 30-35%, meaningfully above its peers at 15-20%. The mix shift towards DTC has allowed URBN to lever occupancy despite negative store-only comps. Ecommerce margins are ~200 bps higher than stores, which will continue to lift URBN’a margin profile as it increasingly invests in the channel (reiterated target of 50% of sales over next few yrs.)”

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Posted In: Analyst ColorAnalyst RatingsTrading IdeasBank of AmericaBarclaysmizuhoMorgan StanleyOppenheimerRBCUBSWedbushWunderlich
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