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Why Would Urban Outfitters Get Into The Restaurant Business?

Why Would Urban Outfitters Get Into The Restaurant Business?
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  • Shares of Urban Outfitters, Inc. (NASDAQ: URBN) lost nearly 10 percent on Monday.
  • Urban Outfitters announced it has agreed to acquire the Vetri Family group of restaurants, including the popular Pizzeria Vetri.
  • The question investors are asking is simply, "Why would a retailer acquire a restaurant group?"
  • Shares of Urban Outfitters lost nearly 10 percent on Monday after the company said that it agreed to acquire the Vetri Family group of restaurants, including a popular pizza chain, Pizzeria Vetri.

    The Deal

    Financial terms of the deal were not disclosed, likely implying that Urban Outfitters' management team doesn't expect the proceeds from the acquisition to be material to its earnings.

    However, investors are nevertheless questioning the logic behind a specialty teen retailer acquiring a group of restaurants.

    Related Link: Street Not Approving Of Urban Outfitters' Move Into The Restaurant Business

    The Wall Street Journal noted that while traffic in the shopping mall is declining, Urban Outfitters' is "going into a business where the economics are actually improving." In fact, the company's Chief Development Officer Dave Ziel told that consumers are spending more of their disposable income on food and less on clothing and apparel.

    Possible Motivations

    The Wall Street Journal quoted Richard Jaffe of Stifel who suggested that Urban Outfitters' already existing café has been successful in "driving traffic and increasing the amount of time consumers stay in the store." The analyst also suggested that "the challenge of operating a new business and successfully integrating it with Urban Outfitters is not insignificant."

    Is It Logical?

    On the other hand, Brian Sozzi of The Street questioned the logic behind an acquisition. Speaking to Benzinga, the retail expert said that the acquisition "raises more questions" surrounding the credibility of the management team.

    Sozzi added that Urban Outfitters has had a year of "questionable product decisions," and on top of that, the company is now buying a restaurant chain "at the top of the market for trendy restaurant chains."

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