Wunderlich Not Very Positive On Urban Outfitters

Wunderlich’s Eric Beder believes that Urban Outfitters, Inc. URBN are likely to remain range bound in the near term, given that the company’s domestic store growth seems almost at an end and the stock has limited potential for multiple expansion.

Beder reiterated a Hold rating on the company, with a price target of $26.

“We continue to believe the company's apparel offerings have remained staid and drab and, combined with anemic pricing power and weak mall traffic, have served to materially reduce any near-term upside for the company,” the analyst explained.

1Q Miss Likely

With Urban Outfitters scheduled to report its 1Q17 results on May 18, Beder believes that the consensus EPS and comp expectations could prove to be aggressive.

Beder pointed out that the company’s performance after mid-March is likely to have been weak, “driven by poor mall traffic, weak product offerings, and negatives from the Easter shift.”

Also, Wunderlich’s pricing surveys suggest that Urban Outfitters’ ability to hike prices was limited, while being among the worst in Wunderlich’s teen retailer survey.

“We believe the only potential upside driver could be further aggressive share repurchases,” Beder suggested, while adding that trends were unlikely to have improved in 2Q.

Estimates Lowered

Beder mentioned that “perhaps the only positives we see in our store tours is a focus on inventories, which will limit some of the clearance risk, but is not driving full-price selling.”

The FY17 and FY18 estimates have been lowered, to reflect a level of operating leverage that that analyst increasingly believes is unlikely to be achievable.