BMO Lowers Earnings Estimates For Urban Outfitters

John Morris of BMO Capital Markets turned incrementally bearish on Thursday when he revised his estimates for Urban Outfitters, Inc. URBN due to a now weaker than expected average unit revenue (AUR) outlook for the second quarter.

According to Morris, a higher level of promotional activity that Urban Outfitters conducted and lower pricing architecture "puts pressure" on the company's AUR. However, this pressure is only partially offset by better inventory planning as the company continues to move towards a system of lower weeks of supply.

"Our data shows us that there was a nine point shift from the highest pricing bucket into the lowest pricing bucket," Morris wrote. "This may be due to a shift in the category mix or a deflationary pricing environment."

Morris added that his proprietary BMO Big Data (BBD) indicated that markdown SKUs were up 5 percent at Urban Outfitters' core stores due to heavy promotional activity ahead of the Memorial Day weekend. In addition, his BBD reading showed that markdown SKUs were up 6 percent at the Anthropologie brand over the same time period.

Bottom line, Morris lowered his earnings per share estimate for the second quarter to $0.56 from a previous $0.58 and also lowered his full year fiscal 2016 earnings per share estimate to $1.98 from a previous $2.00.

Shares are rated Market Perform with a $28 price target.