Anthropologie, Free People Keep This Analyst On Urban's Sidelines: 'Not Paying A Premium'

Following the “less positive” performance during Q2 by Anthropologie and Free People, Wunderlich’s Eric Beder believes the current valuation of Urban Outfitters, Inc. URBN already reflects the company’s growth profile.

Beder maintains a Hold rating on the company, while raising the price target from $26 to $31.

“[W]e do not believe a quarter of +1 percent comps and further SG&A deleverage is enough of a turn for us to accord URBN a more premium multiple,” the analyst mentioned.

Q2 Results

Urban Outfitters reported same-store sales growth of 5 percent for its retail segment, representing the best comparable sales results in three years.

“All major product categories at the retailer were positive besides men's wear, with a number producing double-digit sales growth YoY. In addition, tight inventory controls produced the segments leanest quarterly mark-down rate ever, as well as near-record segment merchandise margins,” Beder stated.

Gross margins improved 180 bps year-on-year, driving meaningful bottom-line outperformance.

Related Link: 3 Reasons Goldman Sachs Is Buying Urban Outfitters

Free People

Following the negative comp sales in Q1, the worst recorded since 2009, the company reported flat same-store sales for Free People for Q2, driven by aggressive markdowns that helped shrink inventory by 8 percent year on year.

Urban Outfitter expects the robust early-fall sales trends to continue, and with the excess inventory having been cleared, better segment contribution is expected through the remainder of the year.

Anthropologie

Anthropologie witnessed -3 percent same store sales in Q2, due to the negative women’s apparel segment.

“‘Anthro’ was observed to have a number of solidly performing categories, not only in apparel, but also in the expanding Home and Beauty segments,” Beder added.

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