Urban Outfitters Has 'No Relief In Sight'

With Urban Outfitters, Inc. (NASDAQ: URBN) scheduled to report its Q4 2017 results after Tuesday's close, Wunderlich’s Eric Beder believes the company “continues to register margin weakness in the face of weak sales gains, the weakening of gains from inventory management, and a mix shift to lower margin digital sales.”

The analyst maintained a Hold rating on the company, while lowering the price target from $32 to $26.

'General Malaise'

Beder mentioned that Urban Outfitters wasn't immune to the “general malaise” being faced by the apparel sector.

The analyst also expressed concern regarding the company’s shift to more branded goods, in an attempt to chase the “nostalgia trend,” as well as the fact that the margins for Anthro appear to have peaked.

Urban Outfitters already announced its Holiday sales were “tepid,” with flat same-store sales for Q4, driven by weakness at Anthro, as well as a slowing of trends at Urban.

In addition, Beder stated “given the shift to online, management commented that (once again) gross margins would be under pressure.”

The analyst expects the EPS for Q4 to come in at $0.55, a penny below the consensus forecast.

Related Link: Retail Earnings Expectations: Ascena Vs. Urban Outfitters

'No Relief In Sight'

Beder also believes February has been a difficult month for Urban Outfitters, “as weather swings, clearance goods, and traffic declines have hurt the entire sector.”

In addition, the continued shift to more online is likely to continue to hurt overall margins.

Reducing the EPS estimate for FY2018 from $2.06 to $1.85, the analyst noted that the year was expected to be “another period of limited momentum,” with comp momentum at best remaining muted until the second half of the year.