Urban Outfitters Is Gearing Up: Analyst Predicts 2Q23 Sales Surge, Margin Upswing, And More

Telsey Advisory Group analyst Dana Telsey reiterated Outperform rating on Urban Outfitters, Inc URBN, raising the price target to $41 from $35.

URBN will report 2Q23 results after the market close on Tuesday, August 22. 

The analyst raises the price target on expectations of margin expansion for the full year and a healthy inventory position, supporting profitability.

For the quarter to be reported, the analyst looks for EPS of $0.90 vs. $0.64 in the prior year. The estimate compares to the consensus estimate of $0.89.

On the top line, the analyst forecasts sales of $1.25 billion, up 5.6% Y/Y and in line with the consensus estimate and guidance for sales growth in the mid-single digit range Y/Y.

Driving the topline gain, Telsey projects same-store sales growth of 4.9% compared to the consensus of 5% and on top of last year's 1% comp.

In the second quarter, the analyst projects 300 bps of gross margin expansion to 34.7%, just a touch above the consensus estimate of 34.6%. 

Margins will be driven by higher initial product margins, lower inbound freight costs, and lower markdowns, mentions the analyst. 

Telsey anticipates 110 bps of SG&A deleverage to 25.5% of sales vs. the consensus forecast of up 130 bps YoY to 25.7%.

This apart, FX is expected to weigh sales by 100 bps in the period. 

Over the year, URBN expects to open 28 more stores (10 Anthro, 10 FP, 7 UO, and 1 Menus & Venues) while closing 19 stores (6 Anthro, 4 FP, and 9 UO), Telsey adds. 

The analyst also notes that the company plans to open a new highly automated omni-fulfillment facility in Kansas City, Kansas, during the back half of FY24. 

Additionally, URBN expects to add a new rental fulfillment facility in Missouri (within the Kansas City region) by the end of FY24 to support the expansion of its Nuuly rental business in North America.

Price Action: URBN shares are trading lower by 1.28% to $35.92 on the last check Tuesday.