Urban Outfitters 'Disappointed Across All Key Operating Metrics'

Urban Outfitters, Inc. URBN reported its Q3 results and Q4 outlook short of expectations. While the results were disappointing across all key operating metrics, the trends are mostly expected to continue into the next quarter, Wedbush’s Morry Brown said in a report. He maintains a Neutral rating on the company, with a price target of $34.

“With the UO division shifting back to mid single-digit comps, we believe stock performance will be determined by the pace of Anthropologies return to positive comps,” Brown commented.

Q3 Results

Urban Outfitters reported its SSS (same-store sales) growth at 1 percent, short of the consensus expectation of 2 percent and a 300 bps (basis points) contraction from the Q2 level. Gross margin decelerated 15 bps, due to a higher mix of the IMU wholesale business and higher markdowns at Anthropologie and Free People, Brown mentioned.

Q4 Outlook

The company guided toward a year-over-year contraction in gross margin in Q4, citing higher apparel markdowns at Anthropologie and inventory-driven higher markdowns at UO.

The analyst reduced the EPS estimates for 2016, 2017 and 2018 from $2.09 to $1.96, from $2.29 to $2.12 and from $2.51 to $2.32, respectively. He added, “In the near term, we expect some volatility around sales and markdowns during Holiday, primarily at Anthro. Though 2017 could present more opportunity, as new fashion trends are embraced by a larger customer segment.”