Analyst: Investors Should Continue Buying Urban Outfitters After 'Impressive' Q1

The case for a bullish stance on Urban Outfitters, Inc. URBN was reinforced by the retailer's "impressive" first-quarter report, according to The Buckingham Research Group. 

The Analyst

Buckingham's Kelly Crago maintains a Buy rating on Urban Outfitters's stock with an unchanged $50 price target.

The Thesis

Urban Outfitters' Q1was highlighted by three elements, Crago said in a Wednesday note. (See the analyst's track record here.) 

They are:

• A 7-cent-per-share EPS beat.
• Stronger comps of 10 percent versus expectations of 8 percent.
• A 130-basis-point gross margin improvement versus expectations of a 100-basis-point improvement.

During the quarter, Urban Outfitters saw strong demand for women's apparel and accessories, which helped drive a comp beat, the analyst said.

Second-quarter trends so far point to an acceleration in comps from Q1, which implies the potential for upside to not only the analyst's 9.7-percent comp estimate for Q2, but for the back half of fiscal 2019, Crago said. 

Urban Outfitters' commentary suggests it is still in the "early stages of a fashion silhouette shift" to high-waisted styles, Crago said. This suggests sustainable comp growth beyond fiscal 2019 "when considering the most recent cycle for skinny jeans and leggings lasted 10 years," the analyst said. 

Urban Outfitters did guide its Q2  gross margin to a similar rate as Q1 at a time of easing comparison. Crago's checks found clearance markdowns levels that improved sequentially in May, which makes the case for potential upside to gross margins in the quarter. 

Urban Outfitters' report suggests investors can expect more strong earnings reports ahead, which makes the stock's current valuation of 15x the 2020 EPS estimate of $2.72 attractive, according to Buckingham. 

Price Action

Shares of Urban Outfitters were trading nearly flat Wednesday morning.

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