Urban Outfitters' Record Q2: The Sell-Side's Take

With Urban Outfitters Inc URBN coming off a strong second-quarter earnings beat and record sales, Wall Street analysts came in droves to discuss the retailer's future prospects. 

Analyst Ratings:

• Nomura analyst Simeon Siegel maintained a Neutral rating on Urban Outfitters and raised the price target from $40 to $43.
• Deutsche Bank analyst Tiffany Kanaga maintained a Sell rating and raised the price target from $35 to $39.
• Wells Fargo analyst Ike Boruchow maintained a Market Perform rating and raised the price target from $45 to $50.
• Baird analyst Mark Altschwager maintained a Neutral rating with a $53 price target.
• B. Riley FBR analyst Susan Anderson maintained a Neutral rating and raised the price target from $42 to $52.

The Thesis

Urban Outfitters' Q2 makes it clear the company is a leader in fashion retail. 
Wells Fargo's Boruchow praised Urban Outfitters for being quick to recognize fashion trend shifts and called the company’s Q2 "fantastic."

“When investors talk about accelerating trends in fashion apparel, new silhouette changes and a general resurrection of the apparel space within the U.S., they are essentially referring to URBN and the inflection in their business that began 12 months ago,” the analyst said. 

The company continues to outcomp the majority of its peers; given the tone on the earnings call, Urban Outfitters' momentum could be sustained, Boruchow said. 

Nomura's Siegel said that while Urban Outfitters' momentum continues, the positive trend is priced into the stock. 

“Fundamentally, URBN is firing on all cylinders, with industry-leading comps with strong GM flow-through. However, with the shares up 36 percent YTD, it seems reasonable to assume URBN’s strong 2Q and positive QTD reads are priced into investors’ expectations." 

Deutsche's Kanaga affirmed the notion that much of Urban Outfitter’s strong fundamentals are priced into shares.

“While it’s admittedly hard for us to find fault with the company’s Q2 performance, we believe buy-side models already incorporated much of the good news, and investors could prove difficult to impress at current valuation and with ample execution risk vs. very challenging compares,” the analyst said. 

Baird's Altschwager said expectations were high, but the combination of a strong consumer backdrop, fashion tailwinds and improved execution helped Urban Outfitters clear the bar. 

“While current momentum is undeniable, we think it is reflected in valuation yielding balanced risk-reward on a 12-months basis. We would look to take some profits in the low $50s and be more opportunistic on dips." 

B Riley's Anderson praised Urban Outfitters' strength in apparel and accessories across all of the company’s brands.

Urban Outfitter comps were up 15 percent; Anthropologie same-store sales were up 11 percent; and Free People same-store sales were up 17 percent in Q2, she said. 

These numbers reinforce indications of a stronger fashion cycle that should help the company combat tougher compares, Anderson said, adding that she remains on the sidelines in light of the equity's recent run-up. 

Price Action

Urban Outfitter shares were slipping 3.5 percent to $46.07 at the time of publication Wednesday.

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