The Street Remains Mixed On Urban Outfitters

Urban Outfitters, Inc. URBN, the parent company of Anthropologie, BHLDN, Free People, Terrain and the namesake Urban Outfitters, on Monday reported a top- and bottom-line beat in its third-quarter earnings.

Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

• Bank of America's Lorraine Hutchinson maintains a Buy rating on Urban Outfitters with a price target lowered from $60 to $50.
• MKM Partners' Roxanne Meyer maintains at Neutral, fair value estimate lowered from $47 to $43.
• KeyBanc Capital Markets' Edward Yruma maintains at Sector Weight, no assigned price target.
• Deutsche Bank's Tiffany Kanaga maintains at Sell, price target lowered from $39 to $35.

Shares of Urban Outfitters were trading higher by more than 4 percent at $37.07.

Bank Of America: Strong Quarter And Guide

Urban Outfitters' third quarter is highlighted by multiple encouraging readouts, Hutchinson said in a note. These include gross margin expansion of 130 basis points versus management's guide of 100 basis points, as well as strong comp growth at all brands.

Management's fourth-quarter guidance is also encouraging as the company expects to see a mid-single digit comp growth and a similar gross margin expansion as seen in the third quarter.

Overall, Hutchinson said the company's smaller store count, unique product assortment and a strong e-commerce penetration warrants a bullish stance on the stock. However, a downward revision in the analyst's price target is appropriate given multiple contraction in peer multiples and an increase in overall volatility

MKM: Transaction Growth Is Missing

Urban Outfitters' momentum continues as the third quarter not only marks its best third-quarter earnings performance in five years, but now marks five consecutive quarters of positive comps across all business units, Meyer said. However, transaction growth is absent from the equation and this is considered a key component of the "comp equation" as it is for off-price retailers and mall-based peers.

The firm's revised $43 fair value estimate target is based on a 15 times multiple on fiscal 2019 EPS of $2.91 (up from $2.66), which is a multiple on the higher-end of specialty retailers and above the stock's three-year forward median range.

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

KeyBanc: Moderating Improvement

Urban Outfitters' report was strong and the momentum is expected to continue moving forward, Yruma said. The rate of improvement is showing signs of moderatin, however, including an 8-percent comp growth versus 13 percent in the prior quarter. Comps slowed down 500 basis points sequentially, although it did improve 100 basis points on a two-year stack.

The stock's multiple of 12.3 times 2019 estimated P/E and 0.8 times 2019 estimated EV/sales is "fairly valued" compared to 13.1 times P/E and 0.8 times EV/sales for the broader apparel peer group.

Deutsche Bank: 'Commendable' Quarter But Not Enough

Urban Outfitters' third quarter is "commendable for checking a number of boxes" but key readouts warrants an incrementally bearish stance on the stock, Kanaga said. These include:

• Fourth-quarter comp guidance implies stable growth but isn't accelerating on a two-year stack.
• Gross product margin guidance of 30 basis points is "well below" the triple-digit gains seen in prior quarters and short of expectations.
• SG&A is up 6 percent on an implied adjusted basis, which creates deleverage versus an implied 4 percent comp.

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