Urban Outfitters Downgraded - Analyst Cautions Against Visibility Challenges

Telsey Advisory Group analyst Dana Telsey rated Urban Outfitters, Inc. URBN to Market Perform from Outperform, lowering the price forecast to $44 from $49, citing the ongoing challenges to the visibility of the stock.

Urban Outfitters reported second-quarter results, where revenue increased 6.3% to $1.35 billion. 

The analyst estimates that a lower tax rate relative to the market’s expectations (23.0% vs. consensus of 24.2%) benefited EPS by $0.02 in the second quarter.

Total Retail segment net sales increased 3.1%, with comparable Retail segment net sales increasing 2% driven by low single-digit positive growth in both digital channel sales and retail store sales.

Telsey noted that the company achieved better-than-expected sales, gross margin, and expense control for the second consecutive quarter. However, the comparable sales miss was disappointing, with all three brands underperforming against market expectations.

Also Read: Urban Outfitters Reports Q2 Results: Strong EPS, Record Quarterly Sales

Due to slowing trends and the analyst’s concerns about increased earnings risk, the price target has been lowered.

Since mid-July through August, Urban Outfitters has experienced a slight slowdown in retail sales, with softer purchasing despite steady traffic, the analyst noted. Nevertheless, overall company sales continue to show positive growth.

Following the second-quarter earnings beat but tempered by adjusted expectations for the latter half of the year, the analyst has slightly increased the FY24 EPS estimate to $3.64 from $3.61, compared to the previous consensus of $3.61 and $3.25 for FY23.

Consequently, the FY25 EPS estimate is raised to $3.93 from $3.90, though it remains below the prior consensus of $3.97.

Price Action: URBN shares are trading lower by 8.18% to $38.09 at last check Thursday.

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