Baird Finds Reasons For Investor Patience With Urban Outfitters

Urban Outfitters, Inc. URBN first-quarter earnings were a disappointment, but the company could represent a long-term value in the troubled apparel and retail sector, according to a Baird analyst.

The company reported an EPS of 10 cents vs. a consensus of 15 cents and lower-than-expected comps of (3.1) percent vs. (2.6) consensus.

Urban Outfitters’ Q1 revenue of $761.2 million fell below the consensus of $769.1 million but above Baird’s $756.8 million projection.

Baird lowered its price target on Urban Outfitters from $28 to $25 and maintained an Outperform rating on the stock.

Despite the difficult numbers, Urban Outfitters is right-sizing its cost structure, has no debt and steady cash flow, senior research analyst Mark Altschwager said in a note.

“Long term, we view UBRN as the best house in a tough neighborhood based on its unique assortments, compelling store and digital environments, tight inventory management and rational physical footprint,” Altschwager said.

The retailer “may get more aggressive” with buybacks in the second quarter, the analyst said.

A Hit With Men's Wear And A Miss With Dresses

Among Urban Outfitters’ brands, the company saw weakness in dresses at Anthropologie and Urban Outfitters due to misallocation and fashion misses, according to Baird.

That misstep drives one of the company’s Q1 downsides and a more cautious second-quarter outlook, Altschwager said.

On the upside, Urban Outfitters has high-performing growth categories, including home, beauty and intimates, as well as men’s wear at Urban Outfitters, the Free People brand and international sales, the analyst said.

With Urban Outfitters’ strong balance sheet and EBITDA near 4.5x expected in the next year, “we believe risk/reward looks attractive for patient investors,” Altschwager said.

Related links:

The Risks To Urban Outfitters In 2017

Interpreting Urban Outfitters' Same-Store Sales Miss