Sales at Urban Outfitters Inc.’s (URBN - Analyst Report) namesake brand continue to decline and weigh upon the company’s bottom line. While Anthropologie and Free People brands contributed to the company’s performance, sales were affected to some extent by the sluggish Urban Outfitters brand performance on account of weak product execution. After falling 5.2% in the first quarter of fiscal 2015, sales at Urban Outfitters brand declined 2.4% in the second quarter. However, it is noteworthy that performance has improved sequentially.
In the recently concluded second quarter, Urban Outfitters’ total net sales increased 7% on higher non-comparable-store sales, new store openings and double-digit growth at its wholesale operations. The top line also beat the Zacks Consensus Estimate. Quarterly earnings of 49 cents a share came in line with the Zacks Consensus Estimate but dropped 3.9% from 51 cents delivered in the year-ago quarter.
We believe that the company is trying all means to bring the brand back to the growth trajectory, and remains committed to improve comparable-store sales performance, sustain investments in direct-to-consumer business, enhance productivity in existing channels, add new brands and optimize the inventory level. Going forward, the company intends to increase store count, grow wholesale operations, enhance direct penetration and augment e-commerce activities.
However, fashion obsolescence remains the key concern for Urban Outfitters’ business model, which includes sustained focus on product and design innovation. The taste and preferences of people are ever changing, and thus there remains a challenge to constantly revamp its assortment for fear of losing market share against other big players which may pour more trendy collections into the market.
The pros and cons embedded in the stock are well reflected in its Zacks Rank #3 (Hold).
Other Stocks to Consider
Until any further upgrade in Urban Outfitters’ Zacks Rank, better-ranked stocks in the retail sector would include Citi Trends, Inc. (CTRN - Analyst Report) and The Men's Wearhouse, Inc. (MW - Snapshot Report) sporting a Zacks Rank #1 (Strong Buy), as well as Zumiez, Inc. (ZUMZ - Analyst Report) with a Zacks Rank #2 (Buy).