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Bear of the Day: Urban Outfitters (URBN)

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Headquartered in Philadelphia, Urban Outfitters Inc. (URBN - Free Report) is a specialty lifestyle retailer that offers women’s and men’s apparel, accessories, footwear, and home décor under five brand banners: Urban Outfitters, Anthropologie, Free People, BHLDN, and Terrain.

Holiday Sales Disappoint

Earlier this month, Urban released sales figures for the two months ended Dec. 31, 2019 that failed to impress Wall Street.

Net sales gained only 2.9% year-over-year, though this slight decline in retail sales was offset by 3% growth across its digital platforms. Comparable sales fell 1% year-over-year at the company’s namesake brand, while comps grew 5% and 8% at Anthropologie and Free People, respectively.

What’s more, gross margin is now expected to be low in the fourth quarter, mostly due to promotions and discounts during the holidays. Plus, delivery and logistics expenses jumped in order to “meet customer delivery expectations,” most likely due to the shortened holiday season.

Analysts have turned bearish on Urban Outfitters, with twelve cutting estimates in the last 60 days for fiscal 2020

Earnings are expected to see double-digit negative growth for the year, and the Zacks Consensus Estimate has dropped 17 cents for that same time period from $2.29 to $2.12 per share.This sentiment has stretched into 2021, though sales and earnings growth could return to positive territory.

URBN is now a Zacks Rank #5 (Strong Sell).

Shares of the retailer are down 15.7% in the last one year, and URBN took a hit after announcing underwhelming holiday sales. The S&P 500 is up over 27% in comparison.

Bottom Line

These holiday sales figures definitely aren’t the best news for Urban, especially coming off its disappointing third quarter. Like many apparel-focused retailers, the company has been impacted by tariff pressures and high inventory levels. Despite consistent growth in its digital channels, investors seemed to have lost confidence in the stock.

Investors who are interested in adding a mall retail peer to their portfolio could take a look at Zacks Rank #1 (Strong Buy) ranked Zumiez ZUMZ, which is seeing double-digit earnings growth and positive estimate revisions for fiscal 2020.

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