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What's in the Offing for Urban Outfitters (URBN) Q3 Earnings?

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Urban Outfitters, Inc. (URBN - Free Report) is likely to register a decline in the top and bottom lines when it releases third-quarter fiscal 2021 numbers on Nov 23, after the closing bell. The Zacks Consensus Estimate for earnings has remained stable over the past 30 days at 45 cents per share, suggesting a decline of 19.6% from the year-ago period’s reported figure. Further, Urban Outfitters has a trailing four-quarter negative earnings surprise of 55%, on average.

The Zacks Consensus Estimate for revenues is pegged at $929.5 million, indicating a drop of 5.9% from the figure reported in the prior-year quarter. Nonetheless, the rate of sales decline is likely to have improved on a sequential basis during the period in discussion. The company had witnessed a decrease of 16.5% in the last reported quarter.

Key Factors to Note

Urban Outfitters has been bearing the brunt of the coronavirus-led decline in store traffic, which is hampering store productivity. In the last reported quarter, the company’s sales declined due to weakness across all brands and segments. Retail sales were hurt by store closures for part of the quarter and a fall in store productivity after reopening. On its last earnings call, management notified that Urban Outfitters’ Retail segment, in the fiscal third quarter, was performing slightly ahead of its second-quarter performance.

Urban Outfitters, Inc. Price, Consensus and EPS Surprise

Urban Outfitters, Inc. Price, Consensus and EPS Surprise

Urban Outfitters, Inc. price-consensus-eps-surprise-chart | Urban Outfitters, Inc. Quote

Depending on the quarter-to-date performance, management then projected a mid-single-digit decline in overall sales for the third quarter of fiscal 2021. Moreover, the company said that it expects Wholesale revenues in the back half of the fiscal to remain negative. Although the company saw a slight improvement in store traffic in August (till Aug 25) from the July rate, it remained unclear if store traffic could rebound to pre-COVID-19 levels. Hence, the overall third-quarter comparable sales (comps) might remain negative but are expected to have improved on a sequential basis.

Nonetheless, Urban Outfitters’ has been gaining from its growth initiative, FP Movement. Also, its subscription rental service for women’s clothes — Nuuly — has been yielding results. Apart from this, the company has been benefiting from strength in its digital channel, which recorded solid double-digit comps in each month of the last reported quarter. The company witnessed improved conversions and the total new digital customers across all its brands increased 76% year over year. On its second-quarter earnings call, management stated that this momentum stayed in the first three weeks of August and it expects the trend to continue in the back half of the fiscal.

That being said, higher delivery and logistics costs on account of penetration of the digital channel remain a threat to the company’s gross margin. For the fiscal third quarter, management expects the gross margin rate to have deleveraged by nearly 200 bps on higher penetration of the digital channel, resulting in deleveraged delivery and logistics costs. Nonetheless, the SG&A expenses are likely to have declined around 10% in the quarter under review.

What the Zacks Model Unveils

Our proven model doesn’t conclusively predict an earnings beat for Urban Outfitters this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Urban Outfitters currently has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combinations

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season.

Casey's General Stores (CASY - Free Report) has an Earnings ESP of +3.32% and a Zacks Rank #1, at present.

Best Buy (BBY - Free Report) has an Earnings ESP of +14.92% and a Zacks Rank #2, currently.

DICK'S Sporting (DKS - Free Report) has an Earnings ESP of +16.18% and currently, a Zacks Rank of 3.

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