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Bear of the Day: Urban Outfitters (URBN)

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Urban Outfitters, Inc. (URBN - Free Report) continues to struggle as it missed on the apparel mix at one of its most popular brands. This Zacks Rank #5 (Strong Sell) saw another quarter of declining same store sales.

Urban Outfitters operates three well known apparel and accessory brands: Urban Outfitters, Anthropologie and Free People. It operates 242 Urban Outfitters across the US, Canada and Europe; 225 Anthropologie stores in the United States, Canada and Europe; and 130 Free People stores in the United States and Canada.

It also operates websites and catalogs for all three brands. ADditionally it has 12 Food and Beverage restaurants.

Free People also sells its product wholesale, through 1,900 department and specialty stores and third-party websites.

A Miss in the First Quarter

On May 16, Urban Outfitters reported fiscal first quarter 2018 results and missed on the Zacks Consensus by 3 cents. Earnings were $0.13 versus the consensus of $0.16.

But the earnings miss or beat isn't the whole story with the retailers. It's really about the comparable store sales but those weren't good either.

Comparable store sales fell 3.1%. This included the online sales.

Only Free People saw a gain, as comparables rose 1.5%, but they declined 3.1% at Urban Outfitters and 4.4% at Anthropologie. Anthropologie has been its weakest performing segment for the last several quarters.

This quarter, the problem wasn't that they got the trend wrong, as they invested heavily in the onesies and rompers, which did sell well. But they cut back on dresses, among their most expensive apparel item, so that meant sales were soft in that category.

Additionally, the company said they didn't offer enough work clothes or dressier clothes for going out. While athleisure has been hot for several years, that doesn't mean women wear it 24/7.

Estimates Slashed for F2018 and F2019

The analysts are bearish on Urban Outfitters over the next two years. Getting the trends correctly, and doing it quarter after quarter, is proving to be difficult for all but the most skilled retailers in the apparel group.

13 estimates were cut for fiscal 2018 since the earnings report. That pushed the Zacks Consensus Estimate down to $1.52 from $1.73. The company made $1.86 last year, so that's an earnings decline of 18.2%.

Ten analysts also cut the fiscal 2019 estimates, sending the Zacks Consensus Estimate down to $1.63 from $1.86.

Shares Drop to 5 Year Lows

Retail has been one of the worst performing industries in 2017.

Urban Outfitters shares are down 31% year-to-date and recently hit 5-year lows.

They aren't expensive, with a forward P/E of just 12.4. Does that make it a bargain stock?

The company has a 20 million share repurchase program which began in 2015, but said it didn't buy back shares in the first quarter even though shares steadily slid. It has 6 million left on the authorization.

If the company isn't even buying shares, why should you?

For investors who must own an apparel retailer right now, you should consider The Children's Place PLCE. It's the only apparel retailer which has a Zacks Rank #1 (Strong Buy) rating. Earnings are expected to rise 34% this year.

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