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Things to Know Ahead of Urban Outfitters' (URBN) Q2 Earnings

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Urban Outfitters, Inc. (URBN - Free Report) is scheduled to release second-quarter fiscal 2020 results on Aug 20, after the bell. We note that in the trailing four quarters, the company has outperformed the Zacks Consensus Estimate, recording average positive earnings surprise of 11.8%. In the last quarter, it delivered positive earnings surprise of 19.2%. Let’s see how the company is positioned ahead of the upcoming quarterly results.

Estimates Look Dull

The Zacks Consensus Estimate for the second quarter is pegged at 59 cents, indicating a decline of 29.8% from the year-ago period. Notably, the consensus mark has moved down by a penny in the past 30 days.

The consensus mark for revenues is pegged at $986.6 million, suggesting a marginal decline of 0.6% from the year-ago quarter’s figure.

Urban Outfitters, Inc. Price, Consensus and EPS Surprise

Factors at Play

Urban Outfitters witnessed dismal first-quarter fiscal 2020 results and a somewhat similar picture is likely to emerge in the second quarter as well. This is quite evident from the aforementioned Zacks Consensus Estimate.

Management anticipates second-quarter URBN Retail segment comparable sales (comps) to decline in low-single-digit range with gross margin likely to contract more than 300 basis points. We note that the company’s gross margin contracted year over year during the first quarter and rate of growth of comparable Retail segment net sales decelerated sequentially.

Also, this lifestyle products and services company is grappling with increased SG&A expenses for a while now. SG&A expenses are likely to increase roughly 2% in the second quarter, owing to elevated investment to aid digital channel sales and expenses related to the launch of Nuuly. Together, these downsides might hurt the company’s bottom line in the quarter to be reported.

Nonetheless, Urban Outfitters remains committed to sustain investments in direct-to-consumer business, enhance productivity in existing channels, add new brands and optimize inventory level. Being a multi-brand and multi-channel retailer, the company offers flexible merchandising strategy. All these are likely to cushion its top line performance.

What Does the Zacks Model Say?

Our proven model does not conclusively show that Urban Outfitters is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Urban Outfitters Earnings ESP of -3.39% combined with its Zacks Rank #4 (Sell) makes us apprehensive about an earnings beat. Markedly, we caution against sell-rated stocks (Zacks Rank #4 or 5) going into earnings announcement.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

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

Target Corporation (TGT - Free Report) has an Earnings ESP of +1.04% and a Zacks Rank #2.

Ross Stores, Inc. (ROST - Free Report) has an Earnings ESP of +1.79% and a Zacks Rank #3.

Costco Wholesale Corporation (COST - Free Report) has an Earnings ESP of +0.79% and a Zacks Rank #3.
        
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