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Earnings Preview: Urban Outfitters

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Urban Outfitters Inc. (URBN - Free Report) , the retailer of apparel, footwear and accessories, and an S&P 500 company, is scheduled to report its second quarter financial results for fiscal year ending January 2013, after the market closes on Monday, August 20.

The current Zacks Consensus Estimate for the quarter is pegged at 33 cents a share that reflects a decline of 5.7% from the prior-year quarter’s earnings. The estimates in the current Zacks Consensus range between a low of 31 cents and a high of 35 cents a share. The Zacks Consensus estimates revenue to be at $673 million for the quarter.

Recap of First-Quarter

Urban Outfitters posted better-than-expected first-quarter results. The quarterly earnings of 23 cents a share beat the Zacks Consensus Estimate of 20 cents, and came in line with the prior-year quarter’s earnings. Lower shares outstanding as well as top-line growth benefited the bottom line.

After registering a growth of 9.3% in the fourth quarter of 2012, Urban Outfitters said that total net sales climbed 8.6% to $568.9 million during the first quarter. However, total net sales fell short of the Zacks Consensus Estimate of $582 million.

Net sales by brands grew 13.2% to $266.4 million at Urban Outfitters, 2.9% to $235.1 million at Anthropologie and 19.2% to $61.7 million at Free People.

Zacks Agreement & Magnitude

The Zacks Consensus Estimate remained stable over the last 30 days, as out of 26 analysts covering the stock, one made upward revisions and one made downward revisions in the estimates, thus balancing each other. Also in the last 7 days, no movement was noticed in the Zacks Consensus Estimate, as only one analyst raised the estimate and none lowered the same.

Mixed Earnings Surprise History

With respect to earnings surprises, Urban Outfitters missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range of negative 10% to positive 15%. The average remained at 5.2%, suggesting that Urban Outfitters has outpaced the Zacks Consensus Estimate by the same magnitude in the trailing four quarters.

Let’s Conclude

Being a multi-brand and multi-channel retailer, Urban Outfitters offers a flexible merchandising strategy. The company also has a significant domestic and international presence with rapidly expanding e-commerce activities. It remains committed to improve comparable-store sales performance, adding new brands and optimizing inventory levels.

Further, to increase customer count, the company plans to augment store openings in North America and Europe, open retail outlets in Asia, enhance online and mobile marketing endeavors, increase wholesale distribution in Europe and Asia, and considerably expand direct-to-consumer business worldwide. Moreover, the company’s debt-free balance sheet also augurs well for future growth.

Fashion obsolescence remains the key concern for Urban Outfitters business model, which includes a sustained focus on product and design innovation. This may adversely impact the company’s comparable-store sales and margins. Gross margin contracted approximately 130 basis points to 35.6%, whereas operating margin shriveled 190 basis points to 9.3%.

Currently, we have a long-term “Neutral” recommendation on the stock. However, Urban Outfitters, which competes with Gap Inc. (GPS - Free Report) and Abercrombie & Fitch Co. (ANF - Free Report) , retains a Zacks #4 Rank that translates into a short-term “Sell” rating.      

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Urban Outfitters, Inc. (URBN) - free report >>

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