Urban Outfitters stock faces lowered price target, says JPMorgan with Overweight rating

EditorAhmed Abdulazez Abdulkadir
Published 08/22/2024, 05:58 PM

On Thursday, JPMorgan adjusted its outlook on Urban Outfitters, Inc. (NASDAQ:URBN), dropping the price target to $42.00 from the previous $43.00 while maintaining an Overweight rating on the company's shares. This revision follows Urban Outfitters' second-quarter financial report, which revealed an adjusted earnings per share (EPS) of $1.24, surpassing the consensus estimate of $1.01 by 23%.

Urban Outfitters experienced a slight shortfall in same-store sales, which grew by 2% compared to the expected 3%. However, this was compensated for by an adjusted gross margin increase of 70 basis points year-over-year to 36.5%, outperforming the anticipated 35.1%. This improvement was attributed mainly to the performance of Nuuly, the company's subscription rental service, and its wholesale operations.

Additionally, Urban Outfitters benefited from a more favorable selling, general, and administrative (SG&A) expense rate, which came in at 25.8% of sales, lower than the forecasted 26.0%.

A closer examination of the same-store sales figures reveals that all three of Urban Outfitters' brands did not meet consensus expectations. Anthropologie registered a 6.7% increase, below the predicted 7.6%, Free People's sales rose by 7.1%, just under the 7.8% estimate, and the core Urban Outfitters brand saw a 9.3% decline, which was steeper than the anticipated 8.4% decrease. The Urban Outfitters brand also engaged in higher merchandise markdowns throughout the quarter.

Urban Outfitters' management has set forth expectations for the third quarter, projecting a mid-single-digit year-over-year increase in consolidated sales growth, including a low-single-digit rise in same-store sales, which aligns closely with the Street's forecast. However, they anticipate a roughly 100 basis points decrease in third-quarter gross margin to approximately 34.5%, which falls below the Street's prediction of a 75 basis points increase year-over-year to 36.2%.

SG&A expenses are expected to grow by mid-single digits year-over-year, aligning with the Street's projection of a 5.4% increase. Based on these projections, the anticipated third-quarter EPS is approximately $0.80, which is more than 20% below the Street's expectation of $1.03.

In other recent news, Urban Outfitters, Inc. reported strong second quarter results, including earnings per share of $1.24, surpassing the consensus estimate of $1.00. The company's revenue rose 6.3% YoY to a record $1.35 billion, slightly above the expected $1.34 billion. This was driven by strength across all three segments - Retail, Nuuly and Wholesale, with particular growth in the Nuuly segment where net sales surged 62.6%.

However, recent developments show a slowdown in sales momentum and an expected decrease in gross margin for the third quarter. Investment banking firm Jefferies adjusted its outlook on Urban Outfitters, reducing the price target to $34 from $35, maintaining an Underperform rating on the stock. This adjustment comes amid mixed performance within the company's various brands and a noted deceleration in sales.

Citi also revised its price target for Urban Outfitters to $39.00, down from the previous $44.00, while maintaining a Neutral rating. This followed the report of weaker gross margins anticipated to be 100 basis points lower than the positive 90 basis points forecasted, due to planned increases in promotions at the company's Anthropologie and Free People brands.

Despite these challenges, Urban Outfitters is working on a turnaround plan for its flagship brand. The company's management has outlined a plan aimed at revitalizing the brand, which is expected to bring about gradual changes. Furthermore, the company opened 19 new retail locations and closed 9 during the first half of the fiscal year.

InvestingPro Insights

Urban Outfitters, Inc. (NASDAQ:URBN) has been subject to recent adjustments by analysts, with a notable shift in expectations. InvestingPro data shows a market cap of $3.87 billion and a favorable P/E ratio of 12.41 for the last twelve months as of Q1 2025. This suggests that the company is trading at a low price relative to its near-term earnings growth, a point highlighted by one of the InvestingPro Tips. Additionally, Urban Outfitters has shown robust revenue growth of 7.89% over the last twelve months, signaling a solid financial performance that may interest investors.

Another InvestingPro Tip to consider is the company's stock price volatility, which could impact investment decisions. Despite this volatility, Urban Outfitters has demonstrated the ability to sufficiently cover its interest payments with cash flows, and it operates with a moderate level of debt. These financial health indicators can provide reassurance to investors concerned about the company's ability to manage its obligations.

For a more comprehensive analysis, there are additional InvestingPro Tips available, which delve deeper into Urban Outfitters' financial metrics and future outlook. These tips can be accessed through the InvestingPro platform for those looking for an edge in making informed investment decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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