The Ratings Game: Urban Outfitters is less about its namesake store chain — and that’s a good thing, analyst says
Demand for clothing over the past year has not exactly been great, as more pressing needs like gas and grocery bills exert greater pull on consumers’ bank accounts. But as consumer demand wavers, analysts at Barclays on Wednesday said that Urban Outfitters Inc. is “among the best positioned” clothing chains, following the strong first-quarter results that it reported a day earlier.
Analysts at Barclays, led by Adrienne Yih, upgraded Urban Outfitters
shares to overweight from equal weight, citing accelerating sales growth, more clothing sold at regular prices and improving inventory trends. The analysts also raised their price target to $38 from $27.
Shares of Urban Outfitters — which owns the women’s clothing chains Free People and Anthropologie, as well as the clothing rental service Nuuly — jumped 16.3% on Wednesday, after rallying after hours on Tuesday following its quarterly results.
The chain on Tuesday reported better-than-expected first-quarter results. Sales at Anthropologie, the company’s biggest chain by revenue, climbed 13% during the quarter, and 17% at Free People Group. They fell 13% at Urban Outfitters, where a younger consumer has been hit harder by rising rents and costs for essentials. Anthropologie and Free People tend to target a higher-income bracket.
However, Urban Outfitters stores make up less than 35% of the company’s total sales, the Barclays analysts said, adding, “The momentum at Free People, the women’s clothing chain Anthropologie, and Nuuly outweighs the drag from UO.”
They said that in the nearly two decades that they’ve followed business trends at Urban Outfitters, two factors have helped gauge the company’s momentum: The store’s ability to sell products at normal prices, and increased acceptance of spring-season apparel, which can translate into bigger gains in the back-to-school and fall seasons.
“Based on the combination of this phenomenon in URBN’s history spanning various product and macro cycles, as well as inflections in inventory risk, inventory productivity, and margin expansion, we believe that URBN is positioned to be a ‘beat and raise’ story for the remainder of this year,” the analysts said, referring to a pattern of a company reporting quarterly results that beat Wall Street’s expectations and then raising its financial outlook.
Urban Outfitters reported after Walmart Inc.
last week warned that higher prices for some groceries could jeopardize sales in other parts of its stores. Big-box rival Target Corp.
which sells more of those discretionary goods, noted “softening sales trends” when it reported quarterly results last week as well.
Urban Outfitters executives, however, said they saw no fluctuations in consumer buying patterns. And they said that Anthropologie consumers continued to snap up more “dressed-up” categories — dresses, jackets, shoes with heels — and more casual fare.
“We currently see no signs of change in customer behavior,” Chief Executive Richard Hayne said on Urban Outfitters’ earnings conference call on Tuesday. “No indication that customers are shopping less frequently, buying pure items or trading down.”
Most of the 11 analyst ratings on Urban Outfitters tracked by FactSet are “holds.” Shares of Urban Outfitters are up 75.6% over the past 12 months. By comparison, the S&P 500 Index
is up 4.7% over that period.