Urban Outfitters Tops 3Q Estimates; Analysts Raise PT

Urban Outfitters crushed analysts’ expectations for the third quarter even as the pandemic continues to hurt sales of major retailers.

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The company, which owns brands like Anthropologie, Free People, Urban Outfitters and Terrain, posted EPS of $0.78 in 3Q, beating the $0.44 consensus estimate. Urban Outfitters’ (URBN) EPS grew 39% year-over-year, driven by lower markdowns and tight control over inventory and expenses.

Meanwhile, net sales declined 1.8% year-over-year to $969.6 million, surpassing analysts’ estimate of $924.2 million. The top line gained from a 5.2% rise in sales from the company’s namesake Urban Outfitters brand and a 0.6% gain in sales from the Free People brand. Also, sales from the company’s subscription retail business, Nuuly, exploded to $6.7 million in 3Q20, from $2.0 million in 3Q19. However, weakness in Anthropologie Group and Menus & Venues brands dragged down 3Q sales.

Retail store sales continued to be impacted by lower customer traffic, while digital sales increased by double-digits in 3Q. (See URBN stock analysis on TipRanks)

Ahead of the company’s 3Q release yesterday, Morgan Stanley analyst Kimberly Greenberger raised the price target on Urban Outfitters to $30 from $28 and reiterated a Buy rating. Greenberger sees the potential for “upside surprises” as specialty retailers report their 3Q results. Her view is based on several tailwinds, including cooler weather, rising consumer confidence, improving discretionary retail foot traffic, clean inventory levels and a potential pull-forward of holiday sales.

Likewise, J.P. Morgan analyst Matthew Boss raised his price target to $27 from $19, but maintained a Hold rating ahead of the company’s 3Q results.

Urban Outfitters did not issue any outlook for 4Q as it believes that “there is a ton of uncertainty in the consumer behavior for the holiday season.”

With shares rising about 14% so far in 2020, the average price target of $25.61 indicates a downside potential of 19.1% in the coming 12 months. The Street is cautiously optimistic about Urban Outfitters, with a Moderate Buy analyst consensus based on 6 Buys and 13 Holds.