Lifestyle retailer Urban Outfitters (URBN) continues to impress with robust performance, significantly outperforming its industry peers and the broader market. The company’s stock increased by 37% in the last week after posting solid Q3 earnings, with revenue surpassing expectations. This stellar growth has been driven by its smaller brands, FP Movement and Nuuly, whose operating profit and the 50% increase in subscribers are especially noteworthy. Despite challenging conditions in the retail sector, Urban Outfitters’ increasing gross margin, forecasted $300 million in free cash flow, and potential long-term upside make it an attractive investment.
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Urban Outfitters Expands Footprint and Prepares for Holiday Sales
Urban Outfitters is a leading lifestyle-oriented consumer brand that operates numerous global outlets and franchises, including Urban Outfitters, Anthropologie, Free People, Menus & Venues restaurants, and Nuuly, its women’s apparel subscription rental service.
The company has recently expanded its retail footprint by adding 36 new stores, including 20 Free People stores, 9 Anthropologie stores, and 7 Urban Outfitters stores.
However, the anticipated annual holiday sales surge is facing pressure due to economic concerns and a shorter pre-Christmas shopping season. This year’s late Thanksgiving date leaves fewer shopping days in November. On top of that, persistent inflation, a wavering job market, and a slight rise in unemployment since the beginning of the year have raised fears about holiday sales growth. According to a recent Deloitte report, the expected sales growth for November to January is between 2.3% and 3.3%, falling short of last year’s 4.3% growth.
Urban Outfitters Recent Financial Results
For the third quarter of 2024, the company reported revenue of $1.35 billion, exceeding expectations by $20 million. The company’s net sales for the same period also increased by 6.3%, with retail sector net sales up by 3.2% and comparable sales increasing by 1.5%. Notably, digital channel and retail store sales growth contributed to these figures, resulting in a record-breaking net income of $102.9 million. Earnings per share (EPS) of $1.10 beat expectations by $0.24.
As of the quarter’s end, the company reported cash and marketable securities totaling $763 million, with $0 drawn down on a $350 million asset-backed line of credit facility.
Is URBN a Buy?
The stock has been on an extended upward trend, climbing 61% over the past three years. It trades at the high end of its 52-week price range of $33.86 – $49.48 and demonstrates ongoing positive price momentum as it trades above all major moving averages. Despite the healthy appreciation, it trades at a discount to the industry peers, with a P/S ratio of 0.84x compared to the Consumer Discretionary sector average of 0.98x.
Analysts following the company have been cautiously constructive on URBN stock. For instance, Citi analyst Paul Lejuez, a five-star analyst according to Tipranks’ ratings, recently upgraded the shares to Buy from Neutral with a price target of $59, up from $42. He noted the Q3 results showed strong execution across the portfolio, with management guiding to a Q4 sequential comp improvement and margin recovery expected to continue into Fiscal 2025, making the stock’s risk/reward “very favorable.”
Overall, Urban Outfitters is rated a Moderate Buy based on recent recommendations of 10 analysts. The average price target for URBN stock is $46.30, representing a potential -9.30% downside from current levels.
Bottom Line on URBN
Urban Outfitters’ solid performance amidst challenging retail conditions clearly underlines its resilience. Driven by its smaller brands, FP Movement and Nuuly, the company has shown notable growth. This, coupled with an expanding retail footprint, an increasing gross margin, and a forecasted $300 million in free cash flow, cements its standing as an attractive investment prospect. While economic concerns and a shorter holiday shopping season present potential hurdles, the company’s positive momentum and attractive valuation underline its potential for long-term upside.
