FBR Affirms Urban Outfitters (URBN) at 'Market Perform'; Q2 Retail Markdowns Notable, but Wholesale Strong
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FBR & Co. affirms Urban Outfitters (Nasdaq: URBN) at Market Perform with a price target of $31 following Q2 results on Tuesday night.
The firm noted the following key points:
- 3Q/2016 guidance. Management expects UO and Anthro to drive 3Q16 GM leverage (likely ~100 bps), partially offset by FP. It guided SG&A dollars to increase +LDD in 3Q16 (cycling lower compensation) and +HSD in 2016.
- Women's apparel weighs on Anthro. Despite growth in six of seven product categories, SSS at Anthro were down .2.5%, from a decline in women's apparel. Expanded categories (home, beauty, BHLDN, Terrain) contributed positive results. Despite the decline, Anthro was able to improve merch margins, driven by strong IMU improvement and lean inventory. Within women's apparel, dresses, which management has highlighted as an area of focus, comped +DD; woven tops performed well. We still believe Anthro's biggest opportunity is home, where product has been well received.
- Increased markdowns at retail, but wholesale strong. FP retail stores comped flat (driven by significant clearance sales); FP wholesale revenues grew +MSD. Wholesale revenues reflected continued success in FP Movement and Europe. Management noted 2016 fall and holiday bookings are strong, and 3Q wholesale compares are more favorable than 4Q. URBN plans to open 13 net new stores in 2016. FP entered 2Q with high inventory levels, leading to increased markdowns, driving sales but contracting margins. Comparable retail segment inventory ended 2Q16 down .8%. FP retail QTD comps remain negative, despite strong reg price selling in its DTC channel.
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