Janney Capital Maintains Buy, $41 PT on Urban Outfitters (URBN) on In-Line Q2
Janney Capital analyst Adrienne Tennant reiterated a Buy rating and $41 price target on Urban Outfitters, Inc. (NASDAQ: URBN) and raised FY estimates slightly following in-line Q2 results.
Tennant noted, as they expected, strength in comp and margins at Anthropologie and Free People was offset by a negative comp, and margin pressure, from the Urban Outfitters (“UO”) brand.
Tennant commented, "It remains unclear whether the company will experience year-over-year gross margin growth for the full year; it is all depending on the timing of improvement at the UO brand and how quickly the company can “chase” into certain product that is currently performing well at the UO brand. The fact that the company is so lean on inventory could potentially impact the UO brand’s ability to comp in 3Q14, but we are focused on positive regular-price comp performance and believe that the early signs of improvement are extremely encouraging. The company noted the UO team has executed on the company’s three initiatives for the brand, which include: 1) elevating the product and “gently” raising average retail prices; 2) heighten the customer experience by improving the visual merchandising; and 3) to back away from incessant promotional activity and aim for brand integrity. Management noted that progress is most apparent in the DTC channel where regular price comps have been running positive for five out of the last six weeks. We believe that we should begin to see margin stabilization in the fall 2014 season, with more pronounced margin expansion in calendar 2015. We believe the positive trends in regular price selling currently being seen in the company’s DTC channel at the UO brand are encouraging and look for improvement in the stores channel moving through the remainder of the year. We continue to remain positive on URBN based on: 1) a focus on inventory discipline; 2) continued strength at the Anthropologie and Free People brands, with steady improvement now being seen at the UO brand; 3) opportunities for direct-to-consumer “DTC” and international growth; 4) opportunities in product and category expansion across all divisions; and 5) last fall season’s “fashion misses” at UO create opportunities for margin improvement in 2H14 and into 2015."
The firm maintained Q3 EPS of $0.50, versus the consensus of $0.52, but lifted FY 2014 EPS from $1.94 to $1.95 (versus the consensus of $1.96) and FY 2015 EPS from $2.26 to $2.27 (versus the consensus of $2.28).
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Shares of Urban Outfitters, Inc. closed at $36.92 yesterday.