Here's Why Urban Outfitters (URBN) is a Solid Investment Bet
Urban Outfitters, Inc. URBN seems a promising bet, thanks to its solid growth strategies and sound fundamentals. Management has been strengthening its direct-to-consumer business, enhancing productivity across the existing channels and optimizing inventory levels. URBN’s strategic growth initiative, FP Movement and store-growth endeavors are also impressive. Markedly, shares of this Philadelphia, PA-based player have gained 25.9% outperforming its industry’s 16.9% rise over the past six months.
Additionally, analysts look optimistic about this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
For fiscal 2024, the Zacks Consensus Estimate for URBN’s sales and earnings per share (EPS) is currently pegged at $5 billion and $2.48, respectively, suggesting 4.3% and 41.7% growth from the year-ago period’s figures. For fiscal 2025 also, the consensus estimate for sales and EPS presently stands at $5.18 billion and $2.77, respectively, indicating an increase of 3.7% and 11.5% from the previous fiscal year’s actuals.
Strategic Discussion
Being a multi-brand and multi-channel retailer, Urban Outfitters offers a flexible merchandising strategy. The company also has a significant domestic and international presence with rapidly expanding e-commerce activities. In addition, the company’s FP Movement and AnthroLiving initiatives hold promise.
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Management has been making investments in the FP Movement with digital and creative brand prospects. It believes that the FP Movement will lure a wider base of customers to the Free People brand. Having a differentiated position in the fitness and wellness space, the FP Movement offers a major growth opportunity and is expected to boost Free People’s brand revenues.
During the fourth quarter of fiscal 2023, the FP Movement brand witnessed an outstanding quarter, generating 38% retail segment growth. The new and existing FP Movement stores continue to outperform expectations in the reported quarter. We note that the brand saw double-digit increases in all the key categories. Early customer response to the brand’s spring trends has been sturdy, and management expects the brand's retail segment performance to be positive in the first quarter of fiscal 2024.
In addition, management remains optimistic about the prospects of Nuuly, which comprises the Nuuly Rent and Nuuly Thrift brands. During the fourth quarter of fiscal 2023, Nuuly, the subscription-based rental service for women’s clothes, contributed $42.7 million to net sales, reflecting an increase from $17.3 million recorded in the earlier fiscal year’s comparable period, backed by a 149% rise in the subscribers. Subscriber growth is backed by new subscribers and improvements in subscriber retention. Going forward, management remains optimistic about the prospects of Nuuly.
What Else?
Urban Outfitters reported mixed results for fourth-quarter fiscal 2023, wherein the top line beat the Zacks Consensus Estimate, while the bottom line met the same. Also, sales grew from the year-ago quarter’s tally.
Net sales for the three months ending Jan 31, fiscal 2023, rose 3.9% from the same-period level of fiscal 2022 to $1,384.6 million. The metric beat the Zacks Consensus Estimate of $1,365 million. Brandwise, net sales were up 7.9% from the comparable period’s level in fiscal 2022 at Anthropologie Group and 10.9% at Free People. Nuuly contributed $42.7 million to net sales, reflecting an increase from $17.3 million recorded in the earlier fiscal year’s comparable period, backed by a 149% rise in the company’s subscribers. Menus & Venues’ net sales amounted to $7.2 million, up 28.6% from the level recorded in the prior fiscal year’s corresponding period.
Further, net sales at the Retail unit rose 2% year over year. We note that the comparable Retail segment’s net sales grew 3% from the same-period level of fiscal 2022 backed by a mid-single-digit increase in retail-store sales and a low single-digit rise in digital channel sales.
Management is pleased with the sturdy overall consumer demand at the start of the first quarter. This is likely to continue throughout the impending quarter. Urban Outfitters believes that the first-quarter sales growth will be similar to the fourth quarter. This increase is to be backed by the doubling of Nuuly segment sales and Retail segment comp sales rising low-single digits, somewhat offset by lower sales across the Wholesale segment.
Based on the current sales plan, Urban Outfitters believes gross margin to increase nearly 100 basis points (bps) year over year for the first quarter, mainly driven by lower inbound freight costs that will benefit initial product margins. For fiscal 2024, management anticipated the gross margin to increase more than 200 bps on increased initial product margins and lower markdowns. We note that the Anthropologie brand will continue to report positive comps in fiscal 2024, with the first quarter being similar to the fourth quarter.
More Solid Picks in Retail
We have highlighted three other top-ranked stocks, namely Abercrombie & Fitch ANF, American Eagle Outfitters AEO and Boot Barn BOOT.
Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank of 1.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and EPS suggests growth of 1.6% and 33.1%, respectively, from the year-ago reported figures. ANF delivered a negative earnings surprise of 141.3% in the last reported quarter.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently sports a Zacks Rank of 2 (Buy). AEO delivered an earnings surprise of 23.3% in the last reported quarter.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year sales and EPS suggests growth of 3.4% and 3.2%, respectively, from the year-ago reported figures.
Boot Barn, a fashion retailer of apparel and accessories, currently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 8.7%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and EPS suggests growth of 8.2% and 9.1%, respectively, from the year-ago reported figures.
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Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
Urban Outfitters, Inc. (URBN) : Free Stock Analysis Report
Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report
