Urban Outfitters set for soft third-quarter

Urban Outfitters will announce its third-quarter figures on Monday 17 November. Will the results be as poor as previously stated?

Urban Outfitters store
Source: Bloomberg

Shares in Urban Outfitters dropped below $30 per share last month when the company warned that third-quarter earnings would be hit by a slump in sales. On the back of the announcement, the stock was struck off Goldman Sachs’ conviction buy list as the investment bank predicts that growth will be weak in the next six months.

The company’s second-quarter figures, which were announced in August, exceeded estimates as revenue came in at $811 million and earnings per share was $0.49. Dealers were expecting $805 million and $0.48 respectively. Earnings may have exceeded expectations but they declined for the second consecutive quarter. The Philadelphia-headquartered company has seen sales continue to grow with its 'Free People and Anthropologie' brand but the like-for-like sales for its flagship brand, Urban Outfitters, declined by 10% in the previous quarter.

The US retail sector is having a tough time. Unemployment is coming down but low wage growth is preventing citizens from going out and spending their wages, and so we are not seeing money trickle down through the financial system. Yesterday, JC Penney and Macy’s Inc both announced disappointing like-for-like third-quarter sales. JC Penney’s figures were flat for the period while analysts had hoped for a 2.8% increase, and Macy’s registered a 1.4% drop.

Analysts are expecting third-quarter revenue of $811.58 million and EPS of $0.41 which compares with last year’s revenue and EPS of $774 million and $0.47 respectively.

Urban Outfitters will reveal its full-year figures in March 2015. The consensus is for revenue of $3.28 billion and EPS of $1.79, which compares with last year’s figures of $3.08 billion and $1.89.

Despite October’s collapse in share price, equity analysts are very bullish on the stock. Out of the 39 recommendations, 20 are buys, 18 are holds and only one is a sell, with the average price target of $36.94. Other clothing retailers such as Gap, Nordstrom and Tilly’s all have only one sell rating apiece, so analysts’ view on Urban Outfitters is in line with the rest of the industry.

On a daily basis the stock has moved out of oversold territory and $30 is acting as support.  If the company has managed expectations effectively the stock could fill the gap at $33.74, with the next level beyond that $36. However, if the figures fail to meet the already lowered estimates the October low of $29.11 would be in sight, and the next support level below that is $26.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.