Getty Images
Urban Outfitters shares slid 12.1% Wednesday to mark their biggest one-day percentage decline in 18 months, after the company missed profit and sales estimates in its latest quarter.
Analysts were mostly alarmed at news the company had been hurt by a fashion shift that Chief Executive Richard Hayne said ““seems to have its roots in Europe,” according to a FactSet transcript of the conference call. Haynes said younger consumers have been quicker to adopt the new trend than older ones. Urban Outfitters’ URBN, -1.82% brands include its namesake stores, Free People and Anthropologie.
“So, in the third quarter, the Urban and Free People brands benefited from the shift while the Anthropologie brand didn't,” said Hayne. “In the fashion industry, times of rapid change, like we see when silhouettes shift, offer the greatest opportunities but also offer the greatest risks.”
Some analysts said Urban Outfitters will eventually catch up with the new fashion trends, but others aren't convinced.
“We remain concerned that the demographic appeal of Urban Outfitters’ brands isn't broad enough to successfully mitigate the high fashion risk inherent in the company’s merchandise approach,” wrote Credit Suisse analysts in a note published Tuesday. “As a result, over the past five years, strength in one concept has been largely offset by product misses in the other concepts.”
See also: Strategies for shopping on Black Friday
See also: 6 things not to buy at an outlet store
Credit Suisse rates Urban Outfitters shares neutral with a $34 target price.
Urban Outfitters late Tuesday reported earnings per share of 40 cents, missing the 44-cents FactSet consensus. Sales for the quarter totaled $862.5 million, up from $825,3 million, but short of the $869.0 million FactSet consensus.
Same-store retail sales increased 5.2% at the Urban brand, but declined 1.5% at Free People and 2.7% at Anthropologie.
See also: Urban Outfitters shares slip after earnings miss
What can artificial intelligence do for retail?
Customers return about 23% of their purchases both in-store and online, costing retailers $643 billion per year. Can artificial intelligence eliminate returns through virtual 3D try-on?
Analysts at RBC Capital Markets say the silhouette is moving toward things like pants with a higher waist and looser shapes. Analysts there believe that the Urban brand has momentum because 90% of its apparel is exclusive to the brand, it has strong collaborations and far social media reach. Also, the brand is “drawing both new and returning core customers.”
However, there is an overall lack of visibility due to sales deceleration at Free People and volatility at Anthropologie.
RBC rates Urban Outfitters shares sector perform with a $34 price target.
See also: Abercrombie & Fitch is trying to rebrand but it’s actually just confusing customers
Analysts at Cowen & Co. believe Urban Outfitters’ “most significant issues include responding, planning and forecasting changes in fashion; managing physical store traffic; and prioritizing implementation of the right digital capabilities,” analysts wrote in a note published Wednesday.
While analysts are bullish on the company’s efforts with the Urban brand, “a near- and long-term worry for Urban Outfitters, in our view, is the rise of Amazon AMZN, -0.40% ,” the note said.
See also: Is your local Macy’s closing? Department store lays out real estate plans
Analysts suggest placing attention on services, personalization and convenience.
“Hopefully, Urban Outfitters is on a path to sustainable long-term value creation and will be able to minimize fashion misses which lead to comp and markdown risks at rotating brand banners,” the note said.
Cowen & Co. rates Urban Outfitters shares market perform with a $37 price target.
Stifel analysts are more optimistic, largely because of the company’s efforts across different platforms.
“The deliberate and thoughtful store growth throughout the company’s history has resulted in a business that is right sized, not overstored, appropriate in this omnichannel retail environment,” analysts wrote in a note published Tuesday. “Additionally, the company’s continued shift to increased proprietary product insulates the company from the competitive pressures of Amazon.”
Stifel believes Urban Outfitters has “highly differentiated, omnichannel brands” with global growth potential.
Stifel rates Urban Outfitters shares buy with a $40 price target.
Shares are up 50.8% in the year so far, while the S&P 500 SPX, -0.09% has gained 7.9%.
