Urban Outfitters (URBN) Rides High on Strategies: Apt to Hold


Urban Outfitters, Inc. (URBN Quick QuoteURBN ) has been gaining from its robust business strategies and digital strength. The company is strengthening its direct-to-consumer business, enhancing productivity in the existing channels, expanding product assortment and optimizing inventory level. Its strategic growth initiative FP Movement and store-growth endeavors are also yielding impressive results. Benefiting from these tailwinds, shares of this Philadelphia, PA-based player have rallied 22.1% so far this year compared with its industry’s 5.8% growth.

Let’s Analyze Further

Urban Outfitters’ growth initiative FP Movement bodes well. Management 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 initiative offers a major growth opportunity and is expected to boost Free People’s brand revenues. In the reported quarter, the movement’s customer base grew more than 80% year over year and above 300% from the second-quarter fiscal 2020 reading.

The company’s subscription rental service for women’s clothes known as Nuuly also holds potential. Recently, the brand announced the launch of its sister brand Nuuly Thrift. This is a resale marketplace where customers can buy or sell women’s, men’s or kids apparel and accessories through the iOS device. During the fiscal second quarter, Nuuly’s sales of $9.9 million increased 110.6% from the year-ago period’s level.

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The company is also making a strategic partnership to enhance its assortments. It teamed up with Hims & Hers Health, Inc. (HIMS Quick QuoteHIMS ) , which operates as a multi-specialty telehealth platform. The latter provides modern health and wellness solutions to consumers, and therefore this collaboration allows Urban Outfitters to provide personalized wellness offerings. Through this tie-up, the company looks to bolster skin care, hair and more personal care items.

In addition, the company remains rational in opening stores. For the second half of fiscal 2022, management plans to open about 26 stores and close 11 outlets. It also intends to unveil an additional six Movement stores in the rest of fiscal 2022 and 15-20 stores in fiscal 2023.

What’s More?

Buoyed by the aforesaid prospects, Urban Outfitters posted sturdy second-quarter fiscal 2022 results wherein both the top and the bottom line outpaced the Zacks Consensus Estimate and improved year over year. We note that sales across the company’s all brands and segments grew year over year. The flourishing digital channel in North America witnessed mid-double-digit sales growth.

Overall, the company’s digital performance was impressive. Brandwise, net sales were up 36.3% year over year at Urban Outfitters, 52.7% at Anthropologie Group and 40.3% at Free People. Menus & Venues’ net sales amounted to $5.9 million, significantly up from $1.6 million recorded in the prior-year quarter. Margins were also impressive in the quarter.

Comparable Retail segment’s net sales rose 40% year over year and 22% from the same-quarter fiscal 2020 level on account of double-digit sales growth across the digital channel. Robust consumer demand in the majority of the product categories, mainly apparel, as well as a solid execution drove double-digit retail segment comps growth across all brands.

Management highlighted that comp sales in August at the Free People and Anthropologie brands were almost in line with the reported quarter’s levels. Urban Outfitters projects the third quarter of fiscal 2022 to continue reflecting a healthy sales improvement in comparison to fiscal 2020. Management believes that the retail segment comp sales will grow in mid teens. These will lead to overall sales growth in low double-digits.
Analysts look quite optimistic about this currently Zacks Rank #3 (Hold) stock. The Zacks Consensus Estimate of $3.32 for fiscal 2022 and $3.03 for fiscal 2023 has increased 40.1% and 12.2%, respectively, over the past 30 days. An impressive long-term expected earnings growth rate of 18% seems encouraging too.

More Key Picks in Retail Space

Abercrombie (ANF Quick QuoteANF ) has a long-term earnings growth rate of 18% and a Zacks Rank #1 (Strong Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hibbett (HIBB Quick QuoteHIBB ) , presently a Zacks #1 Ranked stock, has a long-term earnings growth rate of 22.4%.

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