On Oct 21, 2014, Zacks Investment Research downgraded Urban Outfitters Inc. (URBN), a lifestyle specialty retailer, to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Shares of Urban Outfitters have dropped 12.5% since the company made a few predictions about its third-quarter fiscal 2015 results, on Oct 16. The company stated that comparable store sales in the quarter continued to be negative.
As a result of lower-than-expected sales, management anticipates gross margins to be pressurized in the quarter. Also, the company expects earnings per share to be adversely affected if the above predictions come true.
Apart from this, most analysts believe that the company is not quite well positioned at the moment. It has been delivering a lackluster performance in the past couple of quarters, owing to higher operating expenses and fall in sales at its namesake brand.
In the last reported quarter, earnings of 49 cents a share came in line with the Zacks Consensus Estimate but dropped 3.9% from 51 cents delivered in the year-ago quarter, mainly due to the aforementioned factors. While Anthropologie and Free People brands contributed to the company’s performance, sales were affected to some extent due to sluggish performance by the Urban Outfitters brand on account of weak product execution.
We believe the company is making all efforts to bring the brand back to the growth trajectory. On its Investors' Day, Urban Outfitters outlined strategies that will help the company double its sales by 2020.
These strategies include product expansion, improved omni-channel capabilities and enhanced customer experience. The company’s premium brands, Anthropologie, Urban Outfitters and Free People will be bolstered to boost revenues. Also, the company believes the home category to be an important driver followed by footwear, jewelry and intimate apparel.
However, Urban Outfitters’ goals have sparked mixed reactions from the analysts. Most of them argue that though the strategies appear to be simple, their execution would pose a serious challenge for the company.
Further, fashion obsolescence remains the key concern for Urban Outfitters’ business model, which includes sustained focus on product and design innovation. The taste and preferences of people are ever changing, and thus there remains a challenge to constantly revamp its assortment for fear of losing market share against other big players which may pour more trendy collections into the market.
Please mention about the drop in the Zacks Consensus Estimate..both magnitude and agreement..its the most important part of Rank change..
Other Stocks That Warrant a Look
Better-ranked retail stocks that look promising and are expected to continue with their upbeat performance include DSW Inc. (DSW), Christopher & Banks Corporation (CBK) and Aeropostale, Inc. (ARO), all sporting a Zacks Rank #1 (Strong Buy).
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