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Urban Outfitters (URBN) Q3 preview: Will the earnings surprise continue?

Multichannel apparel retailer Urban Outfitters, Inc. (NASDAQ: URBN) is expected to publish third-quarter numbers on Tuesday evening. After posting mixed results for the last quarter, CEO Richard Hayne said all of the company’s brands witnessed positive comparable sales during the initial weeks of the October quarter.

Urban Outfitters stock gains as Q2 earnings top expectations; sales miss

Though the management expects low-single-digit comparable sales, the final outcome will be better than in the preceding quarter. Meanwhile, analysts predict a modest annual increase in net sales to about $1 billion. Earnings are seen falling 19% to $0.57 per share in the third quarter. In each of the previous four quarters, the bottom-line exceeded expectations. The steady user growth for its digital channel and favorable exchange rates should help the company continue the positive momentum.

Pros & Cons

The results will also benefit from the management’s efforts to expand the direct-to-consumer business and streamline inventory, besides the uptick in wholesale operations. However, weakening demand, amid rising competition and high operating costs, might squeeze margins.

Mixed Q2

The Philadelphia-based firm, which owns popular brands like Anthropologie and Free People, impressed the market in August when it posted better-than-expected earnings for the second quarter, despite a year-over-year decline. Earnings came in at $0.61 per share on revenues of $962.3 million, which dropped 3%, hurt by weak comparable sales.

Rivals

Rival fashion retailer American Eagle Outfitters (AEO) recently reported stronger-than-expected results for its most recent quarter, despite muted comparable sales growth. It also guided the third-quarter earnings below forecast. Gap, Inc. (GPS) will be unveiling its third-quarter numbers on November 21 after the bell, with analysts projecting earnings of $0.51 per share.

Related: Urban Outfitters Q2 2020 Earnings Call Transcript

Analysts, on average, have assigned Urban Outfitters’ stock moderate buy rating, with an average price target of about $28, which is 6% below the current levels. After a dismal performance in the early months of the year and hitting a two-year low, the stock has regained strength since the last quarterly report.

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