Earnings Preview: Will Urban Outfitters continue the growth momentum in Q3?

For the past two quarters, specialty retailer Urban Outfitters (URBN) has been beating the analyst consensus, which has been viewed as a positive sign by investors about the company’s reviving fortunes. The retailer is scheduled to release its third quarter results on November 19th after the bell. Shareholders would like to see the firm continue its growth momentum in the third quarter.

Analysts expect the specialty retailer’s earnings to jump 53.6% to $0.63 per share for the third quarter compared to $0.41 per share reported in the prior year period. Sales is expected to touch $969.05 million, an increase of 8.5% compared to $892.77 million reported last year.

Investors will be interested to hear from the management about the upcoming holiday season. With buoyant labor market along with rising wages is going to bode well due to increased consumer spending.

Related: Two retail winners to buy ahead of the holiday season

National Retail Federation forecasts US holiday sales this year to be in the range of 4.3% to 4.8%. It’s worth noting that the projections are lower compared to last year’s 5.3% sales growth. On the flip side, the outlook is better than the 3.9% average rise recorded over the last five years. For retailers, sales from the holiday season are very important as it brings in nearly 40% of their annual sales.

Sales from the digital channels are expected to increase rapidly compared to physical stores. Last quarter, the retailer recorded double-digit sales growth from digital channels. With changing consumer shopping habits, the company’s focus to beef up online sales is going to be beneficial in the long term. Investors would expect online sales to continue its growth momentum in the third quarter, which would be an impetus to lift top and bottom line performance.

Urban Outfitters posts upbeat results in Q2

Last quarter, the company’s earnings spiked 91% to $0.84 per share, while sales improved by 13.7% to $992 million aided by double-digit growth in comp sales and digital channel sales. The retail segment grew 13% while wholesale segment saw 10% sales improvement resulting in the stock price increasing 2% in the after-market trading post the earnings announcement.

At the end of the second quarter, the company operated 620 stores. For the fiscal year 2019, Urban Outfitters plans to open 18 stores and expected to close 13 stores, meaning net new stores to be opened would be 5 stores. With modest retail store traffic growth, the company has been cautious in opening new stores, resulting in better margins and lower store-related expenses.

The retailer’s stock price has jumped nearly 48% over the past 12 months and rose above 8% in 2018. Analysts, on an average basis, expect the stock price to touch $49.37 based on solid macro factors which are going to be a tailwind for the company’s growth.

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