Urban Outfitters


NASDAQ : US$37.51 
BUY  Target: US$49.00


Urban Outfitters is a specialty retail offering fashion apparel, accessories, and home goods through around 500 stores, online, and catalogs. The company operates under the Urban Outfitters, Anthropologie, Free People (which includes a wholesale segment), Terrain, and BHLDN brands. A

Investment recommendation

URBN reported Q4 EPS of $0.59, $0.04 above our estimate and ahead of consensus of $0.54. The company generated 4bps of yr./yr. gross margin expansion, versus our forecast of a 31bps decline, which was largely offset by an SG&A expense rate that was 40bps higher than we had anticipated. A lower tax rate drove the bulk of the upside over our projection. We are maintaining our bullish stance driven by sustained fashion improvements and performance at the Anthropologie brand (41% of total C2013 sales). Q4 SSS increased 10% on top of +7%, and the brand’s level of markdowns was 20% lower yr./yr. despite the highly promotional environment that persisted in the quarter.
Investment highlights

We expect a slow recovery at the namesake brand. We are modeling for Urban Outfitters’ (44% of total sales) SSS to decline 8% in Q1 on top of +6% as difficult weather and fashion misses continue to plague the brand.
 Weaker UO sales push our Q1 EPS estimate $0.08 lower to $0.28. Prior consensus is $0.33. We are reducing our consolidated SSS forecast by 190bps to -0.8% on top of +9%. We now expect 141bps of SG&A expense deleverage versus our prior estimate of a 33bps improvement.
 Our price target moves from $48 to $49 as rolling forward our DCF model one year offsets our reduced outlook


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