Urban Outfitters (NASDAQ:URBN) sank following a downgrade by Citi to neutral from buy. While the Wall Street firm expects an earnings beat when Urban Outfitters reports next week, it believes the risk/reward is more balanced at current levels. The Urban Outfitters brand will be slower to turn around, ultimately limiting possible upside to earnings per share, the firm wrote.
The consensus is Urban Outfitters has remained resilient despite sluggish consumer spending. The momentum could continue near term and longer term, Nuuly could be a potentially lucrative growth driver. However, risks are significant.
A few factors could support Urban Outfitters' ongoing momentum near term. The company's portfolio of brands target a more affluent customer base who are relatively resilient to economic headwinds. Anthropologie Group, the company's biggest brand group accounting for 41% of revenues, continues to record robust results (revenues up 12% YoY during the April 2023 quarter after a 10% You growth last year).
Free People Group, which accounts for 23% of revenues, is also going strong with revenues up 11% during the April 2023 quarter after notching a 10% YoY growth last year. Urban Outfitters Group, the company's second-largest brand is the only laggard, partly due to the brand's teen and young adults target market being relatively more impacted by macro headwinds (Urban Outfitters Group targets youths aged 18-28 versus Anthropologie Group which largely targets women aged 28-45, and Free People Group which targets women aged 25-30).
URBN gave back 37 cents, or 1%, to $36.04.
