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Will Urban Outfitters (URBN) Earnings Continue to Fall in Q3?

Zacks Equity Research

Urban Outfitters, Inc. URBN is scheduled to release third-quarter fiscal 2020 results on Nov 19, after the closing bell. We note that in the trailing four quarters the company’s bottom-line has outperformed the Zacks Consensus Estimate by 10.5% on average. In the last reported quarter, the company delivered a positive earnings surprise of 5.2%. Let’s see how the company is positioned ahead of the upcoming quarterly results.

Key Factors to Note

Urban Outfitters has been gaining from expanding wholesale operations, technology advancements and merchandising improvements. It remains focused on improving direct-to-consumer business, enhancing productivity in existing channels and optimizing inventory level. Further, the subscription rental service for women’s clothes called Nuuly bodes well.

In the last earnings call, Urban Outfitters guided low-single-digit growth in comparable Retail segment for the third quarter. The Zacks Consensus Estimate for comparable Retail segment suggests 3.1% growth, and calls for 6% increase at Free People and 2.5% jump at both Anthropologie Group and Urban Outfitters brands. These tailwinds are likely to show on the third-quarter top line. The consensus mark for revenues is pegged at $997.8 million, suggesting an improvement of 2.5% from the year-ago quarter’s figure.

However, the Zacks Consensus Estimate for third-quarter earnings is pegged at 56 cents, indicating a decline of 20% from the year-ago period. We note that in the preceding quarter the company’s bottom line had declined by 27.4%.

The company has been witnessing dismal margins of late owing to higher markdowns in a bid to combat soft demand. Management expects gross margin contraction of 200 basis points for the third quarter. This can be attributed to higher markdown rates and deleverage in delivery and logistics expenses, and gross profit rate related to the launch of Nuuly.

Again, Urban Outfitters projected an increase of roughly 5% in SG&A expenses for the third quarter due to elevated digital marketing investments. The company also informed that nearly $5 million of expenses related with the launch of Nuuly is included in SG&A expenses. The impact of these is likely to show on margin, and in turn the bottom line in the quarter to be reported.

Urban Outfitters, Inc. Price, Consensus and EPS Surprise

 

Urban Outfitters, Inc. Price, Consensus and EPS Surprise
Urban Outfitters, Inc. Price, Consensus and EPS Surprise

Urban Outfitters, Inc. price-consensus-eps-surprise-chart | Urban Outfitters, Inc. Quote

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What Does the Zacks Model Say?

Our proven model doesn’t conclusively predict an earnings beat for Urban Outfitters this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Urban Outfitters carries a Zacks Rank #2 and an Earnings ESP of -0.59%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post earnings beat.

Dollar General DG has an Earnings ESP of +2.34% and Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lowe’s Companies LOW has an Earnings ESP of +1.62% and a Zacks Rank #2.

Ross Stores ROST has an Earnings ESP of +4.03% and a Zacks Rank #2.

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