What Happened?
Shares of clothing and accessories retailer Urban Outfitters (NASDAQ:URBN) jumped 17.1% in the morning session after the company reported strong third-quarter financial results. Urban Outfitters beat analysts' sales expectations. The top line reflected strengths across retail, subscription, and wholesale segments. The company recorded a significant increase in gross profit margin, reflecting higher merchandise markups and lower markdowns in key brands. This enabled URBN also beat on profit and earnings. Zooming out, we think this was a solid quarter.
Following the results, Citi analyst Paul Lejuez upgraded the stock's rating from Neutral to Buy and raised his price target from $42 to $59. The analyst cited the reasons for the upgrade, adding that while 3Q's comparable sales were weak overall, there were several signs that the brand is moving in the right direction: 1. Profitability improved for the first time in many quarters. 2. Comps/traffic improved sequentially throughout 3Q and exited the quarter in better shape.
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What The Market Is Telling Us
Urban Outfitters’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. Moves this big are rare for Urban Outfitters and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 9 months ago when the stock dropped 14.1% on the news that the company reported fourth-quarter results with same-store sales, revenue, and gross margin that missed analysts' expectations, leading to a bottom-line EPS miss vs. Wall Street's estimates. Specifically, revenue in the Anthropologie Group revenue segment fell below expectations, while sales in the Urban Outfitters segment came in ahead. However, growth in the Urban Outfitters segment continued to decline in absolute terms.
On a more positive note, the Nuuly and Free People segments recorded solid growth and helped offset some of the weaknesses observed during the quarter. Overall, this was a weak quarter for Urban Outfitters.
Urban Outfitters is up 29.2% since the beginning of the year, and at $46.20 per share, it is trading close to its 52-week high of $48.06 from July 2024. Investors who bought $1,000 worth of Urban Outfitters’s shares 5 years ago would now be looking at an investment worth $1,784.
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