Urban Outfitters Falls Nearly 17% In 3 Months: Here's Why

Shares of Urban Outfitters, Inc.’s (NASDAQ:URBN) dipped 17.2% in the past three months compared with the industry’s decline of 18.2%. Also, this Zacks Rank #3 (Hold) company has lagged the broader Retail Wholesale sector that fell 12.3% in the said time period. This can be attributed to decelerating comparable retail segment net sales in the past few quarters.

Recently, in a filing, management has stated that comparable retail segment net sales were up mid-single digit so far in the fourth quarter of fiscal 2019. This portrays a sharp decline from an increase of 8% and 13% registered in the third and second quarters, respectively.

Additionally, Urban Outfitters has been witnessing high SG&A expenses for the past two quarters. In the third quarter, SG&A expenses increased 7.3% to $241.3 million, following a rise of 7.6% and 3.7% in the preceding two quarters, respectively. Going ahead, management expects SG&A expenses to increase approximately 5% in the final quarter of fiscal 2019, attributable to rise in digital-marketing investments, higher incentive-based compensation and increased store payroll. This may hurt the company’s margins to a certain extent in the near future.

Nevertheless, Urban Outfitters is making efforts to sustain investments in direct-to-consumer business, enhance productivity in existing channels, add new brands and optimize inventory level. The company made an unprecedented move by acquiring Philadelphia’s The Vetri Family group of restaurants, including the Pizzeria Vetri chain. The attempt is seen as part of the company's strategy to target and attract millennials to the stores. Also, to enhance reach, Anthropologie and Nordstrom (NYSE:JWN) entered into a partnership, following which more than 200 items from Anthropologie Home are now available at selected Nordstrom full-line stores and on Nordstrom.com.

Urban Outfitters intends to steadily expand its presence in Europe, Israel and China. In Europe, management plans to open approximately 10-20 outlets across all brands in each of the next two years, with a plan to operate more than 100 outlets in three years. Early next year, a Free People franchise location will be opened in Tel Aviv, Israel. The company informed that its franchisee already operates three Urban outlets in Israel. Management has entered into a franchise agreement to open outlets in other Middle East markets.

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