Urban Outfitters (URBN) Q3 Earnings: Will It Beat Estimates?

Urban Outfitters, Inc. (NASDAQ:URBN) is slated to release third-quarter fiscal 2019 results on Nov 19. In the trailing four quarters, this lifestyle products and services company has outperformed the Zacks Consensus Estimate by an average of 17.7%. In the last reported quarter, the company delivered a positive earnings surprise of 10.5%.

Investors are counting on another estimate beat by Urban Outfitters in the to-be-reported quarter. Let’s delve deep and take a look at the factors that are likely to influence the results.

Factors Influencing the Performance

Sound Fundamentals Raises Earnings Beat Probability

Despite a competitive retail landscape, Urban Outfitters has emerged strongly on the back of its strategic initiatives such as store-expansion efforts, increase in direct penetration, growing wholesale operations, technology advancements and merchandising improvements. Management is aggressively focusing on efforts to enhance the performance of its brands through store refurbishment and by bringing in more compelling assortments. The company is also investing in shop-in-shops.

Being a multi-brand and multi-channel retailer, Urban Outfitters offers flexible merchandising strategy. The company also has a significant domestic and international presence with rapidly expanding e-commerce activities. The company also remains committed to improving comparable-store sales performance, sustaining investments in direct-to-consumer business, enhancing productivity in existing channels, adding new brands and optimizing inventory level.

Which Brand Holds the Key?

Given the aforementioned tailwinds, analysts expect positive momentum in comparable store sales to continue in the quarter under review. The Zacks Consensus Estimate for comparable retail segment net sales projects an increase of 8.2% year over year. Moreover, comparable retail segment net sales are expected to rise roughly 8.1%, 6.5% and 13% at Urban Outfitters, Anthropologie Group and the Free People, respectively.

Management had earlier hinted that based on current sales trends, it anticipates third-quarter sales comps to grow in high-single digit. The company expects gross margin rate to improve by 100 basis points on account of reduced merchandise markdowns and leverage in store occupancy expense. Moreover, SG&A expenses are likely to increase by approximately 8% in the third quarter. This surge is attributable to higher digital-marketing investments, incentive-based compensation and increased store payroll.

The consensus estimate reflects that net sales are likely to improve approximately 7.4%, 7.4%, 16.9% and 8.6% year over year at Urban Outfitters, Anthropologie Group, Free People and Food and Beverage, respectively.

Clearly, all the four brands hold key to the company’s favorable outcome.

How Are Top & Bottom Line Estimates Faring?

Urban Outfitters is likely to record year-over-year growth of more than 50% in the third quarter of fiscal 2019 as well. The Zacks Consensus Estimate for the quarter under review is pegged at 63 cents compared with 41 cents reported in the year-ago quarter. We note that the Zacks Consensus Estimate has been stable in the last 30 days. Analysts polled by Zacks now project revenues of $968.8 million, up from $892.8 million in the year-ago quarter.

If all goes well, this will be the sixth straight quarter that the company will surpass the Zacks Consensus Estimate for both the top and bottom lines.

What Does the Zacks Model Unveil?

Our proven model shows that Urban Outfitters is likely to beat estimates this quarter. A stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Urban Outfitters has a Zacks Rank #3 and an Earnings ESP of +2.28%. This makes us reasonably confident of an earnings beat.

Other Stocks Poised to Beat Earnings Estimates

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

Burlington Stores (NYSE:BURL) has an Earnings ESP of +2.38% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target (NYSE:TGT) has an Earnings ESP of +1.41% and a Zacks Rank #2.

Costco (NASDAQ:COST) has an Earnings ESP of +3.09% and a Zacks Rank #3.

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