It has been about a month since the last earnings report for Urban Outfitters (URBN Quick QuoteURBN - Free Report) . Shares have added about 14.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Urban Outfitters due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Urban Outfitters Q3 Earnings Beat, Sales Improve Y/Y

Urban Outfitters reported solid results for third-quarter fiscal 2024, wherein the top and bottom lines beat the Zacks Consensus Estimate and improved from the prior fiscal year’s quarterly levels.

Deeper Insight

This lifestyle-specialty retailer delivered earnings per share of 88 cents, outpacing the Zacks Consensus Estimate of earnings of 81 cents per share. The bottom line increased from 40 cents per share recorded in the comparable quarter of the prior fiscal year.

Net sales for the three months ending Oct 31, 2023, rose 9% from the same-period level of last fiscal to $1,281.2 million. The metric beat the consensus estimate of $1,261 million.

Brandwise, net sales were down 11.8% from the comparable period’s level in fiscal 2023 to $324.4 million at Urban Outfitters. The metric was up 13.5% to $549.8 million at Anthropologie Group and 18.2% to $331.8 million at Free People. Nuuly, the subscription-based rental service for women’s clothes, contributed $65.5 million to net sales, reflecting an increase of 85.6% from the earlier fiscal year’s comparable period, backed by an 85% rise in the company’s subscribers. Menus & Venues’ net sales amounted to $9.7 million, up 26% from the level recorded in the prior fiscal year’s corresponding period.

Segmentwise, net sales at the Retail unit rose 7.3% to $1,145.8 million, while the metric at the Wholesale unit dipped 3.6% to $69.9 million. The Wholesale unit’s sales were driven by a 3.5% decline in Free People Group wholesale sales on lower sales to department stores and close-out account partners. We note that the comparable Retail segment’s net sales grew 5.6% from the same-period level of fiscal 2023 backed by mid-single-digit increase in retail-store sales and high single-digit growth in digital channel sales.

By brand, the comparable Retail segment’s net sales jumped 22.5% at the Free People Group and 13.2% at the Anthropologie Group. The same, however, dropped 14.2% at Urban Outfitters.

An Insight Into Margins

In the quarter under review, gross profit rose 27.3% from the same-quarter level of fiscal 2023 to $454.4 million. Also, the gross margin expanded 509 basis points (bps) to 35.5%, mainly owing to increased initial merchandise markups on reduced inbound transportation costs and lower merchandise markdowns across all the Retail segment brands.

Selling, general and administrative (SG&A) expenses were up 12% from the third-quarter fiscal 2023 level to $345.4 million. As a percentage of net sales, SG&A deleveraged 146 bps to 27%, mainly due to increased incentive-based compensation costs and elevated marketing and creative expenses.

URBN recorded an operating income of $109 million, up from $57.3 million in third-quarter fiscal 2023. As a rate of sales, the operating margin increased 360 bps to 8.5% from the level registered in the quarter ending Oct 31 in fiscal 2023.

Store Update

In the nine months of fiscal 2024, this current Zacks Rank #3 (Hold) player inaugurated 21 outlets, including 10 Free People (including six FP Movement stores), five Urban Outfitters, five Anthropologie Group and one Menus & Venues restaurant. URBN closed 10 retail locations, including four Urban Outfitters, four Anthropologie Group, one Free People Group and one Menus & Venues restaurant. In the aforementioned period, one Urban Outfitters franchisee-owned store was opened.

As of Oct 31, 2023, URBN operated 264 Urban Outfitters stores in the United States, Canada and Europe; 239 Anthropologie Group stores in the United States, Canada and Europe; 197 Free People stores (including 37 FP Movement stores) in the United States, Canada and Europe; 11 Menus & Venues restaurants; seven Urban Outfitters franchisee-owned stores and two Anthropologie Group franchisee-owned stores.

In fiscal 2024, management plans to open about 28 stores and close 21 outlets.

Other Financial Details

Urban Outfitters ended the quarter with cash and cash equivalents of $206.2 million and a total shareholders’ equity of $2,046.6 million. As of Oct 31, 2023, total inventory fell 3% from the same period in fiscal 2023. Total Retail segment inventory was flat while Wholesale segment inventory tumbled 33%.
URBN provided net cash of $280.2 million from operating activities during the nine-month period ending Oct 31.

Urban Outfitters did not repurchase any shares during the nine months of fiscal 2024. As of Oct 31, 2023, URBN had 19.2 million shares remaining under its share repurchase programs.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -17.31% due to these changes.

VGM Scores

Currently, Urban Outfitters has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Urban Outfitters has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Urban Outfitters is part of the Zacks Retail - Apparel and Shoes industry. Over the past month, Gap , a stock from the same industry, has gained 10%. The company reported its results for the quarter ended October 2023 more than a month ago.

Gap reported revenues of $3.77 billion in the last reported quarter, representing a year-over-year change of -6.7%. EPS of $0.59 for the same period compares with $0.71 a year ago.

For the current quarter, Gap is expected to post earnings of $0.20 per share, indicating a change of +126.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +4.3% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Gap. Also, the stock has a VGM Score of C.