On Wednesday, Telsey Advisory Group adjusted their price target for Urban Outfitters, Inc. (NASDAQ: URBN), increasing it to $46.00 from the previous $44.00. The firm maintained its Market Perform rating on the stock. This change follows Urban Outfitters' report of a third consecutive quarter of sales, gross margin, and earnings per share (EPS) that surpassed expectations, despite previous caution regarding the third quarter's outlook.
The comparable sales figures for Urban Outfitters were largely anticipated, with a notable consumer uptick and fewer markdowns contributing positively. However, the Urban Outfitters (UO) brand continues to face challenges, trailing significantly in top-line performance as the company strives to improve the brand through customer acquisition, product development, and communication strategies. Even so, the company has seen an improvement in merchandise margins, leading to a reduced operating loss for the UO brand in the quarter.
Anthropologie (Anthro) has shown continued strength, while the Free People Movement and Nuuly brands are gaining momentum and relevance. Despite these positive developments, the uncertainty around the timeframe for UO's profitability turnaround and concerns about slowing comparable sales at Free People have led Telsey to maintain their Market Perform rating.
The revised price target of $46 is based on a 10.6x multiple applied to the two-year forward EPS estimate of $4.36, which aligns with the near-term multiple of 10.4x that has been observed recently. The assessment reflects both the recent performance and the expectations for Urban Outfitters' continued efforts to revitalize its core UO brand and capitalize on the strengths of its other brands.
In other recent news, Urban Outfitters Inc (NASDAQ:URBN). has demonstrated robust performance in its third quarter of the fiscal year 2025, with total sales climbing 6% to $1.4 billion, and net income rising 24% to $103 million. Gross profit also saw a significant increase of 9%, improving the gross profit rate to 36.5%. The company's rental service, Nuuly, experienced a 48% revenue increase and a 50% growth in its subscriber base. However, the Urban Outfitters brand reported a 9% decline in its retail segment.
In the wake of these results, Citi upgraded shares of Urban Outfitters from Neutral to Buy, setting a new price target at $59, a significant increase from the previous $42 target. The upgrade follows strong execution across the company’s portfolio, with management guiding towards a sequential improvement in fourth-quarter comparable sales and an anticipated margin recovery. This recovery is expected to contribute approximately $1.00 in incremental earnings per share if the company can achieve a mid-single-digit EBIT margin over time.
Urban Outfitters has also revealed plans to open approximately 58 new stores while closing 31 in fiscal 2025. The company's other brands, Anthropologie and Free People, maintain solid positions, with Free People Movement and Nuuly contributing to outsized growth. These developments have bolstered confidence in the company's ability to achieve mid-single-digit sales growth in Fiscal Year 2025.
InvestingPro Insights
Urban Outfitters' recent performance and Telsey Advisory Group's price target adjustment are further supported by real-time data from InvestingPro. The company's P/E ratio of 11.87 and PEG ratio of 0.34 suggest that URBN is trading at a relatively low valuation compared to its near-term earnings growth potential, which aligns with the positive outlook reflected in Telsey's increased price target.
InvestingPro Tips highlight that URBN has seen a significant return over the last week and a strong return over the last month, with data showing a 8.75% 1-week price total return and a 14.13% 1-month price total return. This recent stock performance correlates with the company's better-than-expected quarterly results mentioned in the article.
Additionally, InvestingPro data reveals that URBN's revenue growth stands at 7.57% for the last twelve months, with a gross profit margin of 33.96%. These figures support the article's mention of sales and gross margin surpassing expectations.
For investors seeking more comprehensive insights, InvestingPro offers 11 additional tips for Urban Outfitters, providing a deeper analysis of the company's financial health and market position.
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