stock was tumbling on Monday, following a downgrade from Loop Capital, which warns that even after the apparel retailer’s dismal performance this year, things can get worse.
Analyst Laura Champine cut her rating on Urban Outfitters (ticker: URBN) to Sell from Hold, and shaved $2 off her price target, to $14. The move comes as she also lowered her second-quarter and full-year earnings-per-share estimates for the company below consensus. “The new normal is a new nasty for Urban Outfitters,” she writes.
Traffic in July is usually light, but stores are “eerie ghost towns right now,” she notes. Even assuming Urban Outfitters has been able to convert a lot of physical store sales to online, it will be tough for the company to meet expectations, she says, predicting that Urban Outfitter’s sales this year will decline 22%, much worse than the 5% decline other analysts are modeling for.
Champine thinks Urban Outfitters’ recovery will be more gradual than consensus estimates seem to reflect, especially given recent surges in Covid-19 cases that have halted some reopening plans. Given the problems besetting the apparel industry right now, she thinks companies such as Urban Outfitters will have to discount heavily to recover sales, which will weigh on gross margins.
Overall, she warns that “the outlook for the second half [of the year] is getting grimmer.” Closures, cancellations, and re-closures stemming from the coronavirus outbreak, the distractions of the election, and the general shift to at-home living are all potential headwinds for the company. “Urban Outfitters is essentially a fashion retailer, and consumers have fewer reasons to dress fashionably today than at any time in our 20 year career covering retail stocks,” Champine concludes. “Though Urban Outfitter shares are down approximately 40% year to date, we believe sell-side expectations are far too bullish for the world in which we find ourselves.”
The company didn’t immediately respond to a request for comment.
Urban Outfitters is off 44.7% in 2020. The company was struggling even before the brunt of the pandemic hit, but since then its problems have accelerated, as online sales haven’t been able to make up for store closures.
The shares were down 7.7% to $15.12 near midday Monday. The
was up 0.4%.
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