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Urban Outfitters (URBN) Looks Good on Its Strategic Endeavors

Urban Outfitters' (URBN) robust business initiatives, including the FP Movement, will continue boosting growth. Its merchandising strategy is also impressive.

This story originally appeared on Zacks

Urban Outfitters, Inc. URBN appears well placed for growth, thanks to its solid business strategies. Management has been driving growth via strengthening its direct-to-consumer business, enhancing productivity in the existing channels, expanding product assortments and optimizing inventory level. URBN’s FP Movement and store-growth endeavors are also yielding results.

Evidently, shares of this Philadelphia, PA-based player have increased 6.3% against its industry’s 13.9% dip in the year-to-date period. This currently Zacks Rank #3 (Hold) stock is further backed by sturdy earnings estimate revisions.

The Zacks Consensus Estimate for earnings currently stands at 76 cents for the fiscal fourth quarter and $3.47 for fiscal 2022, indicating growth of 8.6% and 3.3%, respectively, over the past 30 days. In fact, the Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales suggests growth of 32.4% from the year-ago period’s reported figure.

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Delving Deeper

Urban Outfitters boasts a flexible merchandising strategy. Management is also making strategic efforts to enhance its assortments. UBN’s FP Movement and AnthroLiving initiatives hold promise. For the current fiscal year, AnthroLiving is on track to generate roughly $150 million. Management believes that AnthroLiving has an opportunity to become at least a $1-billion business with the size of Anthro's apparel business.

Urban Outfitters’ strategic growth initiative FP Movement continues to perform well. Management believes that the FP Movement will lure a wider base of customers to the Free People brand. The Movement is a major growth opportunity and is expected to boost Free People’s brand revenues. At Free People brand, net sales were up 29% from the third-quarter fiscal 2020 level to $265 million during the third quarter of fiscal 2022.

In addition, management is optimistic about URBN’s subscription rental service for women’s clothes known as Nuuly. During the fiscal third quarter, Nuuly contributed $12.7 million to net sales, reflecting a sharp increase from $6.7 million in the same period of fiscal 2020. Nuuly comprises the Nuuly Rent and Nuuly Thrift brands.

Urban Outfitters’ digital business is impressive as well. During the reported quarter, URBN’s digital channel continued to reflect strength, recording mid-double digit sales in North America and higher gains in Europe. Overall, the digital performance was buoyed by increased sessions and higher conversions.

What’s More?

Despite the aforesaid tailwinds, Urban Outfitters has been battling inflationary pressures from freight, raw materials and wages for a while now. Also, supply-chain disruptions are concerning. Higher SG&A expenses are a drag too.

Nevertheless, management had projected the fiscal fourth quarter to continue delivering a healthy sales improvement from the fiscal 2020 actuals. It believes that the retail segment’s comp sales will grow in mid teens in the same period. These will lead to an overall sales increase in mid teens. Moreover, gross margins for the quarter are likely to improve 100 bps from the fiscal 2020 figure, given the current sales performance and forecast. Lower markdown rates resulting from solid consumer demand and product performance will aid the gross margin.

Hot Stocks in Retail

Some better-ranked stocks are Boot Barn Holdings BOOT, Tractor Supply Company TSCO and Target TGT.

Boot Barn Holdings, a lifestyle retailer of western and work-related footwear, apparel and accessories, sports a Zacks Rank #1 (Strong Buy) at present. The stock has jumped 142.8% in the year-to-date period. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial-year sales and earnings per share (EPS) suggests growth of 54.6% and 188%, respectively, from the year-ago period’s corresponding figures. BOOT has a trailing four-quarter earnings surprise of 161.5%, on average.

Tractor Supply Company, a rural lifestyle retailer in the United States, currently flaunts a Zacks Rank of 1. TSCO has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of TSCO have surged 58.1% year to date.

The Zacks Consensus Estimate for Tractor Supply Company’s current-year sales and EPS suggests growth of 19% and 23.9%, respectively, from the year-ago period’s corresponding readings. TSCO has an expected EPS growth rate of 10.2% for three-five years.

Target, a renowned omni-channel retailer, presently carries a Zacks Rank #2 (Buy). TGT has a trailing four-quarter earnings surprise of 19.7%, on average. The stock has rallied 24.1% in the year-to-date period.

The Zacks Consensus Estimate for Target’s current-year sales and EPS suggests growth of 13.9% and 40.1%, respectively, from the corresponding year-ago levels. TGT has an expected EPS growth rate of 14.4% for three-five years.

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