Urban Outfitters Sinks 8% on Weak Holiday Sales, Management Changes

Shares of Urban Outfitters were down 7.7% in Wednesday’s pre-market trading as the apparel maker announced dismal holiday sales and the departure of the CEO of its namesake brand.

The company’s net sales for the two months ended December 31, 2020 plunged 8.4% year-over-year due to weak retail store sales as customer traffic continued to be impacted by the COVID-19 pandemic. Urban Outfitters’ (URBN) comparable retail segment net sales were down 9% as the strong double-digit increase in digital channel sales was not enough to offset lower store sales. Meanwhile, the wholesale segment’s net sales decreased 1% in the holiday period.

Coming to the company’s brands, comparable retail segment net sales were up 1% for Free People, but declined 8% and 12% for Urban Outfitters and Anthropologie brands, respectively.

Urban Outfitters disclosed that its retail segment comparable net sales have “rebounded nicely” in January. However, it expects overall 4Q gross margin to deleverage by several hundred basis points due to higher delivery and logistics expenses associated with increased digital sales, carrier surcharges and a rise in expedited shipments. The company also anticipates its 4Q gross margin to be impacted by deleverage in store occupancy expenses on poor store sales.

Meanwhile, the company announced that Trish Donnelly, CEO of the Urban Outfitters brand, has resigned effective January 31, 2021, to pursue a new career opportunity. Sheila Harrington will now assume the role of CEO for both Urban Outfitters Group and Free People Group.

Additionally, Gabrielle Conforti, Chief Merchandising Officer for the Urban Outfitters brand, has been promoted to President, Urban Outfitters North America. Emma Wisden will continue as Managing Director, Urban Outfitters Europe, and will also head the Urban Outfitters brand’s wholesale business. (See URBN stock analysis on TipRanks)

In reaction to the holiday sales update, RBC Capital analyst Kate Fitzsimons lowered the price target on URBN to $28 from $30. The analyst reiterated a Hold rating due to a lack of visibility on the long-term margin profile associated with a normalized direct channel penetration and implications on the stores.

The rest of the Street is essentially sidelined on the stock, with 3 Buys, 12 Holds and 1 Sell adding up to a Hold analyst consensus. With shares rising 15% over the past year, the average price target of $30.73 indicates a modest upside potential of 1.4% from current levels.

News Sentiment around Urban Outfitters shares is strongly bearish, with 100% of articles about the stock in the past seven days echoing a negative sentiment, compared to a 35% Bearish sector average.

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