KeyBanc: Urban Outfitters Back In Style After Q3 Beat

Urban Outfitters, Inc. URBN reported its third quarter results Monday, with a top- and bottom-line beat and 1 percent comp increase.

The Analyst

KeyBanc Capital Markets' Edward Yruma maintains an Overweight rating on Urban Outfitters' stock with a price target boosted from $26 to $35.

The Thesis

Urban Outfitters' earnings report made it clear that "fashion is back and it's selling," Yruma said in a Monday note. (See Yruma's track record here.)

All three brands delivered a positive comp for the first time since the second quarter of 2015, Yruma said. The retailer showed that a "multiyear silhouette change has begun in earnest," as shown by sequential comp improvement so far in the fourth quarter. Urban Outfitters' momentum is expected to continue into the holiday season and 2018, the analyst said. 

The company's e-commerce also showed accelerated growth in the quarter, Yruma said. Digital penetration rose by more than 400 basis points in the quarter and surpassed the prior high of more than 35 percent in the fourth quarter of 2016. This trend is expected to continue moving forward, with e-commerce penetration exceeding 50 percent in the coming years and Urban Outfitters beginning to see operating leverage, according to KeyBanc. 

Urban Outfitters' business outlook is well-positioned to tackle the competitive retail environment and is unchanged given its strong brands, a right-sized store fleet and a differentiated assortment, Yruma said. 

Price Action

Shares of Urban Outfitters initially spiked higher by more than 8 percent Monday afternoon following the earnings report, but were trading lower by around 0.5 percent early Tuesday morning.

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