Urban Outfitters (URBN) is rallying 24% today after reporting better-than-expected Q2 (Jul) earnings after the close yesterday. A short squeeze is helping to drive the stock higher today. In terms of background, Urban Outfitters operates a portfolio of consumer brands comprised of Anthropologie, BHLDN, Free People, Terrain and Urban Outfitters brands and the Food and Beverage division.
It operates 245 Urban Outfitters stores in the US, Canada, and Europe and websites; 225 Anthropologie Group stores in the US, Canada and Europe and websites; 130 Free People stores in the US and 12 Food and Beverage restaurants. Free People wholesale sells its product through approximately 1,900 department and specialty stores worldwide, third-party websites and the company's own retail stores.
A bit more about the brands, its flagship Urban Outfitters brand targets young adults aged 18 to 28 through its unique merchandise mix. Its customers are culturally sophisticated, self-expressive and concerned with acceptance by their peer group. The product offering includes women's and men's fashion apparel, intimates, footwear, beauty and accessories, home goods, activewear and electronics. A large portion of its merchandise is exclusive to Urban Outfitters. Its stores are located in large metro areas, select university communities, specialty centers and enclosed malls.
The Anthropologie Group consists of the Anthropologie, Bhldn and Terrain brands. URBN initially operated the Bhldn and Terrain brands as standalone concepts but ultimately determined that the Bhldn and Terrain brands were complementary to the Anthropologie brand and integrated them into the Anthropologie Group during FY15 and FY16, respectively. The Anthropologie brand tailors its merchandise and inviting store environment to sophisticated and contemporary women aged 28 to 45. The brand's unique and eclectic product assortment includes women's casual apparel and accessories, intimates, shoes, beauty, home furnishings and a diverse array of gifts and decorative items.
The Bhldn brand emphasizes every element that contributes to a wedding, including wedding gowns, bridesmaid frocks, party dresses, assorted jewelry, headpieces, footwear, lingerie and decorations. The Terrain brand appeals to women and men interested in outdoor living and gardening. Terrain's product offering includes home and garden products, antiques, live plants, flowers, wellness products and accessories.
And finally, its Free People retail stores offer private label branded merchandise targeted to young women aged 25 to 30. Free People offers a unique mix of casual women's apparel, intimates, shoes, activewear, accessories, beauty and wellness, home products and gifts. Free People retail stores are pretty small and are located in enclosed malls, upscale street locations and specialty retail centers.
Turning to the Q2 (Jul) earnings report, EPS fell by a third to $0.44, but that was quite a bit better than expected. Revenue fell 2.0% year/year to $872.9 mln, which also was better than market expectations. Comps for its Retail segment, which include the direct-to-consumer channel, decreased -4.9%. By brand, comps increased +2.9% at Free People, but decreased -4.0% at the Anthropologie Group and -7.9% at Urban Outfitters.
URBN says that while it was disappointed in its JulQ performance, it does have a number of initiatives underway including: speed to customer, international growth, wholesale expansion and digital investments. These initiatives combined with encouraging fashion apparel trends could lead to improved topline performance in future quarters.
In sum, after an EPS and revenue miss in Q1 (Apr), investors were pleasantly surprised to see nice upside in the Q2 (Jul) results. Despite the good results in JulQ, URBN has been a struggling retailer. URBN has been hurt by online competition and the company has had to respond with markdowns which has pressured margins. The stock has been in a steady downturn since November 2016 when it briefly traded above $40. It's now trading around $21 and it had been in the high teens from early June until this report propelled it back above $20.