Urban Outfitters Stung by Higher Costs in Q1, but Underlying Demand Healthy; Shares Very Undervalued

Urban Outfitters’ fiscal 2023 first-quarter sales nearly matched our forecast and exceeds prepandemic levels, but its margins were adversely affected by elevated freight and labor costs, which may persist. Even so, we think underlying demand is healthy and do not expect to make any significant change to our $36.50 fair value estimate. Urban Outfitters trades for less than 0.5 times sales (about one half historical levels) even though it is consistently profitable, has no debt, and boasts about $4.50 per share in cash and investments.