No-Moat Urban Outfitters Has Rebounded From the Pandemic but Faces Inflation and Other Challenges

We believe Urban Outfitters lacks a brand intangible asset that would provide an economic moat and pricing power. While we think its three major apparel brands--Anthropologie, Free People, and Urban Outfitters--remain enticing to their primary demographic of women 18-45 years old, we also think competition has taken a toll. Urban Outfitters grew to be one of the larger specialty apparel retailers in the United States on the strength of its distinctive styles. However, although its sales have rebounded from the pandemic, it has a history of inconsistent same-store sales growth and profit margins. While this is partly due to shifting fashion trends, we think fragmentation in apparel retail is the primary factor. Urban Outfitters, like many others, has had to resort to markdowns and promotions to compete with wide-moat Amazon and other e-commerce, outlet stores, discount stores, and key vendors’ direct-to-consumer efforts.