No-Moat Urban Outfitters’ Holiday Retail Sales Tracking Above Expectations; Shares Attractive

Urban Outfitters’ sales for the first two months of its fourth quarter kept on track to meet our expectations despite weak wholesale and concerns over slowing consumer spending on apparel. The firm implicitly held its guidance for a modest 50-basis-point decline in its gross margin on higher shipping and fulfillment costs. Thus, we do not expect to make any material revisions to our fiscal 2023 forecast or our $36 fair value estimate and view Urban Outfitters as attractive. Although we rate it as a no-moat firm, we believe it is a solid operator that caters to attractive demographic groups and offers products that align with the athleisure and other fashion trends. Moreover, it has a debt-free balance sheet.