No-Moat Urban Outfitters’ Year-End Results Bring No Surprises; Shares Attractive

Overcoming recent uncertainty in apparel retail, no-moat Urban Outfitters’ fiscal 2023 fourth-quarter report was in line with our expectations and its earlier holiday sales update (see our note of Jan. 10). Moreover, its initial look at fiscal 2024 suggests that our expectation of minimal sales growth and modest improvement in its gross and operating margins remains valid. Thus, we do not expect to make any material change to our $36 fair value estimate and view Urban Outfitters’ shares as attractive. Although we model low-single-digit sales growth for the company in the long run, we also believe its operating margins (4.7% in fiscal 2023) will recover to the high single digits within three years as cost pressures abate, pricing improves, and the Urban Outfitters’ nameplate returns to growth.