Urban Outfitters' Free People and Anthropologie Excelling, but Namesake Concept Seeks Stability

Although it's outperforming many peers in a difficult environment, we believe Urban Outfitters lacks a brand intangible asset that would provide an economic moat and pricing power. We think its three major apparel brands—Anthropologie, Free People, and Urban Outfitters—are well established in the US, but we also think competition will continue to take a toll. Urban Outfitters grew to be one of the larger American specialty apparel retailers on the strength of its distinctive styles. However, it has a history of inconsistent same-store sales growth and profit margins, and its namesake banner has seemingly lost relevance with its primary demographic of young adults. Although the firm’s struggles are partly due to shifting fashion trends, we think fragmentation in apparel retail is the primary factor. The company, 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.