Urban Outfitters Has Been Executing Well, but Lacks an Edge in the Competitive Apparel Retail Space

Although it's outperforming many peers in a challenging 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 believe competition will continue to take a toll. Urban Outfitters grew into 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. Urban Outfitters, like many others, often resorts 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.