Urban Outfitters' stock drops into bear-market territory after rare sell rating

By Tomi Kilgore

Jefferies's Corey Tarlowe is now the lone bear on Wall Street for the retailer, which has seen a 'notable deceleration' in foot traffic

Shares of Urban Outfitters Inc. sank Wednesday after the company was dressed down by Jefferies analyst Corey Tarlowe, who said he's seen a "notable deceleration" in foot traffic at the apparel and accessories retailer's stores.

Tarlowe cut his rating on the stock (URBN) to underperform from hold, which makes him the only analyst, of the 15 surveyed by FactSet, who is bearish.

He slashed his stock-price target to $32 from $42, with the new target implying about 16% downside from Tuesday's closing price.

The stock dropped 5% in premarket trading as it headed for a fourth straight loss and 11th loss in 12 sessions.

It was also on track to open about 23% below the six-year closing high of $47.18, which it hit on Feb. 27. Many on Wall Street define a bear market as a decline of at least 20% from a bull-market high.

"We have some concern regarding [Urban Outfitters'] near-term positioning due to slowing foot traffic data, promotional headwinds, and increased competition," Tarlowe wrote in a note to clients.

He said the double-digit-percentage growth in traffic at the end of 2023 at Anthropologie and Free People stores has slowed to the low single digits, while the turnaround at Urban Outfitter branded stores also appears vulnerable.

Based on rolling three-month data, Anthropologie's traffic growth has slowed to 2.3% in March from 4.4% in February, Free People's has slowed to 1.3% from 10%, and for Urban Outfitters it has slowed slightly to negative 7.2%.

At the same time, Tarlowe said he's seen an "acceleration in trends" at rival Abercrombie, Old Navy and Gap stores.

"We think slowing traffic momentum across banners, combined with markdown pressures (from a rate perspective at core [Urban Outfitters]) presents risk to [Urban Outfitter] shares," Tarlowe wrote.

The stock has lost 3% over the past three months through Tuesday, while shares of Abercrombie & Fitch Co. (ANF) have rallied 16.5% and Gap Inc.'s stock (GPS) has gained 8.1%. The S&P 500 index SPX has advanced 6.6% over the same time period.

-Tomi Kilgore

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04-17-24 0923ET

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