Analyst Note| David Swartz |
No-moat Urban Outfitters reported disappointing calendar 2020 holiday sales due to virus-related store restrictions and some inventory shortages. The retailer had handily beat our October-ending fiscal 2021 third-quarter estimates and appeared to have some momentum, but the recent spikes in virus cases in Europe and major U.S. cities were too much to overcome. The firm reported a total sales decline of 8.4% for November and December based on a 9% same-store sales drop and 1% wholesale growth. Further, Urban Outfitters expects its quarterly gross margin to drop several hundred basis points from last year due to overhead expense deleverage from lower physical store sales and elevated e-commerce fulfillment expenses. We had forecast a more modest gross margin decline of 130 basis points (to 28.5% from 29.8%). More positively, the firm disclosed that January sales trends have improved. Still, we now expect it will miss our estimates of a 1.6% sales decline and EPS of $0.47 when it reports its fiscal 2021 fourth-quarter results in early March. We will revisit our estimates and analysis at that time.