Opening 58 New Stores Will Expand Retail Footprint Of Free People And Anthropologie

Key Takeaways

• Strategic retail expansions and brand initiatives are projected to boost revenue and earnings growth across core brands, including Anthropologie and Free People.
  
• Improved profit margins and a focus on sustainable growth, notably in the Nuuly segment, are set to enhance profitability and financial performance.
  
• Challenges in managing inventory and store operations, coupled with modest sales growth and execution risks, threaten Urban Outfitters' revenue stability and profitability.

Catalysts

Engages in the retail and wholesale of general consumer products.

• Urban Outfitters aims to expand its retail footprint with the opening of 58 new stores in fiscal '26, driven by growth in FP Movement, Free People, and Anthropologie stores, which is expected to positively impact revenue and overall earnings.
  
• The company plans to improve gross profit margins by 50 to 100 basis points in fiscal '26 due to lower merchandise markdowns, particularly at the Urban Outfitters brand, and leverage in occupancy and delivery expenses, which is expected to enhance net margins and earnings.
  
• Nuuly, Urban Outfitters' subscription rental segment, plans to achieve substantial growth, with a target of reaching $500 million in revenue in fiscal '26, driven by an increase in active subscribers, which is expected to contribute significantly to revenue and profitability.
  
• Strategic brand initiatives at Anthropologie and Free People—such as expanding product lines and targeting new customer demographics—are projected to drive mid-single-digit retail segment 'comps' for fiscal '26, boosting revenue growth.
  
• Urban Outfitters is focusing on recapturing margins and returning to positive 'comps', with stabilization in North America and strong sales in Europe expected to drive top-line growth and improve overall brand profitability.

Urban Outfitters Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Urban Outfitters's revenue will grow by 4.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.3% today to 7.0% in 3 years time.
• Analysts expect earnings to reach $443.4 million (and earnings per share of $4.88) by about April 2028, up from $402.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, up from 12.3x today. This future PE is lower than the current PE for the US Specialty Retail industry at 15.2x.
• Analysts expect the number of shares outstanding to decline by 0.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.96%, as per the Simply Wall St company report.

Urban Outfitters Future Earnings Per Share Growth

Risks

• Urban Outfitters experienced a decline in the Retail segment 'comp' in North America, with high single-digit negative 'comp', indicating challenges in achieving consistent sales growth, which might impact future revenue stability.
  
• Elevated inventory levels due to early product acquisition to avoid East Coast port strikes may lead to increased carrying costs and potential discounting, negatively affecting net margins.
  
• Urban Outfitters brand's North American sales improvements have been modest, with projections for only small performance enhancements, posing a risk to revenue growth if consumer demand fluctuates.
  
• The company faces execution risks with new store openings and a need for improved inventory management, which could increase SG&A expenses and pressure earnings if not managed efficiently.
  
• Gross margin improvements depend heavily on reducing markdown rates at Urban Outfitters; failure to achieve this could hinder overall margin expansion and profitability.

Valuation

• The analysts have a consensus price target of $55.786 for Urban Outfitters based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $70.0, and the most bearish reporting a price target of just $42.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.4 billion, earnings will come to $443.4 million, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 8.0%.
• Given the current share price of $53.26, the analyst price target of $55.79 is 4.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.