Urban Outfitters (URBN) just became the poster child for how a company should not to manage expectations after it has reduced guidance only a few weeks after an investor day.
On Thursday night Urban reported that comparable-store sales have remained negative into October. That shouldn’t come as a surprise if you’ve actually visited any Urban store during the quarter, as we’ve done, and have observed the chain’s heavier discounts of late.
In addition to a lack of sales recovery at the all-important Urban division — which the Street was expecting for some reason I cannot discern — margins will now miss expectations as well. It’s time to wake up and smell the coffee: The back-half-recovery story is over. Analysts are lining up to downgrade the stock this morning, but I would point out that earnings expectations are still too glass-half-full for a company in transition.
When Urban reports earnings, we will hear the usual excuses: weather; perhaps, even, Ebola.
But I will put on my fast-fashion cheerleading hat once again and tell you that teen retailers are simply getting their collective booty kicked by better and cheaper product coming out of Europe and in our own backyard — for instance, from H&M, Topshop andForever 21.
Now throw in a company that is in the process of changing merchandising mix, changing its core customer and expanding store sizes (no, that is not a typo).
While Urban Outfitters is the best of the teen lot, it was only a matter of time until the brand would succumb to the same pressures that have already pummeled the rest of the group. That, again, is in addition to some serious transition risk.
I am sitting this one out.