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Urban Outfitters (URBN) Q2 Earnings: Will it Disappoint?

Urban Outfitters, Inc. URBN is slated to report second-quarter fiscal 2018 results on Aug 15. In fact, this lifestyle specialty retailer witnessed negative earnings surprise for the last three quarters, with a trailing four-quarter average miss of 2.9%. This finds reflection in the stock’s performance.

Shares of the company have plunged nearly 35% in the last six months, wider than the industry’s decline of 24.4%. On the contrary, the broader Retail-Wholesale sector, which is currently placed at the bottom 13% of the Zacks classified sectors (14 out of 16), gained 9.7%.

Let’s see how things are shaping up prior to this announcement.

Estimates Trend

The Zacks Consensus Estimate for the fiscal second quarter has moved down by a penny to 37 cents in the last seven days. This reflects a year-over-year decline of over 43% from 66 cents. Also, the same was revised downward by 2 cents to $1.39 for fiscal 2018.

Further, analysts polled by Zacks expect revenues of $867.5 million, down 2.6% from the year-ago quarter.

Zacks Model Shows Unlikely Earnings Beat

Our proven model does not conclusively show earnings beat for Urban Outfitters this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Urban Outfitters, Inc. Price, Consensus and EPS Surprise

Urban Outfitters, Inc. Price, Consensus and EPS Surprise | Urban Outfitters, Inc. Quote

Urban Outfitters has an Earnings ESP of -2.70%. This is because the Most Accurate estimate of 36 cents is pegged lower than the Zacks Consensus Estimate of 37 cents. Moreover, the stock currently carries a Zacks Rank #4 (Sell).

Note we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play

Challenging retail landscape, aggressive pricing strategy, waning mall traffic and increased online competition are the major deterrents for Urban Outfitters. Investors’ sentiments were hurt when the company in a SEC filing unveiled that the comparable sales for the fiscal second quarter are deteriorating. Also, management anticipates gross margin rate to decrease year over year in the quarter due to rise in delivery and logistic expenses, higher markdowns and lower initial mark up. In fact, its gross margin has shown constant deceleration in the last three quarters.

Further, Urban Outfitters’ sales have lagged the consensus mark for seven of the nine consecutive quarters, including the last reported quarter. Moreover, the company faces stiff competition in the retail segment from other department stores, discounters, home furnishing stores, specialty retailers and direct-to-consumer businesses on attributes such as merchandise assortment, price, quality, location and credit facility.

Nevertheless, we expect the company to drive growth on the back of new store openings, increase in direct penetration, growing wholesale operations, technology advancements and merchandising improvements. Going forward, we believe that better product execution and effective inventory management may help augment its performance.

Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

The Gap, Inc. GPS has an Earnings ESP of +3.85% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Home Depot, Inc. HD has an Earnings ESP of +0.45% and a Zacks Rank #2.

Coach, Inc. COH has an Earnings ESP of +2.04% and a Zacks Rank #3.

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