Last week, Urban Outfitters reported robust 10% growth in revenues for the two month period of the holiday season. The growth looks more impressive considering that it was on top of 8% growth recorded in the holidays of 2013. Urban Outfitters’ comparable store sales including the direct-to-consumer channel increased by 4%, while wholesale net sales jumped 14%. By brand, comparable store sales soared 17% at Free People and 5% at Anthropologie. Interestingly, after several quarters of sales decline, the retailer’s namesake brand, Urban Outfitters, returned to positive growth with 1% rise in its comparable store sales. Although the growth was not much, it indicates that the company’s efforts to rectify its mainline brand have yielded some fruitful results.
With significant growth in its holiday revenues, we conclude that Urban Outfitters has gained some market share over the last one year. In the current scenario, almost every specialty apparel chain is struggling to compete with fashion-forward players such as Zara, Forever 21 and H&M. Improvement in Urban Outfitters’ market share indicates that it is indeed in the league of better performing players in the market. However, it must be noted that Urban Outfitters’ presence in the country is limited to just 600 stores and hence, a portion of its revenue growth comes from continued expansion, a luxury which players such as Aeropostale, American Eagle Outfitters and Abercrombie & Fitch no longer have.
Our price estimate for Urban Outfitters at $42.5, implies a premium of more than 20% to the current market price.
See our complete analysis for Urban Outfitters
Urban Outfitters Improved Backed By Several Efforts
Urban Outfitters’ comparable store sales declined by an average of 9.5% during the last four quarters. The main reason behind the brand’s dismal performance was certain product imbalance issues, which resulted from miscalculated demand and aggressive marketing of products with low demand. The brand started losing its growth momentum in the latter half of 2013 and its weakness continued til the third quarter of 2014. However, Urban Outfitters showed some signs of improvement during the holiday season, as it reported positive comparable sales growth for the first time in over one-and-a-half years.
The retailer had hired a new president last year to lead its namesake brand to recovery. It had appointed Trish Donnelly as the president of Urban Outfitters North America, who had previously worked for three years as president at Steven Alan and for seven years as executive vice president at J. Crew Direct. We believe that she has been able to leverage her retail expertise to resolve the brand’s shortcomings.
Apart from fresh leadership, Urban Outfitters’ efforts to elevate its shopping experience might have also had a positive impact on its performance. The company has employed a number of strategies aimed at improving the overall shopping experience. THese include: 1) the launch and growth of the concept “Without Walls”; 2) the promotion of merchandise through creative display and online imagery; 3) the inclusion of living, home, beauty, music and food categories to the product portfolio; and 4) the expansion of new format stores were some of the .
The Company Gains Market Share
For the holiday season of 2013, Urban Outfitters reported sales of $716 million, while overall apparel and accessories market during November and December stood at $41.61 billion. This means that the share of Urban Outfitters in the overall U.S. apparel market during 2013 holidays was at 1.72%. This year, overall sales of apparel and accessories in the month of November increased by 4%, but the the United States Census Bureau is yet to report the figure for December. Therefore, we will estimate the market size in December based on the market’s last year performance.
Overall retail sales had grown by 3.1% in 2013′s holiday season (November and December 2013), and net apparel and accessories sales had increased by 2.3%. For 2014, analytics firm Retail Next has estimated overall retail sales to have grown 3.5% to 4% during November and December. For the purpose of calculations, we will use the higher end of this figure. Since apparel market growth was 80 basis points slower than overall retail sales growth in the 2013 holiday season, we assume that apparel sales would have lagged overall industry growth by 50 basis points during 2014 holidays, given that growth was strong in November. This implies that apparel sales might have increased by around 3.5% in November and December 2014, which gives a potential apparel market size of $43.10 billion for the holiday season of 2014.
Urban Outfitters reported $785 million in revenues for the two month period, which is about 1.82% of the market. Based on conservative assumptions, we estimated that the preppy retailer improved its market share in 2014 holidays by around 10 basis points. While some of the gain may have come from expansion, company’s strong organic growth cannot be neglected.
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