The absurdity of earnings season never ceases to surprise me. URBN is “Urban Outfitters”, a clothing chain aimed at younger adults that is hip and the retailer seems to be pretty well managed, with little debt. I recommended them for my funds a couple of years ago when it seemed like everything was crashing during the 2008 melt down and I figured that they would at least be able to survive the “great recession” as it is called in hindsight.
Today URBN was hit hard, losing almost 17% of its market value. Why?
Urban Outfitters (NASDAQ:URBN): Urban Outfitters, Inc. operates retail stores and direct response, including a catalog and Web sites. The Company’s Urban Outfitters and Anthropologie retail concepts sell fashion apparel, accessories, and household and gift merchandise. Shares are down over 16% to $31.72 per share. Over 13 million shares have traded hands. The company said net income fell to $75.2 million, or $.45 cents per share, compared with $77.7 million, or $.45 cents per share in the same period last year. Revenues jumped 14% to $668.4 million, from $588.5 million in the year-ago quarter. The retailer missed estimates. Analysts, on average, expected profit of $.52 cents per share on revenues of $674. 8 million.
As someone with extensive accounting and finance experience, earnings forecasts are not easy to do. They must accurately predict demand and costs (when many costs are tied to commodity price moves) in a narrow quarterly time span. Net income fell by $2.5M ($77.7M – $75.2M) or about 3%, and the stock fell by SEVENTEEN percent. The analysts expected $.52 cents / share and they hit $.45 cents / share, this is not a giant miss, especially on a single quarter.
It is ridiculous when a small change in a single quarter drives such a large impact in valuation. In reading into the detail much of it was due to a change in the effective tax rate, which I would consider a mostly non-controllable element from managements’ perspective. On a fundamental basis, these small changes against forecasts shouldn’t result in such a major change to market value. However, we don’t live in the “fundamental” world, we live in the real world, where a jittery market reacts quickly to unfavorable news, even on the margin.
Perhaps it is a buying opportunity for the stock.