URBN Missing Earnings

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.

Advertisements

3 thoughts on “URBN Missing Earnings”

  1. This might sound stupid, but I would think an earnings forecast for a company like this would be easier to do than for other companies. You have your fixed costs, and have to contract for months in advance with the plants in China or Bangladesh or wherever to get the clothes in the stores where and when you want them. Outside of this, you figure in a little slop and it should be fairly easy to come up with a number. It isn’t like they are dealing with the price of a commodity, although things like cotton and poly come into play, and the unsure price of container freight doesn’t make it easy either. But compared to other companies/industries it should be easy to come up with a number.

    Like

  2. Agreed that an earnings forecast should have been not too hard for them. They are impacted by commodity prices and the change in their effective tax rate may have been more difficult to predict.

    I just feel that the market overly punished them for such a slight miss and their overall business model did not significantly change.

    But then again they missed their guidance; in hindsight they should have aimed lower and done a better job of preparing the market for this outcome, which may or may not have lessened the eventual blow.

    Like

  3. yes they probably shouldn’t have been punished, but the markets are becoming more and more unhinged from reality. I have seen companies blow their number away but not by ENOUGH so they are punished. I have seen companies miss but not by too much and the stock rockets.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s