NEW YORK (TheStreet) -- Urban Outfitters (URBN - Get Report) shares are down -2.2% to $32.98 in pre-market trading on Tuesday after analysts at Wedbush downgraded the retailer to "neutral" from "outperform," while slashing its price target to $37 from $46.
The firm cited increased advertising spending and higher clearance inventory as a reason for the downgraded outlook.
"Our recent store checks indicate a modest increase in promotional activity versus last year during June, along with a slight uptick in clearance inventory. While sales trends at Anthro likely remain near the top of the sector, incremental promotions - even if minor - suggest the potential for a modest slowdown in the recent same store sales trend," said the firm.
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TheStreet Ratings team rates URBAN OUTFITTERS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate URBAN OUTFITTERS INC (URBN) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- URBN's revenue growth has slightly outpaced the industry average of 1.5%. Since the same quarter one year prior, revenues slightly increased by 5.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- URBN has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.11, which illustrates the ability to avoid short-term cash problems.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Specialty Retail industry and the overall market on the basis of return on equity, URBAN OUTFITTERS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- URBAN OUTFITTERS INC's earnings per share declined by 18.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, URBAN OUTFITTERS INC increased its bottom line by earning $1.89 versus $1.61 in the prior year. This year, the market expects an improvement in earnings ($1.95 versus $1.89).
- 39.78% is the gross profit margin for URBAN OUTFITTERS INC which we consider to be strong. Regardless of URBN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 5.46% trails the industry average.
- You can view the full analysis from the report here: URBN Ratings Report