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Why Urban Outfitters, Inc. Stock Has Fallen 39% This Year

By Jeremy Bowman - Updated Jul 24, 2017 at 7:30PM

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Shares of the apparel and lifestyle retailer tumbled as sales and profits have slumped.

What happened

Shares of Urban Outfitters, Inc. (URBN 4.67%) have been getting shredded this year, as the hip clothing and lifestyle company has tumbled along with other apparel retailers. According to data from S&P Global Market Intelligence, The stock has given up 39% so far this year. 

Two women in an Anthropologie ad

Image source: Anthropologie.

The stock's decline has come in several stages over the course of the year.

URBN Chart

URBN data by YCharts

So what 

Like a lot of department-store chains and mall-based retailers, Urban Outfitters has a rough 2017. Mall traffic is declining and e-commerce is rapidly taking share from brick-and-mortar stores.

The stock started falling early in the year as a number of department-store chains reported weak holiday sales, a warning sign for the rest of the apparel retail industry. 

The stock slipped again when the company posted its own fourth-quarter report in March, as CEO Richard Hayne issued a grave retail warning. Comparable sales increased in two of its three key concepts, Urban Outfitters and Free People, but fell by 3% at Anthropologie. Earnings per share dropped from $0.61 to $0.55, missing estimates by a penny, as gross margin compressed. 

In the earnings call, Hayne warned that there was a retail bubble, much like the housing bubble of last decade, which would result in closing stores across the industry for the foreseeable future. 

The stock dropped 3% on the news and continued to fall through March. In May, shares dropped 17% in the week leading up to and including its first-quarter earnings report. This time around, the company saw comps drop 3.1% at Urban Outfitters and 4.4% Anthropologie. Increased markdowns led to falling profits, as earnings per share dropped from $0.25 to $0.10. 

Now what 

Urban Outfitters is working to build out its direct-to-consumer channel, but the near-term outlook looks weak, as growth in that segment hasn't been fast enough for to counteract falling in-store sales. 

While Urban Outfitters' collection of brands makes it stronger than other flailing retail concepts like department stores, the stock is unlikely to bounce back this year. Still, at a P/E of 12 based on this year's expected earnings, the stock would offer value if sales turn around. For now, the retail sector's troubles are far from finished.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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