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Why Shares of Urban Outfitters, Inc. Declined 35% in 2015

By Jeremy Bowman - Jan 7, 2016 at 1:11PM

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The hip retailer swooned last year as sales slowed. Will 2016 offer any redemption?

What: Shares of Urban Outfitters (URBN -2.63%) were looking less fashionable in 2015 as shares fell 35%, according to data from S&P Capital IQ. The apparel company followed the downward trend in the industry, shedding value steadily over the last nine months of the year as the chart below shows.

URBN Chart

URBN data by YCharts

So what: Urban Outfitters shares started the year out strong, popping 12% on March 10 as the company delivered impressive Q4 results, as comparable sales improved 6% and earnings of $0.60 per share beat estimates of $0.58. 

Its following earnings report was much the opposite, however, and the stock fell, as it missed on the top and bottom lines and comparable sales at Anthropologie grew just 1%. Anthropologie had been Urban Outfitters' strongest component for several years, but weakness in the high-end women's fashion business continued throughout the year.

Finally, the stock really fell apart in the broad sell-off of apparel stocks in November that included big names like Gap, and Macy's. The stock fell 26% over a period of several days concluding with an underwhelming earnings report and a bizarre business acquisition. In the third-quarter earnings report, Urban Outfitters  said revenue grew just 1.3% in the period as comparable sales crept up 1%. The market was also baffled by the company's decision to acquire Vetri Restaurant Group with plans to expand the Pizzeria Vetri chain, attaching to select new Urban Outfitters stores.  

Now what: The pizzeria acquisition may not be as crazy as it seems. Urban Outfitters, which has always marketed itself as a lifestyle brand, is looking to build out shopping complexes that include experiences like food, music, and other entertainment, responding to research that shows that millennials are more interested in spending their money on experiences rather than things. 

Challenges from fast-fashion retailers remain, but Urban Outfitters' attempt to diversify with the acquisition of home-and-garden center Terrain give it an edge over other apparel retailers who seem stuck with their stodgy brands. The chain is still delivering steady growth, and an aggressive share buyback program ensures that the bottom lines will improve faster than the top. With that in mind and a P/E ratio down to 12, the stock could be poised to bounce back in 2016. 

 

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Urban Outfitters, Inc. Stock Quote
Urban Outfitters, Inc.
URBN
$22.59 (-2.63%) $0.61
Macy's, Inc. Stock Quote
Macy's, Inc.
M
$20.00 (-2.08%) $0.42
The Gap, Inc. Stock Quote
The Gap, Inc.
GPS
$10.75 (-2.80%) $0.31

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