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November Is Urban Outfitters Inc. (URBN) Favorite Month for Earnings

 November 16, 2012 02:53 PM

(Rich Bieglmeier) Urban Outfitters Inc. (URBN) is expected to report earnings after the market closes on Monday, November 19, 2012. Wall Street anticipates that URBN will earn $0.41 for its 3rd quarter. iStock expects the apparel company will report earnings that will exceed Wall Street's consensus number. The iEstimate is $0.44 – a 3 cents upside surprise.

Urban Outfitters operates lifestyle specialty retail stores under the Urban Outfitters, Anthropologie, Free People, Terrain, and BHLDN brand names in the United States, Canada, and Europe. Its Urban Outfitters stores sell women's and men's fashion apparel, footwear, accessories, and gifts, as well as apartment wares, such as rugs, pillows, shower curtains, books, candles, and novelties to young adults aged 18 to 28.

[Related -Urban Outfitters Inc. (URBN) Q3 Earnings Preview: Bullish November Calls]

In the last four years, the controversial retailer has exceeded Wall Street's forecasts 11 of the last 16 quarters. It's been an easy tale to tell for earnings traders. Handsome gains were made in nine of the eleven beats while the stock price slumped following the four misses and one on target result.

The average gain in the days surrounding earnings for bullish surprises is 6.47 percent, add in the two times the stock dipped following beats, and it drops to 4 percent. Last time out, shareholders enjoyed a 17.9 percent ride.

On the four occasions that Urban Outfitters disappointed the street, and the one on target report, the stock priced was trimmed 100 percent of the time by an average of 5.20 percent; however, most of the losses come from one ugly 16 percent drop in 2011. Remove the outlier and the losses were held to 2.38 percent on average.

[Related -A Bounce With Conviction?]

URBN's price has been in a downtrend, like everything else, since mid-September. Prior to turning south, shares hit a 52-week high of $40.65 on the heels of Urban's stellar 2nd quarter. Another bullish beat and a trip to $38.24 could be in the cards. If the stock price surpasses the initial target-zone, then its 52-week high, or more, is in play.

However, Monday's announcement does carry technical risk, too. Urban has entered the vertical shaft created by the last quarter's gap up. A swing-and-a-miss and the first support level could be $32ish.

Looking at Q2's 10K, iStock sees a few things that could negatively impact earnings and guidance. Management says they plan to "construct and open approximately 51 new stores, renovate certain existing stores, complete construction of our fulfillment facility in Reno, Nevada, continue to expand our home offices in Philadelphia, Pennsylvania, upgrade our information systems, increase our investments in direct-to-consumer marketing and purchase inventory for our stores, direct-to-consumer and wholesale businesses at levels appropriate to maintain our planned sales growth."  Sometimes, as any homeowner knows, building projects can cost more than anticipated; especially aggressive expansion plans. We've seen it kill many a retailer.

iStock also doesn't like most of the growth came from new stores whereas the "increases were partially offset by an $8.0 million, or 1.0 percent, decrease in comparable store net sales." Finally, inventories rising by 30 percent, while revenues gained 6 percent is concerning.

Other than that, we didn't see any other red-flags to worry about for now: margins, while dipping a little, remained consistent as costs remained constant as a percent of sales.

While we worry that swelling inventory could hit and hurt margins, it could be a case of gearing up for the holiday shopping season. Our fear is tempered by Urban Outfitters Inc. (URBN) November performance or the days surrounding third-quarter results. Fore nine straight years, URBN ‘s chart shows gains in the Thanksgiving month, with most charts showing a gap up.  Spikes up/down are usually event-driven i.e. earnings.

Overall, our iEstimate suggests a bullish beat is coming for the retailer. A positive surprise resulted in gains following nine of the last 11 occurrences. While we do have some balance sheet and income statement concerns, it's hard to argue against what iStock sees on URBN's chart for nine straight Novembers. 



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