URBN - UBS opens negative catalyst call on Urban Outfitters ahead of earnings

UBS opened a negative catalyst call on Urban Outfitters ( NASDAQ: URBN ), anticipating a weak guidance when the company reports on February 28.

Equity analyst Jay Sole said that sentiment remains bullish at the moment despite ample reason for caution ahead of the report. He anticipates a miss on the bottom line for Q4 “given the excess inventory levels at the Urban division coupled with an increase in the broader promotional environment” which is likely to be only partially offset by cost cuts.

More importantly for the stock reaction, in Sole’s view, is the likelihood of guidance to come in lighter than anticipated. Sole sees a Q1 EPS forecast of $0.28 per share disappointing a Street expectation of $0.34.

“We think the market doesn't fully appreciate the likely pressure on URBN's 1Q margins stemming from ongoing challenges at its Urban Outfitters division,” he told clients. “The options market is pricing in a +/-9.9% jump over the event vs. a 7.6% historical average move. We doubt fundamentals justify the stock moving down more than 9.9%, but this is a low conviction view given the market remains very volatile.”

Read more on the company’s holiday sales growth reported in January .

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