Urban Outfitters drops after warning of weak Quarter-To-Date comp sales

Shares of Urban Outfitters (URBN) slumped in morning trading after the apparel retailer disclosed that its second quarter comparable retail sales to-date are down by a mid single-digit percentage.

WHAT'S NEW: Urban Outfitters, the parent company of the Free People, Anthropologie and Urban Outfitters brands, said in a regulatory filing on Thursday that its comparable store sales are declining in the current quarter. "Thus far during the second quarter of fiscal 2017, comparable retail segment net sales are mid single-digit negative," Urban Outfitters said.

WHAT'S NOTABLE: Despite reporting in line earnings per share and better than anticipated revenue for the first quarter, Urban Outfitters said in May that sales for Q2 were "starting out slower than expected," adding that May sales quarter-to-date were slower than what the company delivered for Q1, "and slower than what we had originally planned at each of our brands." At the time, Urban Outfitters said its gross margin rate for Q2 could improve "slightly" year over year.

ANALYSTS REACTION: Despite reporting lower to date comps for Q2, Baird analyst Mark Altschwager said he sees good long-term risk/reward for investors. While he notes that the environment is "challenging," the analyst believes Urban's management is "doing the right things" to drive value and capture share, including controlling inventory and avoiding store over-saturation. SunTrust cut its price target on Urban Outfitters to $34 from $39, blaming the miss on macro factors including the current retail environment, but said the company is "proactive" in combating external challenges. UBS noted that May comps are the toughest of the quarter and expects June and July will ease slightly, but believes the tough trends are more likely due to factors other than just weather.

PRICE ACTION: Urban Outfitters is down 7.5% to $25.85 in morning trading. Shares are down over 20% over the last three months.

OTHERS TO WATCH: Peers include Gap (GPS) and American Eagle (AEO), which are both down about 3% this morning. URBNGPS