Urban Outfitters (NASDAQ: URBN) Has the Makings of a Holiday Winner

2020 hasn’t been a normal year, and the 2020 holiday shopping season won’t be normal either. Normally, people would descend upon malls en masse, leading to packed stores and long lines. But this year, coronavirus fears and social distancing requirements will prevent malls from reaching full capacity.

The holiday shopping action won’t dwindle from previous years – at least not by much. Instead, it will mostly shift to the online realm.

Urban Outfitters NASDAQ: URBN is very well-positioned for the holiday season.

 The apparel/home goods retailer has built a powerful digital presence in 2020, mitigating its in-person sales declines. Urban Outfitters’ digital businesses reported mid-double-digit comp sales growth in each month of Q3 and the company says “that strength has continued in the fourth quarter to date.” The retailer is also doing an excellent job with new client acquisition, with total new digital customers in Q3 jumping by 45%.

Urban Outfitters became one of a small number of retailers to promise free pre-Christmas delivery for orders placed as late as this week. This news is easy to overlook: how many people do their Christmas shopping at the last minute, anyway? And wouldn’t that number be lower than usual since most people just have to click a button to order their Christmas gifts this year?

Those are valid arguments, but there are still several possible reasons why people would put off buying gifts: uncertainty about what someone wants, waiting for money to come in, or just flat-out procrastination. Whatever the case may be, last-minute shoppers are more likely to turn to Urban Outfitters as opposed to paying for shipping to get fast delivery from other retailers.

You may be wondering: can Urban Outfitters handle an avalanche of demand?

And the answer to that is “yes.” Urban Outfitters has handled high online demand for months. On the last earnings call, management noted, “Since May of this year, our fulfillment centers have experienced non-stop holiday-level workloads.” On top of that, the company hired extra workers in its fulfillment centers for the holiday season and equipped all of its stores with digital order packing and shipping capabilities

The Company is Downplaying Holiday Season

Urban Outfitters declined to offer any holiday season expectations on its last earnings call. Management essentially said that if not for COVID-19, it would predict a strong holiday season. But instead, it would avoid predicting it because it’s “a low confidence proposition.”

As an investor, this is exactly what you want to see. The market is likely being cautious with its expectations for Urban Outfitters’ holiday season in the absence of guidance. Every indication is that Urban Outfitters will perform well this holiday season, which could lead to an upside surprise when the company releases its Q4 earnings.

Urban Outfitters Could Find Support Around $26-27

November 9^th, the day the Pfizer NYSE: PFE vaccine news came out, was a wild day for the market. Urban Outfitters was no exception. Shares closed the previous session (November 6) at $23.73, before opening at $26.64 on November 9. After racing to nearly $33 a share, Urban Outfitters ended up closing at $26.45. The 11% increase for the day sounds good, but price action like that can be a little bearish in the short-term.

So, it shouldn’t come as much of a surprise that after moving into the low $30’s, URBN shares were turned back and came down to the mid-$20’s, where they sit now.

URBN shares could find support around $26-27 for a couple of reasons:

1. It’s the 50-day moving average, where shares have already gotten support a couple of times since September.
2. It’s near the breakout point of URBN’s last base.

The Final Word

Urban Outfitters’ holiday success will hinge on just how many people put their shopping off. But it seems like it won’t be a matter of ifUrban Outfitters has a strong holiday season, but how strong that holiday season ends up being.

With shares in a long-term uptrend and presenting a nice entry point, now is the time to consider a URBN investment.