Morgan Stanley downgraded shares of Urban Outfitters (NASDAQ:URBN) to Equal-Weight from Overweight, lowering the price target to $36 from $42 per share.
The analysts said the Urban Outfitters "banner has proven challenged" for longer than they expected, and it likely stays that way through Spring 2024, if not longer.
"Even if UO eventually turns, at the same time, it's likely Anthro/FP moderate from current outsized growth/profitability levels," wrote the analysts. "We think this makes our revised $52 bull case increasingly unlikely," they added.
The analysts added that Urban Outfitters' negative comp duration has proven longer than the historical trend – going on six quarters as of 3Q compared to three to four quarters or less historically.
"We don't think an inflection is possible until Spring '24e at the earliest," the analysts added.
"We say this because 1) the banner remained challenged in 3Q as traffic stayed negative (-14% comp vs. Street -12%), 2) inventories are elevated heading into 4Q as a result, & will require higher markdown activity, & 3) while a clear plan is in place to change UO's trajectory (predicated on modernizing the assortment, own brand product initiatives, & improving consumer connection, among others), & a brand president is likely to be appointed near-term, mgmt. confirmed the next opportunity for comp/sales improvement is likely Spring' 24e."