Yahoo Finance Urban Outfitters, Abercrombie stocks surge in bright spot for retail
The consumer slowdown teased by some of the nation's largest retailers isn't playing out at two major chains popular with teens — at least not yet.
Abercrombie (ANF) produced a surprise profit in the first quarter and raised its net sales guidance for the full year. Meanwhile, same-store sales grew 5% at Urban Outfitters (URBN), nearly double the consensus estimate.
Abercrombie stock soared 31% while Urban Outfitters stock finished up 17% on the news, even as concerns over whether consumers will stop spending still linger into the back half of the year.
Questions about the state of the consumer have been commonplace on earnings calls this quarter as Wall Street buckles up for a widely forecasted recession. But the economic data, including positive retail sales in April, hasn't consistently indicated a slowdown.
The same murky picture is being painted by retail earnings. On the one hand, Target (TGT) says its seeing weakness in consumer discretionary demand. Walmart (WMT) believes it's seeing consumers trade down. And Foot Locker (FL) is attributing challenges to a "tough macroeconomic backdrop."
Meanwhile, Abercrombie & Fitch's first quarter sales hit their highest levels in a decade, led by 14% growth at Abercrombie brands.
"We have been seeing a very strong consumer on the Abercrombie brand all through last year and certainly through the first quarter. We're also very pleased with our kickoff to the second quarter," Abercrombie CEO Fran Horowitz told Yahoo Finance Live. "So we have not experienced that [slowdown]."
Sales hit a quarterly record at Urban Outfitters in a quarter Citi analyst Paul Lejuez called "a rare bright spot during an otherwise challenging retail environment."
The company's CEO, Richard Hayne, doesn't see things fully slowing down yet, either.
"We currently see no signs of change in customer behavior, no indication that customers are shopping less frequently, buying fewer items, or trading down," Hayne said. "Indeed so far in May, total retail segment comps are in line with the first-quarter results, and we believe the total retail segment comps in Q2 could look very similar to Q1 print."
Still, the picture at these retailers isn't all rosy. The core Urban Outfitters brand saw a 13% sales decline compared to the same period a year prior. While positive growth at Free People and Anthropologie boosted sales to the upside, Urban Outfitters admitted macro factors are weighing on the consumer.
Hayne believes part of the slowdown came from not having the right styles to meet demand. But the "macro climate" had already been a headwind prior to the first quarter and is now getting worse, too.
"I think that that has intensified somewhat, as people's take-home pay continues to erode from the inflationary pressures," Hayne said on the company's earnings call.
UBS kept its sell rating on shares of Urban Outfitters, admitting the company had a "good quarter," but noting there's still potential for overall downside.
Lead UBS retail analyst Jay Sole wrote in an industry note on Tuesday that US consumer demand for soft goods is weakening and reiterated that call on Wednesday as a headwind for Urban Outfitters.
Impacts of sticky inflation, higher interest rates, and lapping fiscal stimulus haven't fully hit consumers yet, per Sole.
When that happens, the consumer slowdown will be in full effect.
"We think sales growth will turn negative over the next few quarters as the macro economic environment deteriorates," Sole wrote. "We anticipate traffic softens and consumers pull back on spending on discretionary items like non-athletic apparel and the home category."
Josh is a reporter for Yahoo Finance.
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