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Shares of fashion retailer Urban Outfitters are one of biggest fallers on the S&P 500 on Tuesday after delivering investors a double dose of unsettling news.

On Monday, the chain agreed to buy an Italian pizzeria chain, helping to send its shares about 7.5 per cent lower. The stock weakened a further 12 per cent on Tuesday after its latest results, released late yesterday, disappointed.

On a call with analysts, Urban’s management said that buying the Philadelphia-based Vetri restaurants will allow it to capture more of consumers’ spending.

Analysts on Wall Street who follow the company gave the following verdict on the acquisition:

  • Those at Cantor Fitzgerald argue the “restaurant venture is more a distraction than anything, in our
    opinion. We think investors already have enough concerns regarding the
    company’s ability to simultaneously sustain momentum at its two core brands.”
  • Analysts at stockbroker Baird say a “small foray into the pizza business has fueled investor anxiety as the core business softens.”
  • There is some support, though, for Urban’s management from Jefferies, whose analysts argue that “while this acquisition is not core to URBN’s business & not a necessary transaction, in our view, mgmt has proven to be creative through strategic acquisitions in the past & given the relatively small size of the acquired business, we do not see this as adding significant risk.”
  • But those at MKM Partners go on to echo the bulk of analysts who offered an opinion in questioning the value of a push into pizza. They argue: “Everybody loves pizza, but not a natural extension. In assessing acquisition targets, we think
    it makes sense to look at synergistic categories/brands that would be a true add-on to the current offering. Moving outside of core competencies, we would be willing to entertain certain IT
    products to further URBN’s already advanced DTC efforts. Yet, we believe investing in a restaurant introduces significant risks and could become a distraction. We see greater opportunity from relocating stores to locations with a stronger tenant profile, without having to own them.”

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