Morgan Stanley analysts adjusted their rating on Urban Outfitters (NASDAQ:URBN), changing it from Overweight to Equal-Weight and reducing the price target from $42 to $36 per share.

The analysts noted that Urban Outfitters has faced more prolonged challenges than initially anticipated, with difficulties expected to continue at least through Spring 2024, possibly longer. The analysts pointed out that while there might be a future turnaround for Urban Outfitters, the growth and profitability levels of its other brands, Anthro and Free People (FP), are likely to normalize from their current high rates. This shift makes their previous $52 bull case target increasingly unlikely.

The analysts also observed that the duration of Urban Outfitters’ negative comparable store sales has extended beyond the usual trend, now entering its sixth quarter in Q3, compared to the typical three to four quarters. They don’t foresee a potential upturn until at least Spring 2024.

This outlook is based on several factors: the continued challenges faced by the brand in the third quarter, evidenced by a 14% decline in comparable sales versus the expected 12%; elevated inventory levels heading into the fourth quarter, necessitating increased markdowns; and despite having a plan to improve Urban Outfitters’ performance, including modernizing the assortment, focusing on own brand products, and enhancing consumer engagement.

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