Urban Outfitters (URBN) shares tumbled 9.67% in after-hours trading to $35.25 after reporting third quarter earnings and guiding lower gross margin next quarter. Shareholders were disappointed with the company’s earnings release after adjusted earnings per share came in 4 cents lower that expectations at $0.40 and revenue came in at $862 million, a miss from the $873 million estimate.
CEO Hayne noted, “I am pleased to announce our teams delivered record third quarter sales. These results were driven by the third consecutive quarter of positive Retail segment 'comps' and continued strength in our Wholesale segment.
During the earnings call, the company stated that due to higher markdowns, gross margin in the fourth quarter could decline when compared to last year, that implies a reading below 34%.
Price action on the URBN daily chart shows the initial selloff is tentatively finding support from a bullish Gartley pattern. Point D is targeted with the 61.8% Fibonacci retracement of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move. If this pattern is invalidated, we could see price target the $32.00 level. Key support will come from the 200-day SMA, which currently trades at the $31.37 level.
If we start to see price continue to stabilize here, further upside could initially target the $37.10 region.
The Trade: Sell URBN at $36.00, with a stop loss at $37.00 and a take profit at $33.00. The Risk/Reward Ratio is 1:3