Investors in Urban Outfitters Inc. are used to wild swings. Shares of the South Philadelphia-based retailer have risen into the mid-$30s or higher, then fallen to the low $20s or below, at least four times since 2005, with an all-time high of $47 in 2015 and a recent peak of $39 last fall. The stock tumbled below $24 this week after profits and sales rose less than expected in the company's March 7 quarterly report.
But now the company's range has officially become a rut: On Friday, Standard & Poor's dropped URBN from its list of 500 big U.S. stocks, after its total market value fell to $2.3 billion, less than half S&P's minimum target of $6.1 billion.
The largest indexed stock funds at Vanguard and other investment houses dumped the shares, which had been on the 500 list since 2010. S&P moved URBN back to its MidCap 400 list, a less-popular benchmark.
(Philadelphia-area companies still on the S&P 500 include AmerisourceBergen, Ametek, Lincoln National, and Universal Health in the Pennsylvania suburbs; Comcast and FMC in the city; NRG Energy up in Princeton; and DuPont, Incyte, and Navient in Delaware. That's 10 companies, or 2 percent of the index, which is merely in line with the region's share of the U.S. population.)
The biggest loser when URBN drops is its largest shareholder, founder and CEO Richard A. Hayne. His 17.8 million shares — more than 15 percent of the company he founded just off the Penn campus in the early 1970s — are worth a little more than $400 million, down from more than $800 million at the company's 2015 peak.
During the company's quarterly conference call with investors and analysts last week, URBN chief financial officer Francis John Conforti said the company still grosses 33 cents profit on every $1 it collects, though that's down from 34.2 cents a year ago.
With 199 Urban Outfitters-brand stores and 210 Anthropologies, the company has built most of what it needs in North America, though it is still adding Terrain gardening centers and Vetri restaurants to larger Anthropologie sites. It also plans to add to its 127 U.S. Free People stores and plans more stores in Europe.
A drop in pre-Christmas and Hanukkah sales last fall was "disappointing and highly unusual," Hayne acknowledged, blaming "off-pitch" clothing lines, which he hopes he has corrected with a recent management shake-up.
The larger trend, Hayne said, is clear: "Digital communities and social media are replacing storefronts and traditional advertising as a preferred means by which brands and customers are connecting."
Of course, Urban has planned for that. Hayne called his company's social-media platforms "among the best in the industry," citing its seven million Instagram foll0wers, up more than 50 percent from last year. The engineering and programming staff at URBN, which has expanded in recent years, reports with other tech groups to Hayne's son, chief digital officer David Hayne.
But Urban, like other retailers that move online, is cannibalizing its business, the CEO said: "Digital shopping is partly replacing store shopping, and thus is negatively impacting store traffic and store-generated sales."
The more shoppers use their smartphones to buy direct from Urban's big warehouse — oddly located in Gap, Lancaster County, a handful of townships from Hayne's Chester County estate but far from Pennsylvania's main warehouse-employment centers farther north — the less those same shoppers are buying at the company's stores.
Digital and warehouse sales are roughly three times as profitable as in-store sales, according to Urban data. So that's where Hayne will be investing, mostly. New stores (not counting closings) have dropped: There were 29 in 2015, 26 last year, only 15 planned this year, and just eight leases signed for 2019.
Hayne is not counting out retail. But he sees no rush to commit to more store locations. Store leases "will be less expensive in the near future" as more of America's "overbuilt" retail centers shut down, he concluded.