Urban Outfitters Inc. stock drops to an 8-year low. Would retailer go private, a la Nordstrom?

Urban Outfitters Inc.'s stock hit an eight-year low last month, at just over $16 a share. Contrarians looking for underpriced stocks would say it's time to buy the Philadelphia-based retail giant.

Why? In the short term, Urban reported dismal same-store sales: "Thus far during the second quarter of fiscal 2018, comparable retail segment net sales are high single-digit negative,"  the company said in a 10-Q regulatory filing.

While the retailer's shares have since rebounded to about $19 last week, investors are asking longer-term questions: Will Urban Outfitters, whose critics say is in need of fresher leadership, go the way of Nordstrom and go private, paying shareholders a premium? Will the closely held public company be bought by a rival, as its market cap has dropped to $2 billion?

Urban's share price has fallen about 30 percent year-to-date, more than those of other apparel stores. The main reasons include pressure from other e‐commerce sites (Urban derives about one-third of its sales online) and lower brick‐and‐mortar store traffic; weaker‐than‐expected promotions; and poor first-quarter earnings and sales, as well as a lower outlook for the second quarter.

As of April 30, the company operated 242 Urban Outfitters stores, 225 Anthropologie Group stores, 130 Free People stores, and 12 restaurants. But women's apparel, particularly expensive dresses at Urban Outfitters and Anthropologie, didn't fly off the shelves. And investors still aren't happy about Urban buying Marc Vetri's chain of pizza restaurants, "although that could enhance the experience in the stores," said RBC Capital Markets analyst Brian Tunick.

"Executives have talked about opening up bigger stores, because if beauty and home and lingerie are where consumers are spending — not on apparel — they need a store catering to that. They might even put in a restaurant or a coffee bar to drive traffic."

The acquisition itself, given it was a friend of the family, was "puzzling and strange," said Stephen Cohn, co-president of Sage Financial Group in West Conshohocken.

"But could Urban Outfitters follow the lead of Nordstrom's and go private? From management's point of view, they could buy this company back for a significant discount," Cohn said. "It's undervalued if you're a contrarian."

Would Urban Outfitters even consider going private? Nordstrom Inc.'s board has assembled a special committee of independent directors to act on behalf of the department-store chain regarding the idea, that retailer said in June. Urban's board, however, has been slammed as acting with "extreme insularity," according to one institutional investor. So it's unlikely it would open up the discussions the way Nordstrom has.

CtW Investment Group, a union-affiliated investment firm, in May issued a letter to shareholders noting that the Urban Outfitters board has only two women, one of whom is chief executive Richard Hayne's wife, Margaret. The directors also had an average tenure of 19 years, compared with 9.4 years for the S&P mid-cap index, according to the letter.

"Given the company's failure to address growing concerns regarding the diversity of the board and changes in consumer spending habits, the nominating committee has largely failed to recognize the necessary director qualifications required during this very critical juncture," CtW executive director Dieter Waizenegger wrote.

After that, Scott Galloway, a professor at the Stern School of Business at New York University and founder of the activist investment firm Firebrand Partners LLC, joined the board as an independent director in May. Galloway did not respond to a request for comment.

In 2015, Ed Antoian, partner and chief investment officer for Zeke Capital Advisors in Berwyn, also joined the Urban board. He, too, declined to comment for this article.

Fashion-wise, Anthropologie is struggling right in line with White House Black Market, Banana Republic, and J. Crew.

"Women shoppers are spending more on athleisure or filling in their wardrobe from H&M and Zara, leaving Anthropologie to search for the next fashion cycle," RBC's Tunick said. "We have said our estimates are well below the other analysts, so the rest of the Street may have to revise down" their expected earnings.

Tunick holds a $17 price target on the stock. Wall Street analysts such as MKM Partners have even issued an almost-unheard-of "sell" rating on Urban Outfitters, with a $16 price target.

So, what's positive to look forward to about Urban's future? More independent directors, very little long-term debt, and roughly $2 per share of cash in the current $19 price. Down from a high of $47 a share a few years ago, Urban Outfitters could be an attractive takeover target trading at seven times cash flow (that is, $2.75 in cash flow per share).

No response yet from Urban Outfitters. If and when we hear back, we'll let you know.