Urban Outfitters, Inc. (NASDAQ:URBN) stock rose 3.72% (As on June 13, 11:59:36 AM UTC-4, Source: Google Finance) after Morgan Stanley upgraded the previous rating for the company from Equal-Weight to Overweight and raised its price target to $41.00 from $27.00. The analyst said the retailer is poised for an “inflection point,” with a de-risked 2023 forecast and cheap valuation. The company in the first quarter of FY 23 has topped Wall Street estimates as markups helped boost margins. The retailer reported earnings of 56 cents on revenue of $1.11 billion, compared with estimates for 36 cents on revenue of $1.09 billion. The beat on the bottom line was helped by a 260 basis points improvement in gross profit rate, driven by higher markups and a decrease in inventory levels.

Moreover, total Retail segment net sales increased 4%, with comparable Retail segment net sales increasing 5%, partially offset by a 1% negative impact of foreign currency translation. The increase in Retail segment comparable net sales was driven by high single-digit positive growth in digital channel sales and low single-digit positive growth in retail store sales. By brand, comparable Retail segment net sales increased 17% at the Free People Group and 13% at the Anthropologie Group and decreased 13% at Urban Outfitters. Wholesale segment net sales decreased 11% driven by a 14% decrease in Free People Group wholesale sales due to a decrease in sales to department stores and specialty customers, while Urban Outfitters wholesale sales increased by $1 million. Nuuly segment net sales increased by $28.6 million driven by a 118% increase in our subscribers as of the current quarter end versus the end of the prior year’s comparable quarter.

For the three months ended April 30, 2023, the gross profit rate increased by 260 basis points compared to the three months ended April 30, 2022. Gross profit dollars increased 14.8% to $371.2 million from $323.3 million in the three months ended April 30, 2022. The increase in gross profit rate was primarily due to higher initial merchandise markups at all three brands primarily driven by lower inbound transportation costs. Additionally, the gross profit rate benefited from lower merchandise markdowns at the Anthropologie Group and Free People Group brands. During the three months ended April 30, 2023, the Company opened 5 Free People Group stores (including 2 FP Movement stores) and closed 5 retail locations.