Urban Outfitters Buys A Pizza Business…

Urban Outfitters Buys A Pizza Business…
Via S&P CapIQ

In today’s not the Onion.

You’ve got to give management at Urban Outfitters credit. They saw the handwriting on the wall, and they decide to take a radical step to try and reinvent the company. It is a huge risk to move from fashion to food, or even to try and combine the two, but that is exactly what Urban Outfitters has in mind. But no doubt there will be synergies galore!

The well-known eclectic retailer announced on Monday that it was buying Philadelphia’s Vetri Family group of restaurants, including the marquee Pizzeria Vetri  in a move which raised some questions. The price of the deal was not disclosed.

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Any way you look at it, this is a major move from U O, which like most retailers, has been suffering from a continuing slowdown in foot traffic that is dogging the retail industry. Consumers simply are not shopping at stores and spending as much as they used to. Macy’s and Nordstrom have cited weak store traffic for recent poor results, and Urban Outfitters is feeling the same pinch.

Other retail chains have begun discussing plans to “refresh their brands” or increase their online signature to boost overall sales, Urban Outfitters has decided to move into a sector business where the economics are improving not declining.

Urban Outfitters plans national expansion of Pizza Vetri concept.

Urban Outfitters Chief Development Officer Dave Ziel commented in an interview on Philly.com that shoppers are spending more and more of their disposable income on food rather than retail goods.

“Until they invent actual replicators like on Star Trek, e-commerce is not a threat to the restaurant business,” he said in explaining the move by Urban Outfitters.

Of note, Urban Outfitters has seen its stock price lose roughly half its value since March. That said, investors were apparently not too enthused about the new plan as U O shares were off 7.43% on the news.

Keep in mind that the Vetri Family restaurant acquisition comes following a reasonably successful experiment in adding restaurants to some stores in major cities.

That said, it’s not known if the new locations of Pizzeria Vetri will have its own storefronts, or inside existing Urban Outfitters (or both). Stay tuned as execs from Urban Outfitters will provide more details on their plans when they host a conference call after the close Monday.

In the PR announcing the acquisition, Urban Outfitters CEO Richard Hayne commented: “Having known Marc for almost a decade and partnered with him through his charitable foundation, we are honored to have him, Jeff and the Vetri family join the URBN team. Spending on casual dining is expanding rapidly, and thus, we believe there is tremendous opportunity to expand the Pizzeria Vetri concept.”

Specifically, Hayne stated:

This morning we announced an agreement to acquire substantially all of the Vetri Family group of restaurants which includes its award-winning Pizzeria Vetri. Most recently Food and Wine Magazine named Pizzeria Vetri the best pizza restaurant in America. With casual dining growing rapidly and pizza one of the most popular foods in the country, we believe there’s tremendous opportunity to expand the Pizzeria Vetri concept.

We feel fortunate to have Marc Vetri, a James Beard award winning chef, with his business partner Jeff Benjamin and their caliber of teams working in partnership with URBN development and shared service teams to realize this growth opportunity. Currently, the Vetri Group operates 2 pizza restaurants in Philadelphia and is scheduled to open 3 more in the next 12 months. We believe future can be standalone restaurants or part of a larger retail complex. A big attraction of this concept is the enormous depth of its appeal. Very young to very old, everyone loves great pizza. Last week the Urban brand launched its new Space 2420 project in Austin across from the University of Texas campus. This project includes an expanded Urban Outfitters store and several food and beverage concepts, including Pizzeria Vetri and Michael Symon’s Burger Joint. The store and the restaurants are clustered around an open air courtyard that offers restaurant seating and a stage for special events and concerts.

So in addition to a large Urban store, we’ve assembled award winning pizza and burgers serving beer and other beverages and offering live music. And this is all directly across the street from 60,000-plus UT students. We believe the project has a high probability of success.

The Vetri pizza concept is not limited however to pairing only with Urban brand. In early 2017, we plan to open a project in Devon, Pennsylvania which is a high-end suburb of Philadelphia. This project will include a larger format Anthropologie stores, a Terrain Garden Center outdoor store, a Glass House cafe, a Pizzeria Vetri and one of the Vetri Group’s higher-end restaurants.

We’re excited to add foodservice to our brand portfolio and believe the Vetri Family group of restaurants compliments our brand nicely. Having known Marc for many years and having worked with him on numerous charitable projects, I know our organizations and cultures fit together easily. Marc and Jeff will partner with Dave Ziel, our Chief Development Officer who currently runs our URBN food and beverage division, in leading this exciting opportunity for our Company.

Analysts at Stifel opine:

While the potential overlap of the customer base is obvious (URBN shoppers surely like gourmet pizza!), the challenge of operating a new business and successfully integrating it with URBN is not insignificant. In addition, the operating and investing metrics are unique to the casual dining business, possibly diminishing visibility for investors.

CEO Richard Hayne is highly regarded as an innovative leader in retail, with his success based on his willingness and ability to think outside the box. Whether Pizzeria Vetri proves to be a success like Free People or simply an interesting, but as of yet immaterial venture like Terrain, remains to be seen.

MKM opines:

Everybody loves pizza, but not a natural extension. In assessing acquisition targets, we think it makes sense to look at synergistic categories/brands that would be a true add-on to the current offering. Moving outside of core competencies, we would be willing to entertain certain IT products to further URBN’s already advanced DTC efforts. Yet, we believe investing in a restaurant introduces significant risks and could become a distraction. We see greater opportunity from relocating stores to locations with a stronger tenant profile, without having to own them.

Baird says “a small foray into the pizza business has fueled investor anxiety as the core business softens.”

Oliver Chen of Cowen states:

The Vetri Family group of restaurants is made up of six brands, and was created & is co-headed by Chef Marc Vetri & his business partner, Jeff Benjamin. Recently, Food and Wine Magazine named one of their concepts, Pizzeria Vetri, the best Pizza restaurant in America.

URBN CEO, Richard Hayne, noted he has known Mr. Vetri for ~10 years, and will have him, as well as Mr. Benjamin, join the URBN team. He believes significant opportunity exists to expand the Pizzeria Vetri concept.

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