Urban Outfitters Earnings Miss, Namesake Brand Sales Fall
Urban Outfitters Inc. (URBN - Analyst Report) posted third-quarter fiscal 2015 results, wherein earnings of 35 cents a share missed the Zacks Consensus Estimate of 42 cents and also plunged 25.5% from 47 cents delivered in the year-ago quarter. Increased operating expenses, higher markdowns and fall in sales at its namesake brand were responsible for the debacle that dragged this Zacks Rank #5 (Strong Sell) stock down roughly 4% in the aftermarket trading session yesterday.
Urban Outfitters, Inc - Earnings Surprise | FindTheBest
Revenue Insight
Total net sales of Urban Outfitters climbed 5.2% to $814.5 million during the quarter, attributable to a $34 million jump in non-comparable store sales, new store openings and double-digit growth at its wholesale operations. However, the top line fell short of the Zacks Consensus Estimate of $818 million.
While Anthropologie and Free People brands contributed to the company’s performance, sales were affected to some extent due to sluggish performance by the Urban Outfitters brand on account of weak product execution. Management is making every effort to revive the namesake brand through store refurbishment and by bringing in more compelling assortments.
Net sales by brands fell 0.4% to $340.4 million at Urban Outfitters, but jumped 4.2% to $327.7 million at Anthropologie and 25% to $141.2 million at Free People. Other revenues surged 13.9% to $5.2 million. The company’s net sales increased 3.8% to $751.5 million at the Retail Segment and 26.1% to $63 million at the Wholesale Segment.
Comparable retail segment net sales, including the comparable direct-to-consumer channel, fell 1%. Comparable retail segment net sales rose 15% and 2% at Free People and Anthropologie, respectively, while it declined 7% at Urban Outfitters.
Margin Performance
Gross profit for the quarter slid 3% to $283.5 million, whereas gross margin contracted 295 basis points to 34.8%, reflecting deleverage in store occupancy expenses and higher markdowns. Management believes that gross margin may remain under pressure in the fourth quarter on account of reduced merchandise margins and store occupancy cost deleverage.
Operating income tumbled 27.5% to $76.5 million, while operating margin shriveled approximately 423 basis points to 9.4%.
Stores Update
During the first nine months of fiscal 2015, the company opened 29 outlets including 7 Urban Outfitters stores, 10 Anthropologie Group stores and 12 Free People stores. The company also closed one Urban Outfitters store.
Management plans to open approximately 35 to 40 outlets in fiscal 2015. In the fourth quarter, the company plans to open about four Urban Outfitters outlets, comprising one in Europe, and six Anthropologie outlets worldwide, including a European outlet.
Other Financial Aspects
Urban Outfitters ended the quarter with cash and cash equivalents of $128.2 million, marketable securities of $115 million and shareholders’ equity of $1,378 million. Management anticipates capital expenditures in the range of $215 to $235 million for fiscal 2015.
During the quarter, the company bought back 184,000 shares for approximately $7 million.
As of Oct 31, the company has repurchased 3.9 million shares aggregating approximately $132 million. The company still has at its disposal 6.1 million shares for repurchase under its share buyback program of 10 million shares, announced in the second quarter.
Better Ranked Stocks
Better-ranked stocks in the retail sector include American Eagle Outfitters, Inc. (AEO - Analyst Report), L Brands, Inc. (LB - Analyst Report) and Zumiez, Inc. (ZUMZ -Analyst Report), all sporting a Zacks Rank #2 (Buy).
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