Urban Outfitters bucks industry trend, posts strong quarter
Shares of Philadelphia's Urban Outfitters shot up Wednesday after the firm, citing strong inventory management, posted strong second-quarter earnings. The company behind the brands Urban Outfitters, Free People, and Anthropologie, among others, topped Wall Street analysts' estimates for second-quarter sales and profit.
Shares of Philadelphia's Urban Outfitters shot up Wednesday after the firm, citing strong inventory management, posted strong second-quarter earnings.
The company behind the brands Urban Outfitters, Free People, and Anthropologie, among others, topped Wall Street analysts' estimates for second-quarter sales and profit.
Urban Outfitters Inc. posted second-quarter profit of 66 cents a share, compared with an estimate of 55 cents. Its revenue was $890.6 million, exceeding Wall Street's $885.6 million projection.
As the retail industry in general copes with the migration of consumers to the internet, the trend among several retailers - Macy's, the Gap, and Target - has been to shrink space or eliminate stores altogether. Last week Macy's said it would close 100 additional stores in early 2017. Target's new flexible format stores are a way to reduce retail space.
But not Urban. The company is expanding the size of some of its branded stores, such as Anthropologie, and improving the store experience. It's adding such amenities as a pizza restaurant next to some outlets after acquiring the Pizzeria Vetri restaurant chain last year.
At King of Prussia Mall, in an unprecedented move, it is clustering as many as four of its brands on the same level.
The financial results show "a strong Urban Outfitters division with healthy margins," said Simeon A. Siegel, senior retail analyst at Nomura Securities International Inc. in New York. "Anthropologie sales were actually somewhat of a weak point, albeit coming through at very healthy margins. The company pointed out that both concepts [Urban Outfitters and Anthropologie] are operating at near-record merchandise margins."
The company also said sales at older stores improved, surprising analysts who expected a decline. Comparable retail net sales (comparing those stores open more than a year) increased 5 percent at the brand Urban Outfitters. The comparable net sales were flat at Free People and decreased 3.0 at the Anthropologie Group. Wholesale segment net sales increased 4.0 percent.
"I am pleased to announce our teams delivered record second-quarter sales and earnings per share," said Richard A. Hayne, CEO of Urban Outfitters Inc., during a conference call with analysts.
Echoing the analysts, Hayne said the results were driven by the positive retail segment "comp" sales and substantial improvement in merchandise margins.
Said Siegel: "Urban posted a very impressive same-store sales growth, but critically, sales came with very healthy margins and they have laid the path for a healthy string of results ahead.
"Tight inventory management with an ongoing focus on proprietary products clearly appears to be paying off, and the company was a clear standout in a challenging mall-based environment," Siegel said.
The company's stock soared after it disclosed solid second-quarter results. The stock gained $4.71, or 15.4 percent, to $36.05. It is up 58 percent this year.
"Most of the teen apparel chains have been disappointing (American Eagle Outfitters being the exception) and Urban's recent performance until this quarter has been mediocre," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm in New York City. "Clearly, its focus on merchandise was dead on," Davidowitz said. "The focus has been on nostalgia - throwback items from high-profile vendors with increased emphasis on offerings of exclusive items.
"The company hit it right," he said.
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