Shares of
Urban Outfitters Inc
. (
URBN
) showed a moderate decline of 1.1% to $36.65 during after-market
trading hours on Monday, when this apparel, footwear and
accessories retailer posted lower-than-expected third-quarter
2013 results. However, year-over-year earnings growth provided
some cushion to the stock.
The quarterly earnings of 40 cents a share missed the Zacks
Consensus Estimate by a penny, but surged 21.2% from 33 cents
earned in the year-ago quarter. Lower shares outstanding as well
as top-line growth benefited the bottom line.
Top Line Increasing
After registering a revenue growth of 11% in the second
quarter of fiscal 2013, Urban Outfitters said that total net
sales climbed 13.6% to $692.9 million during the third quarter on
the back of new store openings, healthy Direct-to-Consumer sales
and strong wholesale operations. The company is also managing
inventory effectively, resulting in lower merchandise markdowns.
However, total revenue fell short of the Zacks Consensus Estimate
of $695 million.
Net sales increased 14.1% to $651.4 million at the Retail
Segment and 6.7% to $41.5 million at the Wholesale Segment.
Within Retail Segment, Retail Stores sales rose 7.9% to $483.4
million, whereas Direct-to-Consumer sales increased 36.4% to $168
million.
Management remains committed to sustain investments in
direct-to-consumer business in order to drive growth. The company
has undertaken initiatives such as customer retention and
acquisition, fulfillment of online or in-store orders through any
store and expansion of online merchandise offerings to spur
growth.
Net sales by brands grew 14% to $331.8 million at Urban
Outfitters, 9.3% to $266.9 million at Anthropologie and 24.8% to
$87.5 million at Free People.
A Look at Comps
Comparable retail segment net sales jumped 8% during the
quarter. The growth rate was lowered by 1% due to Hurricane
Sandy. However, comparable store net sales edged down 1%,
reflecting a decline of 2% in average unit selling price and 3%
in units per transaction, partially mitigated by a 4% jump in
total transactions. Comparable retail segment net sales by brands
rose 24%, 7% and 6% at Free People, Urban Outfitters and
Anthropologie, respectively.
A Look at Margins
Urban Outfitters noted that gross profit for the quarter
soared 20.7% to $260.9 million, whereas gross margin expanded 222
basis points to 37.6% due to lower merchandise markdowns.
Management expects that the fourth quarter of fiscal 2013 will
present considerable opportunity for gross margin improvement
than the third quarter. This will be attributable to product
content, fall in markdowns and favorable year-over-year
comparison.
Operating income surged 27.5% to $93.5 million, while
operating margin increased 150 basis points to 13.5%.
Stores Update
The company opened 39 new stores, which includes 15 Free
People, 12 Urban Outfitters, 10 Anthropologie, 1 BHLDN and 1
Terrain, and shuttered 1 Anthropologie store during the nine
months period ended October 31. The company now plans to open 49
stores during fiscal 2013, including 18 Urban Outfitters, 15 Free
People, 14 Anthropologie and 1 BHLDN and 1 Terrain. For the
fourth quarter, the company expects to open 10 stores.
Urban Outfitters entered into a multi-year agreement with
World Co., Ltd for the distribution and marketing of its
specialty clothing brand, Free People in Japan. As per the
agreement, World Co., Ltd will distribute and market the Free
People brand throughout Japan from shop-in-shop locations,
direct-to-consumer sites and stand-alone stores. Moreover, the
firm will distribute merchandise to specialty stores and
department stores wholesale accounts. Free people initiated
freepeople.co.uk, and marked its entry into the Canadian market
by opening 2 outlets. Urban Outfitters brand opened 3 locations
in Germany, whereas Anthropologie opened 4 outlets in the
U.S.
Other Financial Aspects
Urban Outfitters ended the quarter with cash and cash
equivalents of $216.6 million, marketable securities of $146.1
million, and shareholders' equity of $1,269.9 million. Management
continues to expect capital expenditures of $190 million to $210
million for fiscal 2013.
Let's Conclude
Being a multi-brand and multi-channel retailer, Urban
Outfitters offers a flexible merchandising strategy. The company
also has a significant domestic and international presence with
rapidly expanding e-commerce activities. It remains committed to
improving comparable-store sales performance, adding new brands
and optimizing inventory levels.
Further, to increase customer count, the company plans to
augment store openings in North America and Europe, open retail
outlets in Asia, enhance online and mobile marketing endeavors,
increase wholesale distribution in Europe and Asia, and
considerably expand direct-to-consumer business worldwide.
Moreover, the company's debt-free balance sheet also augurs well
for future growth.
Currently, we have a long-term "Outperform" recommendation on
the stock. Moreover, Urban Outfitters, which competes with
Gap Inc
. (
GPS
) and
Abercrombie & Fitch Co
. (
ANF
), retains a Zacks #2 Rank that translates into a short-term
"Buy" rating.
ABERCROMBIE (ANF): Free Stock Analysis Report
GAP INC (GPS): Free Stock Analysis Report
URBAN OUTFITTER (URBN): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research