Urban Outfitters Inc.
(
URBN
), the retailer of apparel, footwear and accessories, recently
posted results for the fourth quarter ended January 31, 2012. The
quarterly earnings of 27 cents a share missed the Zacks Consensus
Estimate of 30 cents, and dropped 40% from 45 cents earned in the
prior-year quarter.
Despite registering a growth in the top line, the company
witnessed a drop in the bottom line due to a 26.6% rise in the cost
of sales and an increase of 7.4% in selling, general and
administrative (SG&A) expenses. However, as a percentage of
total net sales, SG&A expenses contracted 37 basis points to
21.3%.
Top Line Increasing
After registering a growth of 6.3% in the third quarter, Urban
Outfitters said that total net sales climbed 9.3% to $730.6 million
during the fourth quarter. Total net sales almost came in line with
the Zacks Consensus Estimate of $731 million.
Net sales increased 9.6% to $699 million at the Retail Segment
and 3.1% to $31.7 million at the Wholesale Segment. Within Retail
Segment, Retail Stores sales rose 8.1% to $532 million, whereas
Direct-to-Consumer sales soared 14.9% to $167 million.
Direct-to-Consumer business continues to remain healthy in North
America and Europe, propelled by expanded online assortments.
Net sales by brands grew 10.9% to $356.8 million at Urban
Outfitters, 5.6% to $299.2 million at Anthropologie and 18.5% to
$69.9 million at Free People.
Sales in Europe climbed 33% attributable to the opening of six
new Urban Outfitters outlets and a rise in comparable retail
segment sales of 11% and 28% at Urban Outfitters Europe and
Anthropologie Europe, respectively.
Comps across Brands Rises
Comparable retail segment net sales jumped 2% during the
quarter. However, comparable store net sales edged down 1%,
reflecting a 5.2% decline in average unit selling prices, a 1.5%
jump in the average number of units per transaction, and a 2.5%
rise in total transactions. Comparable retail segment net sales by
brands rose 9%, 3% and 1% at Free People, Urban Outfitters and
Anthropologie, respectively. Direct-to-Consumer comparable netsales
surged 14%.
Margins under Pressure
Urban Outfitters noted that gross profit for the quarter tumbled
17% to $220 million, whereas gross margin contracted 955 basis
points to 30.1% due to higher merchandise markdowns to sell the
slow-moving stock of women's clothing at both Anthropologie and
Urban Outfitters.
Operating income plummeted 46.4% to $64.5 million, while
operating margin shriveled 920 basis points to 8.8%.
Management also said that the rate of full-priced selling in the
first quarter of fiscal 2013 has shown a sequential improvement,
but hinted that markdown rates are expected to remain higher during
the year. Management also indicated that it remains committed to
manage product costs and SG&A expenses effectively to ease
margin pressure.
Stores Update
Urban Outfitters, which competes with
Gap Inc.
(
GPS
) and
Abercrombie & Fitch Co.
(
ANF
), opened 21 new stores in the fourth quarter. During the full
year, the company opened 57 new locations, which includes 21 Urban
Outfitters, 20 Free People, 15 Anthropologie and 1 BHLDN. The
company now plans to open 55 to 60 stores during fiscal 2013,
including 23 Urban Outfitters, 16 Free People, 14 Anthropologie and
1 BHLDN and 1 Terrain. For the first quarter, the company now
expects to open 13 stores.
Other Financial Aspects
Urban Outfitters ended fiscal 2012 with cash and cash
equivalents of $145.3 million, marketable securities of $89.9
million, and shareholders' equity of $1,066.3 million. During the
fiscal year, the company repurchased 20.5 million shares for a
total amount of about $538 million, marking the completion of the
share repurchase authorization. Management also projected capital
expenditures of $190 million to $210 million for fiscal 2013.
Closing Remarks
Urban Outfitter has been trying to manage its inventory at an
appropriate level, which has long weighed down on the company's
margins. The company in order to clear its slow-moving stock was
compelled to offer discounts that hurt its margins. Total
inventories were $250.1 million at the end of fiscal 2012,
reflecting an increase of 8.9% year over year.
Fashion obsolescence remains the key concern for Urban
Outfitters' business model, which includes a sustained focus on
product and design innovation. In the past, this has been a drag on
the company's comparable-store sales and operating margins. The
company is also currently inflicted by the same fashion risk.
Women's apparel, in particular, has been relatively weak this time
around, and the company's primary objective at present is to
improve its performance. The company said that men's and home
businesses have been faring well.
Further, to increase the customers 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.
The initiatives undertaken by Urban Outfitters to reposition
itself as it enters into fiscal 2013 is well defined through the
Zacks #3 Rank that translates into a short-term 'Hold' rating.
However, we maintain our Underperform recommendation on the stock,
and prefer to be on the sidelines until we witness margin expansion
and bottom-line growth.
ABERCROMBIE (
ANF
): Free Stock Analysis Report
GAP INC (
GPS
): Free Stock Analysis Report
URBAN OUTFITTER (
URBN
): Free Stock Analysis Report
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