Urban Outfitters Inc.
), took a huge leap of 17.5% to $36.74 during after-market trading
hours on Monday, when this apparel, footwear and accessories
retailer posted better-than-expected second-quarter 2013 results.
The quarterly earnings of 42 cents a share, surpassed the Zacks
Consensus Estimate of 33 cents, and surged 20% from 35 cents
delivered in the year-ago quarter. Lower shares outstanding as well
as top-line growth benefited the bottom line.
Top Line Increasing
After registering revenue growth of 8.6% in the first quarter of
2013, Urban Outfitters said that total net sales climbed 11% to
$676.3 million during the second quarter, and also came ahead of
the Zacks Consensus Estimate of $673 million 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.
Net sales increased 10.7% to $639 million at the Retail Segment
and 16.7% to $37.2 million at the Wholesale Segment. Within Retail
Segment, Retail Stores sales rose 7.9% to $501.3 million, whereas
Direct-to-Consumer sales increased 22.3% to $137.7 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.
Direct-to-Consumer penetration augmented 190 basis points to 20%
during the quarter.
Net sales by brands grew 14.1% to $310.7 million at Urban
Outfitters, 3.4% to $281.8 million at Anthropologie and 25.7% to
$73.8 million at Free
A Look at Comps
Comparable retail segment net sales jumped 4% during the
quarter. However, comparable store net sales edged down 1%,
reflecting a decline of 4% in average unit selling price and 1% in
units per transaction, partially mitigated by a 4% jump in total
transactions. Comparable retail segment net sales by brands rose
12% and 6% at Free People and Urban Outfitters, respectively, but
remained flat at Anthropologie.
Urban Outfitters witnessed increase in comparable-store sales in
all categories in North America, the being the only exception
women's accessories. Among all categories, men's apparel and
accessories were the strongest in both North America and Europe.
The company's European operations witnessed sluggish movement due
to tough economic environment and softness in the stores in London.
However, the company did manage to stay afloat in this turbulent
A Look at Margins
Urban Outfitters noted that gross profit for the quarter climbed
10.1% to $254.5 million; however, gross margin contracted
approximately 30 basis points to 37.6% due to a rise in merchandise
and occupancy costs, partly mitigated by lower merchandise
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 climbed 9% to $95.9 million, while operating
margin shriveled 20 basis points to 14.2%.
Urban Outfitters opened 14 new stores, which includes 3 Free
People, 6 Urban Outfitters, 4 Anthropologie and 1 Terrain, and
shuttered 1 Anthropologie store in the quarter. The company now
plans to open 51 stores during fiscal 2013, including 18 Urban
Outfitters, 15 Free People, 16 Anthropologie and 1 BHLDN and 1
Terrain. For the third quarter, the company expects to open 11
Other Financial Aspects
Urban Outfitters ended the quarter with cash and cash
equivalents of $135.5 million, marketable securities of $135.9
million, and shareholders' equity of $1,174.2 million. Management
also projected capital expenditures of $190 million to $210 million
for fiscal 2013.
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.
Fashion obsolescence remains the key concern for Urban
Outfitters business model, which includes a sustained focus on
product and design innovation. This may adversely impact the
company's comparable-store sales and margins.
Currently, we have a long-term "Neutral" recommendation on the
stock. Moreover, Urban Outfitters, which competes with
Abercrombie & Fitch Co.
), retains a Zacks #3 Rank that translates into a short-term "Hold"
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