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Urban Outfitters, Inc. (URBN)
F2Q10 Earnings Call
August 13, 2009 11:00 am ET
Glen T. Senk - Chief Executive Officer, Director
John E. Kyees - Chief Financial Officer
Tedford G. Marlow - President of Urban Brand, Worldwide
Freeman M. Zausner - Chief Administrative Officer
Kimberly Greenberger - Citigroup
Dana Telsey - Telsey Advisory Group
Christine Chen - Needham & Company
Stacy Peck - Saints Research
Sharon Zackfia - William Blair
Brian Tunick - J.P. Morgan
Roxanne Meyer - UBS
Edward Yruma - Keybanc
Holly Guthrie - Boyn & Scatter
Eric Beder - Brean Murray, Carret & Co.
Betty Chen - Wedbush Morgan
Jeff Black - Barclays Capital
Liz Pierce - Roth Capital
Richard Jaffe - Stifel Nicolaus
Robert Samuels - Oppenheimer
Michelle Tan - Goldman Sachs
Adrienne Tennant - Friedman, Billings, Ramsey
Erika Maschmeyer - Robert W. Baird
Liz Dunn - Thomas Weisel Partners
Robin Murchison - Suntrust Robinson Humphrey
Margaret Whitfield - Sterne, Agee & Leach
Michelle Clark - Morgan Stanley
Laura Champine - Cowen & Company
Howard Tubin - RBC Capital Markets
Randal Konik - Jefferies
Jennifer Black - Jennifer Black & Associates
Janet Kloppenburg - JJK Research
Maggie Gilliam - Gilliam & Company
Good day, ladies and gentlemen, and welcome to the Urban Outfitters Incorporated second quarter fiscal 2010 earnings call. (Operator Instructions)
Previous Statements by URBN
» Urban Outfitters F3Q10 (Qtr End 10/31/09) Earnings Call Transcript
» Urban Outfitters, Inc. F4Q09 (Qtr End 01/31/09) Earnings Call Transcript
» Urban Outfitters, Inc. F3Q09 (Quarter End 9/30/08) Earnings Call Transcript
I would now like to introduce your host for today’s conference, Mr. Glen Senk, CEO. Sir, you may begin.
Glen T. Senk
Good morning, and welcome to the URBN quarterly conference call. Joining me today are John Kyees, our Chief Financial Officer and our senior team including the majority of our brand and operational leads.
Earlier today the company issued a press release outlining the financial and operating results for the three and six month periods ending July 31, 2009. I will begin today’s call by reading prepared remarks regarding our performance; then the group and I will be pleased to answer any questions you may have.
The text of today’s conference call can be found on our corporate website at www.urbanoutfittersinc.com.
We believe the company performed admirably in the quarter given the challenging marketplace conditions. To summarize second quarter fiscal 2010 results compared to the same period last year: the company reported $78 million of income from operations, resulting in an operating margin over 17%; earnings were $49 million or $0.29 per diluted share despite an increase in the quarter’s tax rate; total company sales increased by 1% to $459 million; comparable retail segment sales, which includes our Direct-to-consumer channel, decreased by 3%.
Comparable store sales decreased by 6%, with reductions of 4%, 16% and 8% respectively at Anthropologie, Free People and Urban Outfitters. Direct-to-consumer sales jumped 17% despite a 2% reduction in circulation, with all three brands posting double-digit increases; wholesale revenues declined by 7% to $26 million.
Gross margins declined 26 basis points, with significant gains in initial markups being offset principally by an increase in merchandise markdowns to clear seasonal product and a higher rate of store occupancy expense driven by the decrease in comparable store sales.
Comparable store inventories decreased 7% by quarter’s end. Selling, general and administrative expenses, expressed as a percentage of sales, increased by 89 basis points largely due to the deleveraging of fixed, store-related costs and the impact of a one-time development expense associated with a prospective Terrain location.
Finally, cash, cash equivalents and marketable securities grew by $155 million to $583 million.
I’ll now go into more detail on each of our key business metrics for the quarter, starting with sales.
New and non-comparable store sales contributed $18 million for the quarter, including an offset of $10.7 million in currency translation adjustments to the comp for foreign-based sales. The Company opened 10 new stores—4 Anthropologie stores, 1 Free People store and 5 Urban Outfitters stores.
Within the quarter, comp sales performance was consistent in May and July and weakest in June. By region, sales at Anthropologie were strongest in the South, sales at Urban Outfitters were strongest in the Midwest, and sales at both brands lagged on the West Coast. By location type, sales were strongest in malls for both brands and weakest in metropolitan locations for Anthropologie and lifestyle centers for Urban Outfitters.
Transaction counts for the quarter were flat, with increases of 2% and 11% at Anthropologie and Free People respectively, and a 2% decrease at Urban Outfitters. Store’s average unit selling prices decreased by 1%—up 1% at Anthropologie, and down 23% and 2% at Free People and Urban Outfitters respectively. Units per transaction decreased 5% on average—down 7%, 1% and 4% at Anthropologie, Free People and Urban Outfitters respectively.
Direct sales for the quarter increased 17% to $71 million despite a circulation decrease of 2%. The penetration of Direct-to-consumer sales to total Company sales increased by 215 basis points to 15.5%, underscoring a shift in the way our consumer is shopping. These results were driven by over 19 million website visits, a gain of 22% or three-and-a-half million visits from the prior year’s quarter.
Our Direct-to-consumer business was double-digit positive at all brands, and at Free People, with just 18 out of the 33 Free People stores falling into the comp group, Direct-to-consumer revenue exceeded comp store revenue yet again.
By merchandise category, at Anthropologie, the women’s accessories business led the pace and at Urban Outfitters, the women’s apparel business was strongest. We exited the second quarter with strong fall fashion cues and I believe we are well positioned for the second half of the year.
As I’ve communicated consistently throughout the spring, the customer is seeking fashion and there’s practically no evidence of price elasticity on compelling product. Undistinguished basics, or any commodity-like product, is another story altogether— there it’s a buyer’s market and the right price is critical.
I believe the challenging environment has triggered profound changes in the consumer psyche. As we move into the “new normal”, I believe the customer will be more discriminating, I believe she’ll be looking for authenticity, I believe she’ll modulate the way she shops for commodity product versus special product, and I believe she’ll shop brands whose values she shares—all changes that I believe will play to our strengths for years to come.
Now let me turn your attention to wholesale. With the addition of Leifsdottir, total quarterly wholesale revenue declined by 7% versus the same quarter last year.