URBN

Urban Outfitters, Inc. (URBN)

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Urban Outfitters, Inc. (URBN)

F3Q2010 Earnings Conference Call

November 15, 2010 5:00 pm ET

Executives

Glen T. Senk - Chief Executive Officer, Director

Eric Artz -Chief Financial Officer

Oona McCullough - Director of Investor Relations

Stephen Murray - Global President, Urban Outfitters Brand

Analysts

Christine Chen - Needham & Company

Kimberly Greenberger - Morgan Stanley

Brian Tunick - J.P. Morgan

Michelle Tan - Goldman Sachs

Betty Chen - Wedbush Securities

Sam Pinella - Raymond James

Janet Kloppenburg - JJK Research

Edward Yruma - Keybanc Capital Markets

Paul Lejuez - Nomura Securities

Dave Weiner - Deutsche Bank Security

Stephen Gregory - Mandalay Research

Richard Jaffe - Stifel Nicolaus

Dana Telsey - Telsey Advisory Group

Lorraine Hutchinson - Bank of America

Liz Dunn - FBR

Roxanne Meyer - UBS

Laura Champine - Cowen & Company

Liz Pierce - Roth Capital Partners

Robin Murchison - Suntrust

Randy Kurnik - Jefferies

Carla White - Jennifer Black & Associates

Margaret Whitfield - Sterne, Agee & Leach

Eric Beder - Brean Murray, Carret & Co.

Marie Driscoll - Standard & Poor’s

Simeon Siegel - Janney Capital Market

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Urban Outfitters Incorporated third quarter fiscal 2011 earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer section and instructions will follow at that time. (Operator Instructions)

The following discussions may include forward-looking statements. Please note that actual results may differ materially from those statements. Additional information concerning factors that could cause actual results to differ materially from projected results is contained in the company’s filings with the Securities and Exchange Commission.

I would now like to introduce your host for today’s conference, Mr. Glen Senk, CEO. Sir, you may begin.

Glen T. Senk

Good afternoon and welcome to the URBN quarterly conference call. With me today is Eric Artz, Chief Financial Officer, Oona McCullough, Director of Investor Relations and the majority of our Executive Management team.

Earlier this afternoon the Company issued a press release outlining the financial and operating results for the three and nine-month periods ending October 31, 2010 and we were pleased to report 13% revenue and 17% earnings growth for the quarter. Eric will begin today’s call by providing details on our performance. I will continue the prepared commentary with closing remarks; then the group and I will be pleased to answer any questions you may have.

As usual, the text of today’s conference call along with detailed management commentary will be posted to our corporate website at www.urbanoutfittersinc.com.

I’ll now turn the call over to Eric.

Eric Artz

Thank you, Glen. The following summarizes our Third Quarter Fiscal 2011 performance versus the comparable quarter last year: Net sales increased 13% to $574 million.

Income from operations grew 9% to $105 million, resulting in an operating margin of 18.3%.

Net income increased 17% to $73 million or $0.43 per diluted share.

Comparable Retail Segment sales, which include our Direct-to-consumer channel, rose 6% with increases of 5%, 29% and 5% at Anthropologie, Free People and Urban Outfitters respectively.

Total comparable store sales increased 1%.

Direct-to-consumer comparable sales rose 31% with all three brands posting double-digit increases.

Wholesale revenues increased 13% to $34 million.

Gross profit margins decreased 39 basis points, largely due to higher shipping expenses associated with an increase in International shipments in our direct-to-consumer channel along with higher occupancy cost due to the timing of increased year-over-year store openings.

Selling, general and administrative expense, expressed as a percentage of sales, increased by 27 basis points to 22.9%.

Comparable retail segment inventories which include our direct-to-consumer channel were 8% higher at quarters end while comparable retail store inventories increased 1%.

Finally, cash, cash equivalents and marketable securities grew by $38 million on a year- over-year basis to $690 million.

I’ll now provide more detail on each of our key business metrics for the quarter, starting with sales.

New and non-comparable store sales contributed $46 million.

The Company opened 13 new stores in the quarter - five Anthropologie stores, including one Accessory and Footwear only store, two Free People stores and six Urban Outfitters stores, including one in Europe bring the Global store count to 355.

Within the quarter, total company comparable store sales were strongest in August followed by October. On a two-year basis total company comparable store and retail segment sales improved throughout the quarter with October being the strongest month.

By region, sales at Anthropologie and Free People were strongest in the West and sales at Urban Outfitters were strongest in Continental Europe followed by the Mid-Atlantic in North America.

By store venue, sales at both Anthropologie and Urban Outfitters were strongest in Lifestyle centers and sales at Free People were strongest in street locations. For stores, average unit selling prices decreased 2% while units per transaction and transaction counts each increased to 1%.

Direct-to-consumer revenue increased 32% to $105 million, the penetration of Direct-to-consumer sales to net sales as a whole increased more than 2 percentage points to 18.4%, with results largely driven by a 32% increase in website traffic to nearly 30 million visits.

For retail segment sales, footwear and accessories were strongest at Urban Outfitters and Free People while women’s apparel was strongest at Anthropologie.

Wholesale Segment sales for the quarter increased 13% to $34 million driven by a 17% increase at Free People.

I’d now like to turn your attention to gross margin, operating expense and income. Gross margins for the quarter decreased 39 basis points to 41.1%. The decrease in gross margins was due largely to higher shipping costs associated with an increased penetration of International Direct-to-consumer business as well as the impact of preopening occupancy cost from an additional 11 store openings in the second half of the current year versus the same period last year. Merchandise margins were flat as the company controlled inventory well throughout the quarter and product cost headwinds were judiciously managed.

Read the rest of this transcript for free on seekingalpha.com