Urban Outfitters Earnings Meet, Down Y/Y on Higher Expenses - Analyst Blog

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Urban Outfitters Inc . ( URBN ) posted second-quarter fiscal 2015 results, wherein earnings of 49 cents a share came in line with the Zacks Consensus Estimate but dropped 3.9% from 51 cents delivered in the year-ago quarter. Higher operating expenses and fall in sales at its namesake brand were responsible for the decline.

Urban Outfitters, Inc - Earnings Surprise | FindTheBest

Revenue Insight

Total net sales of Urban Outfitters climbed 7% to $811.3 million during the quarter, attributable to a $39 million jump in non-comparable store sales, new store openings and double-digit growth at its wholesale operations. The top line also came in ahead of the Zacks Consensus Estimate of $806 million.

While Anthropologie and Free People brands contributed to the company's performance, sales were affected to some extent due to sluggish performance by the Urban Outfitters brand on account of weak product execution.

Net sales by brands fell 2.4% to $328.6 million at Urban Outfitters but jumped 8.9% to $347.7 million at Anthropologie and 32% to $128.3 million at Free People. Other revenues surged 18.3% to $6.6 million. The company's net sales increased 5.2% to $752.1 million at the Retail Segment and 35.8% to $59.1 million at the Wholesale Segment.

Comparable retail segment net sales, including the comparable direct-to-consumer channel, remained flat. Comparable retail segment net sales rose 21% and 6% at Free People and Anthropologie, respectively, while it declined 10% at Urban Outfitters.

Margin Performance

Gross profit for the quarter grew 1.7% to $303.3 million, however, gross margin contracted 194 basis points to 37.4%, reflecting deleverage in store occupancy expense and reduced merchandise margins at the Urban Outfitters brand. Management believes that gross margin may remain under pressure in the third quarter on account of reduced merchandise margins and store occupancy cost deleverage.

Operating income tumbled 11.9% to $105.1 million, while operating margin shriveled approximately 277 basis points to 13%.

Stores Update

During the first half of fiscal 2015, the company opened 14 new outlets including 3 Urban Outfitters stores, 7 Free People stores and 4 Anthropologie Group stores.

Management plans to open approximately 35 to 40 net new outlets in fiscal 2015, comprising 11 Urban Outfitter stores worldwide, with 3 new European stores; 15 Anthropology stores globally, including 3 new European stores; and 12 Free People stores in North America.

Other Financial Aspects

Urban Outfitters ended the quarter with cash and cash equivalents of $145.3 million, marketable securities of $106.7 million and shareholders' equity of $1,336.1 million. Management anticipates capital expenditures in the range of $215 million to $235 million for fiscal 2015.

During the quarter, the board of directors authorized a repurchase program of 10 million shares under which the company bought back 3.7 million shares for approximately $126 million. The company still has at its disposal 6.3 million shares for repurchase.

Zacks Rank

Urban Outfitters currently carries Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include Citi Trends, Inc. ( CTRN ), The Men's Wearhouse, Inc. ( MW ) and Zumiez, Inc. ( ZUMZ ), all sporting a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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