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Sturdy performance across Anthropologie and Free People brands facilitated Urban Outfitters Inc. (URBN - Analyst Report) to post better-than-expected third-quarter fiscal 2014 results. The quarterly earnings of 47 cents a share beat the Zacks Consensus Estimate by a couple of cents and jumped 17.5% year over year.  

Sales Performance

Total net sales of Urban Outfitters climbed 11.7% to $774 million during the quarter, reflecting healthy comparable-store sales performance coupled with sturdy sales through new store openings and double-digit growth at its wholesale operations. Total revenue of this Zacks Rank #3 (Hold) stock also came ahead of the Zacks Consensus Estimate of $770 million.

Urban Outfitters’ net sales increased 11.2% to $724.1 million at the Retail Segment and 20.5% to $50 million at the Wholesale Segment. Net sales by brands grew 3% to $341.9 million at Urban Outfitters, 16.2% to $310.1 million at Anthropologie and 29.1% to $113 million at Free People. Other revenue surged 35.4% to $9 million.

Comparable retail segment net sales, including the comparable direct-to-consumer channel, escalated 7%.

Comparable retail segment net sales rose by 30% and 13% at Free People and Anthropologie, respectively, while it declined 1% at Urban Outfitters.

Margin Performance

Supported by strong sales, gross profit for the quarter soared 12.1% to $292.3 million, whereas gross margin expanded 11 basis points to 37.7%, reflecting lower merchandise markdowns and better merchandise margins at the Anthropologie and Free People brands, partly offset by higher merchandise markdowns at the Urban Outfitters brand in North America.

Operating income rose 12.8% to $105.5 million, while operating margin increased approximately 12 basis points to 13.6%.  

Urban Outfitters remains cautious about the holiday season, which would be a tough one given the highly promotional environment and limited shopping period. Retailers will leave no stone unturned to tap this holiday season, be it early-hour store openings, promotional events, or heavy discounts. Consequently, this would keep margins under pressure.

Stores Update

During the quarter the company opened 9 new outlets. In the fourth quarter the company plans to open 10 new stores, including 2 Anthropologie stores, 4 Free People stores and 4 Urban Outfitters stores. This will bring the count of new stores opened during fiscal 2014 to 36, including 15 Urban Outfitters stores, 13 Free People stores and 8 Anthropologie stores.

Other Financial Aspects

Urban Outfitters ended the quarter with cash and cash equivalents of $194.9 million, marketable securities of $227.5 million and shareholders’ equity of $1,596.3 million. Management expects capital expenditures in the range of $190 million to $210 million for fiscal 2014.

Other Stocks to Consider

Until any further upgrade in Urban Outfitters’ Zacks Rank, other well performing stocks in the retail sector include Hanesbrands Inc. (HBI - Analyst Report), carrying a Zacks Rank #1 (Strong Buy), DSW Inc. (DSW - Snapshot Report) and Five Below, Inc. (FIVE - Snapshot Report), both sporting a Zacks Rank #2 (Buy). 

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