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Urban Outfitters (URBN) Beats on Q2 Earnings, Stock Gains

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Shares of Urban Outfitters Inc. (URBN - Free Report) soared nearly 12% during after-market trading hours on Aug 16, after the company reported robust quarterly numbers for the second-quarter of fiscal 2016. The company reported earnings per share of 66 cents, outpacing the Zacks Consensus Estimate of 56 cents and increasing 26.9% year over year. The company’s results were driven by strong performance by its Urban Outfitters brands.

An Insight into Revenues

Net sales of Urban Outfitters came in at $890.6 million during the reported quarter, up 3% from the year-ago figure of $867.5 million and ahead of the Zacks Consensus Estimate of $889 million. The top line gained from a rise in comparable retail segment net sales, an increase in wholesale segment sales and a jump of $12 million in non-comparable sales, including the opening of 8 net new outlets and sales contribution of $3.6 million from the newly acquired Vetri Family restaurants.

Urban Outfitters and Free People brands contributed to top-line growth in the quarter. However, sales at Anthropologie Group declined in the quarter. The company is making all possible efforts to enhance the performance of its brands through store refurbishment and creation of compelling assortments.

Net sales by brands grew 3.5% to $354.3 million at Urban Outfitters and 6.4% to $164.4 million at Free People. However, net sales at Anthropologie Group declined 0.6% to $368.3 million. The company’s net sales advanced 2.5% to $815.8 million at the Retail Segment, and gained 4.3% to $74.8 million at the Wholesale Segment.

Comparable retail segment net sales, including the comparable direct-to-consumer channel, inched up 1%. Comparable retail segment net sales rose 5% at Urban Outfitters, remained flat at the Free People, but declined 3% at Anthropologie Group.

Margin Performance

Gross profit for the quarter came in at $342.5 million, up 7.7% from the year-ago quarter, while gross margin expanded 180 basis points to 38.5%

Management anticipates gross margin rate to improve year over year in the third quarter of fiscal 2017.

Operating income surged 13.9% to $118.2 million, while operating margin improved 130 basis points to 13.3% in the quarter.  

Store Update

During the first half of fiscal 2016, the company opened 12 new outlets – 8 Free People stores, 3 Anthropologie Group stores and 1 Urban Outfitters store. Over the period, the company closed 3 stores – 1 Urban Outfitters store, 1 Anthropologie Group store and 1 Free People store. The company had earlier acquired 6 Vetri Family restaurants. The company opened 1 new Vetri Family restaurant during the quarter under review.

During fiscal 2017, the company plans to open a total of approximately 23 new outlets, excluding the food & beverage division. The company expects to open 3 net new Urban Outfitters stores, including 1 in Europe; 7 net new Anthropologie stores, including 2 in Europe; and 13 net new Free People stores. During the third quarter, the company aims to open 6 new Anthropologie stores, including 1 in Europe, with 2 new Urban Outfitters and 3 new Free People stores.

URBAN OUTFITTER Price, Consensus and EPS Surprise

URBAN OUTFITTER Price, Consensus and EPS Surprise | URBAN OUTFITTER Quote

Other Financial Aspects

Urban Outfitters ended the quarter with cash and cash equivalents of $243.1 million, marketable securities of $59.2 million, long-term debt of $50 million, and shareholders’ equity of $1,245.1 million. For fiscal 2017, management anticipates capital expenditures of $170 million.

During the first six months ended July 31, 2016, the company bought back 0.3 million shares for approximately $11 million under the 20 million share buyback program announced on Feb 23, 2015. During fiscal 2016, the company repurchased 12.7 million shares for approximately $38 million under the same buyback program.

Zacks Rank & Stocks to Consider

Urban Outfitters currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include Barnes & Noble, Inc. , Five Below, Inc. (FIVE - Free Report) and Hibbett Sports, Inc. (HIBB - Free Report) , each carrying a Zacks Rank #2 (Buy).

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