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Strong sales and lower merchandise markdowns facilitated Urban Outfitters Inc. (URBN - Analyst Report) to post fourth-quarter fiscal 2013 earnings of 56 cents a share, which more than doubled from earnings of 27 cents in the comparable year-ago quarter. Despite robust results, earnings missed the Zacks Consensus Estimate by a penny.

After registering revenue growth of 13.6% in the third quarter, total net sales of Urban Outfitters climbed 17.3% to $856.8 million during the fourth quarter, reflecting robust performance of its Direct-to-Consumer business coupled with sturdy sales through new store openings and double-digit growth at wholesale operations. Total revenue surpassed the Zacks Consensus Estimate of $845 million.

Urban Outfitters’ net sales increased 17% to $818.1 million at the Retail Segment and 22.3% to $38.7 million at the Wholesale Segment. Within Retail Segment, Retail Stores sales rose 8.6% to $577.6 million, whereas Direct-to-Consumer sales bolstered 44.1% to $240.5 million.

Net sales by brands grew 16.5% to $415.5 million at Urban Outfitters, 11.9% to $334.8 million at Anthropologie and 39.9% to $97.7 million at Free People.

Healthy Comps

Comparable retail segment net sales for this Zacks Rank #2 (Buy) stock, including the comparable direct-to-consumer channel, escalated 11%, reflecting robust sales across all brands.

Comparable retail segment net sales rose by 11% and 7% at Urban Outfitters and Anthropologie respectively, while it jumped 37% at Free People. Amid the positives, comparable-store net sales remained flat, reflecting the impact of charges associated with Direct-to-consumer returns at stores. Excluding the charges, comparable store net sales increased in the low single-digit.

Urban Outfitters, which competes with Abercrombie & Fitch Co. (ANF - Analyst Report), Gap Inc. (GPS - Analyst Report) and Macy’s Inc. (M - Analyst Report), offers a flexible merchandising strategy. The company enjoys significant domestic and international presence with rapidly expanding e-Commerce activities.

Going forward, Urban Outfitters remains committed to improve comparable-store sales performance, sustain investments in direct-to-consumer business, enhance productivity in existing channels, add new brands and optimize inventory levels.

Robust Margins

On the back of strong sales, gross profit for the quarter soared 42.6% to $313.7 million, whereas gross margin expanded 650 basis points to 36.6% due to lower merchandise markdowns.

Urban Outfitters is optimistic that fiscal 2013 will present considerable opportunity for gross margin improvement. The company expects to enhance margins by approximately 50 basis points year over year, attributable to product content and lower markdowns.

Operating income marked a significant improvement during the quarter and surged by 104.4% to $131.9 million, while operating margin escalated 660 basis points to 15.4% due to rise in regular price comp sales and efficient inventory management.

Stores Update

During fiscal 2013, Urban Outfitters opened 49 new outlets, including 18 Urban Outfitters stores, 15 Free People stores, 14 Anthropologie stores, 1 BHLDN store and 1 Terrain garden center. The company closed 2 Anthropologie locations during the period.

It now plans to open 37 stores in fiscal 2014, including 15 Urban Outfitters, 10 Free People, 12 Anthropologie stores.

Urban Outfitters entered into a multi-year agreement with World Co., Ltd. for the distribution and marketing of its specialty clothing brand, Free People in Japan. As per the agreement, World Co., Ltd. will distribute and market the Free People brand throughout Japan from shop-in-shop locations, direct-to-consumer sites and stand-alone stores. Moreover, the firm will distribute merchandise to specialty stores and department stores wholesale accounts.

Other Financial Aspects

Urban Outfitters ended the quarter with cash and cash equivalents of $245.3 million, marketable securities of $228.5 million, and shareholders’ equity of $1,354.6 million. Management projects capital expenditures of $210 million for fiscal 2014.

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