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Urban Outfitters Inc. (URBN - Free Report) reported better-than-expected results in third-quarter fiscal 2021. Results mainly benefited from robust strength in its digital channel, which offset the weakness across its store channel. Its overall digital business recorded solid mid-double-digit comp sales in each month of the reported quarter. Sessions, orders and conversion increased across all the company’s brands while overall new digital customers during the quarter grew by 45%. In fact, the company’s digital business in the United Kingdom has been generating triple-digit comparable sales (comps). Notably, the momentum continued in the fourth quarter as well.
Management stated that for fourth-quarter-to-date sales are almost in line with the end of the third quarter’s level. However, store sales have marginally slowed down, whereas digital demand has accelerated slightly. Total retail segment comp sales for November-to-date are almost flat versus the third quarter’s comp level. As uncertainty prevails regarding consumer behavior this holiday season, management did not forecast sales for fiscal fourth quarter. Also, gross margin is expected to deleverage for said quarter mainly due to higher delivery and logistics expenses. Delivery expenses are likely to deleverage significantly in the fourth quarter as compared to the third.
The company also expects markdowns to be less exceptional for the fourth quarter due to the uncertainties revolving around this holiday season. However, SG&A is likely to decline in the fourth quarter depending on current sales performance and tightly managing expenses. Moreover, the Anthro apparel category is likely to be challenged through the rest of the fiscal year.
Deeper Insight
This lifestyle-specialty retail company delivered earnings of 78 cents per share that outshone the Zacks Consensus Estimate of 45 cents. Also, the bottom line increased 39.3% from the year-ago quarter’s tally, buoyed by robust product assortments coupled with disciplined cost and inventory control measures.
Urban Outfitters, Inc. Price, Consensus and EPS Surprise
In the reported quarter, net sales of $969.6 million decreased 1.8% year over year but came above the Zacks Consensus Estimate of $930 million. Brand-wise, net sales were down 10.1% year over year to $358.5 million at Anthropologie Group, whereas the metric increased 0.6% to $206.7 million at Free People and 5.2% to $394.1 million at Urban Outfitters. Moreover, Menus & Venues net sales came in at $3.7 million, down 45.6% from the prior-year quarter. Again, Nuuly, the subscription-based rental service for women’s clothes, contributed roughly $6.7 million to net sales.
Segment-wise, Urban Outfitters’ net sales at the Retail Segment dipped 0.2% to $895.6 million and at the Wholesale Segment plunged 23.8% to $67.3 million. Further, comparable Retail segment net sales were flat, owing to negative retail store sales on lower store traffic. This was mitigated by robust double-digit increase in the digital channel. Brand-wise, comparable Retail segment net sales declined 9% at the Anthropologie Group while the same grew 4% at Urban Outfitters and 17% at Free People.
Costs & Margins
In the quarter under review, gross profit came in at $322.9 million, up 0.6% from the year-ago quarter. Further, gross margin expanded 79 basis points (bps) to 33.3%, primarily due to lower merchandise markdowns in the Retail unit. Also, the Wholesale unit saw improved merchandise margins on lower discounts and allowances. Moreover, gains from negotiated rent concessions with landlords and European government-assistance programs aided margin. Margin growth was somewhat offset by higher delivery and logistics expenses owing to the penetration of the digital channel.
Meanwhile, SG&A expenses dropped 8.7% to $224.4 million on cost-saving efforts. Moreover, as a percentage of net sales, the metric leveraged 175 bps to 23.1%. This upside is attributed to a disciplined store-payroll management and overall cost-control actions. Notably, digital marketing expenses increased in fiscal third quarter to support robust digital channel sales and customer growth.
Further, the company recorded operating income of $98.5 million, up 30.8% from the year-ago quarter. Also, operating margin expanded 260 bps to 10.2% on leveraged SG&A as a rate of sales and higher gross margin.
Store Update
During the nine months of fiscal 2021, the company opened 12 retail outlets — three Anthropologie Group, six Urban Outfitters and three Free People including one FP Movement store. Simultaneously, it shuttered five retail stores– four Urban Outfitters and one Free People. In the aforementioned period, four Urban Outfitters franchisee-owned stores and one Free People franchisee-owned outlet were shuttered.
As of Oct 31, 2020, the company operated 250 Urban Outfitters stores in the United States, Canada and Europe; 234 Anthropologie Group stores in the United States, Canada and Europe; 146 Free People stores in the United States, Canada and Europe; 11 Menus & Venues restaurants, and one each Urban Outfitters franchisee-owned store and Anthropologie Group franchisee-owned store.
Other Financial Details
Urban Outfitters, which carries a Zacks Rank #3 (Hold), ended the quarter with cash and cash equivalents of $624.9 million and total shareholders’ equity of $1,431.3 million. As of Oct 31, 2020, total inventory declined 8% year over year to $489.2 million, driven by an 11% drop in comparable Retail segment inventory at cost.
During the reported quarter, management repaid the balance $120 million outstanding on its amended credit facility. It borrowed $220 million in the three months ended Apr 30 to maintain financial flexibility and liquidity with respect to the pandemic and already repaid $100 million in the three months ended Jul 31.
Further, the company generated net cash of $214.7 million in operating activities during the first nine months of fiscal 2021. For fiscal, management now projects capital expenditures of roughly $195 million, mainly related to enhanced distribution facilities. This includes the completion of its new omni-channel distribution facility in the United Kingdom and the start of construction of the latest facility in the United States.
In August 2017, the company’s board authorized a buyback of 20 million shares under a share-repurchase program. Urban Outfitters did not buy back shares in fiscal third quarter. However during the first nine months of fiscal, it bought back and subsequently retired 0.5 million shares for roughly $7 million. In June 2019, the company’s board authorized the buying back of 20 million shares under a new repurchase program. As of Oct 31, 2020, the company had 25.9 million shares remaining under these programs.
Impressively, shares of the Philadelphia, PA-based company have jumped 52.2% over the past three months against the industry’s 1.7% decline.
L Brands , also a Zacks Rank #1 stock, has a long-term earnings growth rate of 13%.
Target (TGT - Free Report) has an expected long-term earnings growth rate of 8.5% and a Zacks Rank #2 (Buy).
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Urban Outfitters' (URBN) Q3 Earnings & Sales Beat Estimates
Urban Outfitters Inc. (URBN - Free Report) reported better-than-expected results in third-quarter fiscal 2021. Results mainly benefited from robust strength in its digital channel, which offset the weakness across its store channel. Its overall digital business recorded solid mid-double-digit comp sales in each month of the reported quarter. Sessions, orders and conversion increased across all the company’s brands while overall new digital customers during the quarter grew by 45%. In fact, the company’s digital business in the United Kingdom has been generating triple-digit comparable sales (comps). Notably, the momentum continued in the fourth quarter as well.
Management stated that for fourth-quarter-to-date sales are almost in line with the end of the third quarter’s level. However, store sales have marginally slowed down, whereas digital demand has accelerated slightly. Total retail segment comp sales for November-to-date are almost flat versus the third quarter’s comp level. As uncertainty prevails regarding consumer behavior this holiday season, management did not forecast sales for fiscal fourth quarter. Also, gross margin is expected to deleverage for said quarter mainly due to higher delivery and logistics expenses. Delivery expenses are likely to deleverage significantly in the fourth quarter as compared to the third.
The company also expects markdowns to be less exceptional for the fourth quarter due to the uncertainties revolving around this holiday season. However, SG&A is likely to decline in the fourth quarter depending on current sales performance and tightly managing expenses. Moreover, the Anthro apparel category is likely to be challenged through the rest of the fiscal year.
Deeper Insight
This lifestyle-specialty retail company delivered earnings of 78 cents per share that outshone the Zacks Consensus Estimate of 45 cents. Also, the bottom line increased 39.3% from the year-ago quarter’s tally, buoyed by robust product assortments coupled with disciplined cost and inventory control measures.
Urban Outfitters, Inc. Price, Consensus and EPS Surprise
Urban Outfitters, Inc. price-consensus-eps-surprise-chart | Urban Outfitters, Inc. Quote
In the reported quarter, net sales of $969.6 million decreased 1.8% year over year but came above the Zacks Consensus Estimate of $930 million. Brand-wise, net sales were down 10.1% year over year to $358.5 million at Anthropologie Group, whereas the metric increased 0.6% to $206.7 million at Free People and 5.2% to $394.1 million at Urban Outfitters. Moreover, Menus & Venues net sales came in at $3.7 million, down 45.6% from the prior-year quarter. Again, Nuuly, the subscription-based rental service for women’s clothes, contributed roughly $6.7 million to net sales.
Segment-wise, Urban Outfitters’ net sales at the Retail Segment dipped 0.2% to $895.6 million and at the Wholesale Segment plunged 23.8% to $67.3 million. Further, comparable Retail segment net sales were flat, owing to negative retail store sales on lower store traffic. This was mitigated by robust double-digit increase in the digital channel. Brand-wise, comparable Retail segment net sales declined 9% at the Anthropologie Group while the same grew 4% at Urban Outfitters and 17% at Free People.
Costs & Margins
In the quarter under review, gross profit came in at $322.9 million, up 0.6% from the year-ago quarter. Further, gross margin expanded 79 basis points (bps) to 33.3%, primarily due to lower merchandise markdowns in the Retail unit. Also, the Wholesale unit saw improved merchandise margins on lower discounts and allowances. Moreover, gains from negotiated rent concessions with landlords and European government-assistance programs aided margin. Margin growth was somewhat offset by higher delivery and logistics expenses owing to the penetration of the digital channel.
Meanwhile, SG&A expenses dropped 8.7% to $224.4 million on cost-saving efforts. Moreover, as a percentage of net sales, the metric leveraged 175 bps to 23.1%. This upside is attributed to a disciplined store-payroll management and overall cost-control actions. Notably, digital marketing expenses increased in fiscal third quarter to support robust digital channel sales and customer growth.
Further, the company recorded operating income of $98.5 million, up 30.8% from the year-ago quarter. Also, operating margin expanded 260 bps to 10.2% on leveraged SG&A as a rate of sales and higher gross margin.
Store Update
During the nine months of fiscal 2021, the company opened 12 retail outlets — three Anthropologie Group, six Urban Outfitters and three Free People including one FP Movement store. Simultaneously, it shuttered five retail stores– four Urban Outfitters and one Free People. In the aforementioned period, four Urban Outfitters franchisee-owned stores and one Free People franchisee-owned outlet were shuttered.
As of Oct 31, 2020, the company operated 250 Urban Outfitters stores in the United States, Canada and Europe; 234 Anthropologie Group stores in the United States, Canada and Europe; 146 Free People stores in the United States, Canada and Europe; 11 Menus & Venues restaurants, and one each Urban Outfitters franchisee-owned store and Anthropologie Group franchisee-owned store.
Other Financial Details
Urban Outfitters, which carries a Zacks Rank #3 (Hold), ended the quarter with cash and cash equivalents of $624.9 million and total shareholders’ equity of $1,431.3 million. As of Oct 31, 2020, total inventory declined 8% year over year to $489.2 million, driven by an 11% drop in comparable Retail segment inventory at cost.
During the reported quarter, management repaid the balance $120 million outstanding on its amended credit facility. It borrowed $220 million in the three months ended Apr 30 to maintain financial flexibility and liquidity with respect to the pandemic and already repaid $100 million in the three months ended Jul 31.
Further, the company generated net cash of $214.7 million in operating activities during the first nine months of fiscal 2021. For fiscal, management now projects capital expenditures of roughly $195 million, mainly related to enhanced distribution facilities. This includes the completion of its new omni-channel distribution facility in the United Kingdom and the start of construction of the latest facility in the United States.
In August 2017, the company’s board authorized a buyback of 20 million shares under a share-repurchase program. Urban Outfitters did not buy back shares in fiscal third quarter. However during the first nine months of fiscal, it bought back and subsequently retired 0.5 million shares for roughly $7 million. In June 2019, the company’s board authorized the buying back of 20 million shares under a new repurchase program. As of Oct 31, 2020, the company had 25.9 million shares remaining under these programs.
Impressively, shares of the Philadelphia, PA-based company have jumped 52.2% over the past three months against the industry’s 1.7% decline.
Don’t Miss These Solid Retail Bets
Tapestry (TPR - Free Report) has an expected long-term earnings growth rate of 9.3% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
L Brands , also a Zacks Rank #1 stock, has a long-term earnings growth rate of 13%.
Target (TGT - Free Report) has an expected long-term earnings growth rate of 8.5% and a Zacks Rank #2 (Buy).
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>