It has been about a month since the last earnings report for Urban Outfitters (
URBN Quick Quote URBN - Free Report) . Shares have added about 4.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Urban Outfitters due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Urban Outfitters Q1 Earnings & Sales Beat, Rise Y/Y
Urban Outfitters reported sturdy first-quarter fiscal 2022 results wherein the top and the bottom line outshone the Zacks Consensus Estimate and also improved on a year-over-year basis. We note that sales across the company’s all brands and segments grew year over year.
This lifestyle-specialty retail company delivered earnings per share of 54 cents that not only beat the Zacks Consensus Estimate of 16 cents but also rebounded from the year-ago quarter’s loss of $1.41. Moreover, the bottom line improved 74.2% from 31 cents per share reported in the quarter ended Apr 30, 2019. In the reported quarter, net sales of $927.4 million soared 57.6% year over year and also surpassed the Zacks Consensus Estimate of $898 million. Also, the metric grew 7.3% from the figure reported in the quarter ended Apr 30, 2019. Brandwise, net sales were up 47.4% year over year to $349.7 million at Urban Outfitters, 51% to $353.6 million at Anthropologie Group and 97.6% to $212.8 million at Free People. Again, Menus & Venues net sales amounted to $3.6 million, up 12.5% from the prior-year quarter. Markedly, Nuuly, the subscription-based rental service for women’s clothes, contributed $7.8 million to net sales, reflecting an increase 23.8% from the year-ago period. Deeper Insight
Segmentwise, Urban Outfitters’ net sales at the Retail Segment surged 53% to $857.5 million, while the same at the Wholesale Segment skyrocketed 196% to $62.1 million. Comparable Retail segment net sales rose 51% on account of double-digit growth in both retail store and digital channel sales. By brand, the comparable Retail segment net sales jumped 77% at the Free People Group, 50% at the Anthropologie Group and 42% at Urban Outfitters.
We note that sturdy consumer demand across majority of the product categories along with solid execution boosted the retail segment comps at all brands. Also, the North American stores experienced a significant improvement as the quarter progressed and witnessed consistent strength in the digital channel. Markedly, the company saw growth in its full-priced selling and the corresponding decline in markdown sales across each brand. In the quarter under review, gross profit climbed to $300.7 million from $11.8 million reported in the year-ago quarter. Further, gross margin expanded to 32.4% from 2%, primarily due to the adverse COVID-19 store closure impacts on the company’s Retail and the Wholesale segments that were there in the year-earlier quarter. Meanwhile, selling, general and administrative (SG&A) expenses shot up 7.9% to $227.1 million. However, as a percentage of net sales, the metric fell to 24.5% from 35.8% recorded in the year-earlier quarter. This decline was primarily attributed to leverage in store and field management expense. Further, the company recorded an operating income of $73.5 million against an operating loss of $198.7 million reported in the year-ago quarter. Other Financial Details
Urban Outfitters ended the quarter with cash and cash equivalents of $364.2 million and total shareholders’ equity of $1,534.5 million. As of Apr 30, 2021, total inventory increased 42.3% year over year to $477.8 million.
Further, the Philadelphia, PA-based company generated net cash of $37.1 million from operating activities during the first quarter of fiscal 2022. For fiscal 2022, management projects capital expenditures worth $250 million, mainly related to expanded distribution and fulfillment capacity to boost digital growth as well as store launches. Urban Outfitters did not buy back shares in the fiscal first quarter. However, during the last fiscal year, it repurchased and subsequently retired 0.5 million shares for roughly $7 million. As of Apr 30, 2021, the company had 25.9 million shares remaining under these programs. Outlook
Management expects the fiscal second quarter to continue reflecting a steady sales improvement in comparison to fiscal 2020. It believes that retail segment comp sales will grow in the mid-teens range, supporting the overall company sales in the low double-digit range. The retail segment comp is likely to be partly offset by negative wholesale segment sales. We note that the Anthropologie brand's positive momentum continued in the fiscal second quarter with store traffic and sales exhibiting meaningful improvement. Also, the brand’s retail segment comps for the quarter are currently a double-digit positive.
Given the current sales performance and projection, gross profit margins for the fiscal second quarter might grow more than 100 basis points from the figure registered in fiscal 2020. This growth can be mainly driven by lower markdown rates on buoyant consumer demand, a solid product performance and disciplined inventory control. Favorable markdowns are expected to offset lower initial markups weighed on by commodity and freight price increases, and deleveraged delivery and logistics costs owing to higher penetration of the digital channel. How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 48.79% due to these changes.
At this time, Urban Outfitters has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Urban Outfitters has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.