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Urban Outfitters Inc. (URBN - Free Report) reported fourth-quarter fiscal 2022 results, wherein the bottom line missed the Zacks Consensus Estimate. Inflationary pressures from inbound freight, delivery expenses, raw materials and wages hurt the overall profits in the reported quarter. Also, the ongoing supply-chain headwinds and higher transportation expenses were deterrents.
Nonetheless, both metrics improved on a year-over-year basis. Sales across URBN’s all brands and the Retail segment grew from the comparable period’s level in fiscal 2020. URBN provided a two-year comparison for all metrics as the pre-pandemic period reflects a more precise comparison base due to the closure of stores through most of fiscal 2020 induced by the coronavirus pandemic. Shares of this currently Zacks Rank #5 (Strong Sell) player have decreased 15.9% in the past six months compared with the industry’s 10.9% dip.
We note that demand in the fiscal fourth quarter was solid and is likely to continue through spring. During the first four weeks of the fiscal first quarter, the total Retail segment comp sales increased more than 20% from the same-period level in fiscal 2022 and fiscal 2020. All brands across both geographies are positive.
Deeper Insight
This lifestyle-specialty retailer delivered earnings per share of 41 cents, lagging the Zacks Consensus Estimate of 49 cents. The bottom line increased 41.4% from 29 cents recorded in the comparable quarter of the year-ago fiscal and 105% from 20 cents earned in the quarter ended Jan 31, fiscal 2020.
Net sales for the three months ended Jan 31, fiscal 2022, rose 13.9% from the same-period level of fiscal 2020 to $1,332.2 million. The metric also rose 22.4% from the last fiscal year’s reading. The Zacks Consensus Estimate for quarterly sales is pegged at $1,332 million.
Brand wise, net sales were up 5.4% from the comparable period’s level in fiscal 2020 to $474.4 million at Urban Outfitters, 13.8% to $558.7 million at Anthropologie Group and 28% to $276.2 million at Free People. Nuuly, the subscription-based rental service for women’s clothes, contributed $17.3 million to net sales, reflecting an increase of 188.3% from the comparable period’s level in fiscal 2020. However, Menus & Venues’ net sales amounted to $5.6 million, down 17.6% from the comparable period’s reading in fiscal 2020.
We note that the comparable Retail segment’s net sales grew 14% from the same-period level of fiscal 2020 on a robust double-digit rise in digital channel sales. Growth was partly offset by a low double-digit negative retail store sales due to lower store traffic. Each brand recorded positive retail segment comps, led again by the Free People Group brand, which delivered mid double-digit comps.
By brand, the comparable Retail segment’s net sales jumped 49% at the Free People Group, 14% at the Anthropologie Group and 3% at Urban Outfitters. While net sales at the Retail segment improved 15% from the comparable period’s level in fiscal 2020, the metric at the Wholesale unit plunged 22%, mainly due to lower Free People Group’s sales to promotional wholesale customers.
Robust strength in the digital channel fueled the Retail unit’s growth. The digital channel recorded mid double-digit sales gains in North America and even greater strength in Europe. Higher sessions, improved conversion and increased AURs aided digital growth. Digital customer growth was also sturdy, with total customers rising 30% from the fiscal 2020 level. All brands and geographies recorded growth.
An Insight Into Margins
In the quarter under review, gross profit climbed 5.4% from the same-quarter level of fiscal 2020 to $367.3 million. However, adjusted gross margin contracted 222 basis points (bps) to 27.6%, mainly due to lower initial merchandise markups as well as higher delivery and logistics costs. This was partly offset by lower merchandise markdown rates in the Retail unit and leveraged store occupancy expenses. Increased transportation expenses weighed on merchandise margins in the quarter.
Selling, general and administrative (SG&A) expenses shot up 11.6% from the fourth-quarter fiscal 2020 level to $314 million. As a percentage of net sales, the metric leveraged 48 bps to 23.6%, mainly owing to a disciplined store payroll management and overall cost control. This upside was partly offset by higher digital marketing and creative expenses to boost digital sales and customer growth.
Urban Outfitters recorded an operating income of $53.3 million, down 20.6% from the fourth-quarter fiscal 2019 level. As a rate of sales, the operating margin decreased 170 bps from the level registered in the quarter ended Jan 31, fiscal 2020, to 4%.
Store Update
In fiscal 2022, URBN inaugurated 56 retail outlets, such as 17 Urban Outfitters, 9 Anthropologie Group and 29 Free People (including 18 FP Movement stores), and one Menus & Venues restaurant. URBN shuttered 18 retail locations, including three Urban Outfitters stores, eight Anthropologie Group stores, five Free People stores and two Menus & Venues restaurants. In the aforementioned period, two franchisee-owned stores were opened, one each of Urban Outfitters and Anthropologie Group stores.
As of Jan 31, 2022, URBN operated 261 Urban Outfitters stores in the United States, Canada and Europe; 238 Anthropologie Group stores in the United States, Canada and Europe; 173 Free People stores in the United States, Canada and Europe; 10 Menus & Venues restaurants; two Urban Outfitters franchisee-owned stores and one Anthropologie Group franchisee-owned store.
In fiscal 2023, management plans to open about 46 stores and close 14 outlets. URBN intends to open 16 FP Movement stores in the same fiscal year with a target of achieving $1 billion worth FP Movement brand sales.
Other Financial Details
Urban Outfitters ended the quarter with cash and cash equivalents of $206.6 million and total shareholders’ equity of $1,745.7 million. As of Jan 31, 2022, total inventory increased 39.1% from the fourth-quarter fiscal 2020 level to $569.7 million.
URBN generated net cash of $359.3 million from operating activities during fiscal 2022. For fiscal 2023, management projects capital expenditures of nearly $225 million.
Urban Outfitters repurchased and subsequently retired 2 million shares for nearly $56 million during fiscal 2022. It bought back and subsequently retired 0.5 million shares for roughly $7 million in fiscal 2021. As of Jan 31, 2022, URBN had 23.9 million shares remaining under its share repurchase programs.
Outlook
Management is impressed with solid consumer demand, which is likely to continue throughout the first quarter of fiscal 2023. URBN’s first quarter-to-date comp sales rate is above the fourth-quarter rate. Urban Outfitters now expects first-quarter sales to increase mid-teens from the fiscal 2020 actuals. Retail segment sales are expected to come in the mid-to-high teens’ range, while the Wholesale segment sales might be approximately flat.
Moreover, gross margins for the fiscal first quarter are anticipated to plunge more than 100 basis points from the fiscal year 2022 reading, mainly due to the ongoing supply-chain headwinds and higher inbound product transportation costs. Also, the markdown rate in the same quarter will likely increase from the fiscal 2022 actuals. Favorable occupancy rates may partly offset lower merchandise margins in the quarter from the same-period level of fiscal 2022.
We note that total growth in SG&A is likely to exceed sales growth for the first quarter and fiscal 2023. Higher SG&A expenses will be due to increased store labor costs from the year-ago fiscal level. Management believes that the SG&A growth rate in the fiscal first quarter will be more significant than the other quarters of fiscal 2023.
Capri Holdings, a global fashion luxury group, currently flaunts a Zacks Rank #1 (Strong Buy). CPRI’s bottom line outperformed the Zacks Consensus Estimate by a wide margin in all the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Capri Holdings’ current financial-year sales and EPS suggests growth of 37.1% and 215.8%, respectively, from the corresponding year-ago period’s reported figures. CPRI has an expected EPS growth rate of 30.9% for three-five years.
DICK'S Sporting Goods, which operates as a sporting goods retailer, has a Zacks Rank #2 (Buy) at present. DKS has a trailing four-quarter earnings surprise of 104.2%, on average.
The Zacks Consensus Estimate for DICK'S Sporting Goods’ current financial-year sales and EPS suggests growth of 27.6% and 151.6% each from the respective year-ago period’s reported numbers. DKS has an expected EPS growth rate of 11.7% for three-five years.
Dollar Tree, the operator of discount variety retail stores, holds a Zacks Rank of 2 at present. DLTR has a trailing four-quarter earnings surprise of 8.8%, on average. DLTR has an expected EPS growth rate of 12.2% for three to five years.
The Zacks Consensus Estimate for DLTR’s current financial-year sales suggests growth of 3.4% from the year-ago period’s reported figure.
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Urban Outfitters (URBN) Q4 Earnings Miss, Sales Improve Y/Y
Urban Outfitters Inc. (URBN - Free Report) reported fourth-quarter fiscal 2022 results, wherein the bottom line missed the Zacks Consensus Estimate. Inflationary pressures from inbound freight, delivery expenses, raw materials and wages hurt the overall profits in the reported quarter. Also, the ongoing supply-chain headwinds and higher transportation expenses were deterrents.
Nonetheless, both metrics improved on a year-over-year basis. Sales across URBN’s all brands and the Retail segment grew from the comparable period’s level in fiscal 2020. URBN provided a two-year comparison for all metrics as the pre-pandemic period reflects a more precise comparison base due to the closure of stores through most of fiscal 2020 induced by the coronavirus pandemic. Shares of this currently Zacks Rank #5 (Strong Sell) player have decreased 15.9% in the past six months compared with the industry’s 10.9% dip.
We note that demand in the fiscal fourth quarter was solid and is likely to continue through spring. During the first four weeks of the fiscal first quarter, the total Retail segment comp sales increased more than 20% from the same-period level in fiscal 2022 and fiscal 2020. All brands across both geographies are positive.
Deeper Insight
This lifestyle-specialty retailer delivered earnings per share of 41 cents, lagging the Zacks Consensus Estimate of 49 cents. The bottom line increased 41.4% from 29 cents recorded in the comparable quarter of the year-ago fiscal and 105% from 20 cents earned in the quarter ended Jan 31, fiscal 2020.
Net sales for the three months ended Jan 31, fiscal 2022, rose 13.9% from the same-period level of fiscal 2020 to $1,332.2 million. The metric also rose 22.4% from the last fiscal year’s reading. The Zacks Consensus Estimate for quarterly sales is pegged at $1,332 million.
Brand wise, net sales were up 5.4% from the comparable period’s level in fiscal 2020 to $474.4 million at Urban Outfitters, 13.8% to $558.7 million at Anthropologie Group and 28% to $276.2 million at Free People. Nuuly, the subscription-based rental service for women’s clothes, contributed $17.3 million to net sales, reflecting an increase of 188.3% from the comparable period’s level in fiscal 2020. However, Menus & Venues’ net sales amounted to $5.6 million, down 17.6% from the comparable period’s reading in fiscal 2020.
We note that the comparable Retail segment’s net sales grew 14% from the same-period level of fiscal 2020 on a robust double-digit rise in digital channel sales. Growth was partly offset by a low double-digit negative retail store sales due to lower store traffic. Each brand recorded positive retail segment comps, led again by the Free People Group brand, which delivered mid double-digit comps.
By brand, the comparable Retail segment’s net sales jumped 49% at the Free People Group, 14% at the Anthropologie Group and 3% at Urban Outfitters. While net sales at the Retail segment improved 15% from the comparable period’s level in fiscal 2020, the metric at the Wholesale unit plunged 22%, mainly due to lower Free People Group’s sales to promotional wholesale customers.
Robust strength in the digital channel fueled the Retail unit’s growth. The digital channel recorded mid double-digit sales gains in North America and even greater strength in Europe. Higher sessions, improved conversion and increased AURs aided digital growth. Digital customer growth was also sturdy, with total customers rising 30% from the fiscal 2020 level. All brands and geographies recorded growth.
An Insight Into Margins
In the quarter under review, gross profit climbed 5.4% from the same-quarter level of fiscal 2020 to $367.3 million. However, adjusted gross margin contracted 222 basis points (bps) to 27.6%, mainly due to lower initial merchandise markups as well as higher delivery and logistics costs. This was partly offset by lower merchandise markdown rates in the Retail unit and leveraged store occupancy expenses. Increased transportation expenses weighed on merchandise margins in the quarter.
Selling, general and administrative (SG&A) expenses shot up 11.6% from the fourth-quarter fiscal 2020 level to $314 million. As a percentage of net sales, the metric leveraged 48 bps to 23.6%, mainly owing to a disciplined store payroll management and overall cost control. This upside was partly offset by higher digital marketing and creative expenses to boost digital sales and customer growth.
Urban Outfitters recorded an operating income of $53.3 million, down 20.6% from the fourth-quarter fiscal 2019 level. As a rate of sales, the operating margin decreased 170 bps from the level registered in the quarter ended Jan 31, fiscal 2020, to 4%.
Store Update
In fiscal 2022, URBN inaugurated 56 retail outlets, such as 17 Urban Outfitters, 9 Anthropologie Group and 29 Free People (including 18 FP Movement stores), and one Menus & Venues restaurant. URBN shuttered 18 retail locations, including three Urban Outfitters stores, eight Anthropologie Group stores, five Free People stores and two Menus & Venues restaurants. In the aforementioned period, two franchisee-owned stores were opened, one each of Urban Outfitters and Anthropologie Group stores.
As of Jan 31, 2022, URBN operated 261 Urban Outfitters stores in the United States, Canada and Europe; 238 Anthropologie Group stores in the United States, Canada and Europe; 173 Free People stores in the United States, Canada and Europe; 10 Menus & Venues restaurants; two Urban Outfitters franchisee-owned stores and one Anthropologie Group franchisee-owned store.
In fiscal 2023, management plans to open about 46 stores and close 14 outlets. URBN intends to open 16 FP Movement stores in the same fiscal year with a target of achieving $1 billion worth FP Movement brand sales.
Other Financial Details
Urban Outfitters ended the quarter with cash and cash equivalents of $206.6 million and total shareholders’ equity of $1,745.7 million. As of Jan 31, 2022, total inventory increased 39.1% from the fourth-quarter fiscal 2020 level to $569.7 million.
URBN generated net cash of $359.3 million from operating activities during fiscal 2022. For fiscal 2023, management projects capital expenditures of nearly $225 million.
Urban Outfitters repurchased and subsequently retired 2 million shares for nearly $56 million during fiscal 2022. It bought back and subsequently retired 0.5 million shares for roughly $7 million in fiscal 2021. As of Jan 31, 2022, URBN had 23.9 million shares remaining under its share repurchase programs.
Outlook
Management is impressed with solid consumer demand, which is likely to continue throughout the first quarter of fiscal 2023. URBN’s first quarter-to-date comp sales rate is above the fourth-quarter rate. Urban Outfitters now expects first-quarter sales to increase mid-teens from the fiscal 2020 actuals. Retail segment sales are expected to come in the mid-to-high teens’ range, while the Wholesale segment sales might be approximately flat.
Moreover, gross margins for the fiscal first quarter are anticipated to plunge more than 100 basis points from the fiscal year 2022 reading, mainly due to the ongoing supply-chain headwinds and higher inbound product transportation costs. Also, the markdown rate in the same quarter will likely increase from the fiscal 2022 actuals. Favorable occupancy rates may partly offset lower merchandise margins in the quarter from the same-period level of fiscal 2022.
We note that total growth in SG&A is likely to exceed sales growth for the first quarter and fiscal 2023. Higher SG&A expenses will be due to increased store labor costs from the year-ago fiscal level. Management believes that the SG&A growth rate in the fiscal first quarter will be more significant than the other quarters of fiscal 2023.
3 Hot Stocks to Consider
Here are three better-ranked stocks, namely Capri Holdings (CPRI - Free Report) , DICK'S Sporting Goods (DKS - Free Report) and Dollar Tree (DLTR - Free Report) .
Capri Holdings, a global fashion luxury group, currently flaunts a Zacks Rank #1 (Strong Buy). CPRI’s bottom line outperformed the Zacks Consensus Estimate by a wide margin in all the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Capri Holdings’ current financial-year sales and EPS suggests growth of 37.1% and 215.8%, respectively, from the corresponding year-ago period’s reported figures. CPRI has an expected EPS growth rate of 30.9% for three-five years.
DICK'S Sporting Goods, which operates as a sporting goods retailer, has a Zacks Rank #2 (Buy) at present. DKS has a trailing four-quarter earnings surprise of 104.2%, on average.
The Zacks Consensus Estimate for DICK'S Sporting Goods’ current financial-year sales and EPS suggests growth of 27.6% and 151.6% each from the respective year-ago period’s reported numbers. DKS has an expected EPS growth rate of 11.7% for three-five years.
Dollar Tree, the operator of discount variety retail stores, holds a Zacks Rank of 2 at present. DLTR has a trailing four-quarter earnings surprise of 8.8%, on average. DLTR has an expected EPS growth rate of 12.2% for three to five years.
The Zacks Consensus Estimate for DLTR’s current financial-year sales suggests growth of 3.4% from the year-ago period’s reported figure.