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Urban Outfitters (URBN) Q1 Earnings Miss, Sales Improve Y/Y

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Urban Outfitters, Inc. (URBN - Free Report) reported first-quarter fiscal 2023 results, wherein the top and the bottom line missed the Zacks Consensus Estimate. Also, earnings declined from the last fiscal year’s quarterly level. Inflationary pressures from inbound freight costs and raw materials hurt the overall profits in the reported quarter. Also, the ongoing supply-chain headwinds were deterrents.

Shares of URBN have decreased 22.6% in the past six months compared with the industry’s 15.1% decline.

Deeper Insight

This lifestyle-specialty retailer delivered earnings per share of 33 cents, lagging the Zacks Consensus Estimate of 42 cents. The bottom line decreased 63.6% from 54 cents recorded in the comparable quarter of the year-ago fiscal year.

Urban Outfitters, Inc. Price, Consensus and EPS Surprise

Urban Outfitters, Inc. Price, Consensus and EPS Surprise

Urban Outfitters, Inc. price-consensus-eps-surprise-chart | Urban Outfitters, Inc. Quote

Net sales for the three months ended Apr 30, fiscal 2022, rose 13.4% from the same-period level of fiscal 2022 to $1,051.9 million. The Zacks Consensus Estimate for quarterly sales is pegged at $1,072 million.

Brand wise, net sales were up 2.3% from the comparable period’s level in fiscal 2020 to $357.7 million at Urban Outfitters, 18.7% to $419.7 million at Anthropologie Group and 15.5% to $245.8 million at Free People. Nuuly, the subscription-based rental service for women’s clothes, contributed $22.8 million to net sales, reflecting an increase from $7.8 million recorded in the earlier fiscal year’s comparable period. Menus & Venues’ net sales amounted to $5.9 million, up from $3.6 million recorded in the prior fiscal year’s corresponding period.

Segmentwise, net sales at the Retail unit increased 12.3% to $963.4 million, while the metric at the Wholesale unit grew 5.8% to $65.7 million. Sales at the Retail segment were boosted by solid sales at URBN’s stores than the digital channel. Wholesale segment’s sales were driven by full-price channel sales at Free People, more than offset by a slight decrease at Urban Outfitters.

We note that the comparable Retail segment’s net sales grew 11% from the same-period level of fiscal 2022. By brand, the Retail segment’s net sales jumped 15% at the Free People Group, 18% at the Anthropologie Group and 1% at Urban Outfitters.

An Insight Into Margins

In the quarter under review, gross profit climbed 7.5% from the same-quarter level of fiscal 2022 to $323.3 million. However, adjusted gross margin contracted 169 basis points (bps) to 30.7%, mainly due to reduced initial merchandise markups, stemming from increased inbound transportation expenses and raw material costs.

Selling, general and administrative (SG&A) expenses shot up 23.8% from the first-quarter fiscal 2022 level to $277.1 million. As a percentage of net sales, SG&A deleveraged 184 bps to 22%, mainly related to the higher penetration of retail store sales.

This currently Zacks Rank #3 (Hold) player recorded an operating income of $46.2 million, down 37.1% from the first-quarter fiscal 2022 level. As a rate of sales, the operating margin decreased 350 bps to 4.4% from the level registered in the quarter ended Apr 30 in fiscal 2022.

Store Update

In the first quarter of fiscal 2023, URBN inaugurated five retail outlets, such as two Urban Outfitters, 9 two Free People (including one FP Movement store), and one Menus & Venues restaurant. URBN shuttered three retail locations, including one each of Urban Outfitters, and eight Anthropologie Group and Free People stores. In the aforementioned period, three franchisee-owned stores were opened, comprising two Urban Outfitters outlet and one Anthropologie Group store.

As of Apr 30, 2022, URBN operated 262 Urban Outfitters shops in the United States, Canada and Europe; 237 Anthropologie Group stores in the United States, Canada and Europe; 174 Free People stores in the United States, Canada and Europe; 11 Menus & Venues restaurants; four Urban Outfitters franchisee-owned stores and two Anthropologie Group franchisee-owned stores.

In fiscal 2023, management plans to open about 38 stores and close 16 outlets. The store number consists of 12 new FP Movement stores.

Other Financial Details

Urban Outfitters ended the quarter with cash and cash equivalents of $71.6 million and a total shareholders’ equity of $1,695.9 million. As of Apr 30, 2022, total inventory increased 31.9% from the first-quarter fiscal 2022 level to $630 million.

URBN used net cash of $79.6 million from operating activities during the fiscal first quarter. For fiscal 2023, management projects capital expenditures of nearly $225 million.

Urban Outfitters repurchased and subsequently retired 2.4 million shares for nearly $62 million during the reported quarter. As of Apr 30, 2022, URBN had 21.5 million shares remaining under its share repurchase programs.

Outlook

Management believes that sales will grow for the fiscal second quarter from the last fiscal year’s quarterly tally. Also, the Retail segment comp sales will increase in the low single-digit range and the Wholesale segment sales in the mid-single digits. As a result, total sales will rise in the low single-digit range.

Management noted that supply-chain challenges are flaring up freight costs. Thus, initial product margins will be adversely impacted. Elevated markdown rates and reduced initial product margins will result in a nearly 500-bps decline in gross margins for the fiscal second quarter.

Based on the current sales performance, management expects SG&A expenses to grow in low double-digits for the fiscal second quarter.

3 Top Retail Stocks for You

We highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass (TGLS - Free Report) , Boot Barn Holdings (BOOT - Free Report) and Fastenal (FAST - Free Report) .

Tecnoglass manufactures and sells architectural glass and windows, and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy). Shares of TGLS have jumped 12.9% in the past year.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 21.3% and 28.7%, respectively, from the corresponding year-ago period's reported figures. TGLS has a trailing four-quarter earnings surprise of 28.3%, on average.

Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently flaunts a Zacks Rank of 1. BOOT has a trailing four-quarter earnings surprise of 25.2%, on average. Shares of BOOT have rallied 19.8% in the past year.
 
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and earnings per share suggests growth of 17% and 4.4%, respectively, from the corresponding year-ago reported figures. BOOT has an expected EPS growth rate of 20% for three-five years.

Fastenal, a national wholesale distributor of industrial and construction supplies, currently has a Zacks Rank #2 (Buy). FAST has a trailing four-quarter earnings surprise of 5%, on average. Shares of FAST have risen 0.6% in the past year.

The Zacks Consensus Estimate for Fastenal's current financial-year sales and earnings per share suggests growth of 15.4% and 16.3%, respectively, from the corresponding year-ago reported numbers. FAST has an expected EPS growth rate of 9% for three-five years.