A month has gone by since the last earnings report for Urban Outfitters (
URBN Quick Quote URBN - Free Report) . Shares have lost about 4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Urban Outfitters due for a breakout? 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 Q4 Earnings Meet, Sales Improve Y/Y
Urban Outfitters reported mixed results for fourth-quarter fiscal 2023, wherein the top line beat the Zacks Consensus Estimate, while the bottom line met the same.
Also, earnings declined from the prior fiscal year’s quarterly level, while sales grew from the year-ago fiscal quarter’s tally. Deeper Insight
This lifestyle-specialty retailer delivered earnings per share of 34 cents. Earnings per share, adjusted for store impairment costs of $5.5 million, came in at 39 cents and matched the Zacks Consensus Estimate. The bottom line decreased 4.9% from 41 cents per share recorded in the comparable quarter of the prior fiscal year.
Net sales for the three months ending Jan 31, fiscal 2023, rose 3.9% from the same-period level of fiscal 2022 to $1,384.6 million. The metric beat the Zacks Consensus Estimate of $1,365 million. Brandwise, net sales were down 10.3% from the comparable period’s level in fiscal 2022 to $425.6 million at Urban Outfitters. The metric was up 7.9% to $602.9 million at Anthropologie Group and 10.9% to $306.2 million at Free People. Nuuly, the subscription-based rental service for women’s clothes, contributed $42.7 million to net sales, reflecting an increase from $17.3 million recorded in the earlier fiscal year’s comparable period, backed by a 149% rise in the company’s subscribers. Menus & Venues’ net sales amounted to $7.2 million, up 28.6% from the level recorded in the prior fiscal year’s corresponding period. Segmentwise, net sales at the Retail unit rose 2% to $1,289.2 million, while the metric at the Wholesale unit dipped 7% to $52.6 million. Wholesale unit sales were driven by a 13% decline in Free People Group wholesale sales on lower sales to department stores somewhat offset by growth in specialty and close-out account partners, while Urban Outfitters’ wholesale sales grew by $3 million. We note that the comparable Retail segment’s net sales grew 3% from the same-period level of fiscal 2022 backed by a mid-single-digit increase in retail-store sales and a low single-digit rise in digital channel sales. This was partly offset by a 1% adverse impact of foreign currency fluctuations. By brand, the comparable Retail segment’s net sales jumped 15% at the Free People Group and 9% at the Anthropologie Group. The same, however, dropped 10% at Urban Outfitters. An Insight Into Margins
In the quarter under review, gross profit rose 1.4% from the same-quarter level of fiscal 2022 to $372.3 million. However, the gross margin contracted 68 basis points (bps) to 26.9%, mainly due to store impairment charges of $5.5 million, or 39 bps, in the reported quarter.
Retail segment merchandise margins were marginally lower as higher initial merchandise markups were offset by increased markdowns at the Urban Outfitters and Free People Group brands. Also, the lower gross margin in the Wholesale segment further contributed to the overall gross margin decrease. Nonetheless, the Nuuly segment’s gross margin grew on operating leverage from the sharp rise in subscribers. Selling, general and administrative (SG&A) expenses shot up 6.7% from the fourth-quarter fiscal 2022 level to $335.1 million. As a percentage of net sales, SG&A deleveraged 63 bps to 24.2%, mainly due to higher marketing expenses to boost sales and customer growth, and severance expenses. URBN recorded an operating income of $37.3 million, down from $53.3 million in fourth-quarter fiscal 2023. As a rate of sales, the operating margin decreased 130 bps to 2.7% from the level registered in the quarter ending Jan 31 in fiscal 2022. Other Financial Details
Urban Outfitters ended the quarter with cash and cash equivalents of $201.3 million and a total shareholders’ equity of $1,792.7 million. As of Jan 31, 2023, total inventory rose 3.1% from the fourth-quarter fiscal 2022 level to $587.5 million. Total Retail segment inventory jumped 4% while Wholesale segment inventory slipped 7%.
URBN provided net cash of $142.7 million from operating activities during the twelve-month period ending Jan 31. For fiscal 2024, management projects capital expenditures of nearly $230 million. Urban Outfitters repurchased and subsequently retired 4.7 million shares for nearly $112 million during fiscal 2023. As of Jan 31, 2023, URBN had 19.2 million shares remaining under its share repurchase programs. Outlook
First- quarter total sales growth is likely to be similar to the fourth quarter of fiscal 2023. This increase is to be backed by the doubling of Nuuly segment sales and Retail segment comp sales rising low-single digits, somewhat offset by lower sales across the Wholesale segment. Foreign exchange is likely to hurt sales by roughly 100 bps.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
The consensus estimate has shifted -6.49% due to these changes.
Currently, Urban Outfitters has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Urban Outfitters has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.