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Urban Outfitters (URBN) Surpass Q1 Earnings & Sales Estimates

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Urban Outfitters Inc. (URBN - Free Report) delivered better-than-expected results for the fourth straight quarter, when it reported first-quarter fiscal 2019 financial numbers. Notably, this lifestyle specialty retail company posted earnings of 38 cents a share that surpassed the Zacks Consensus Estimate of 30 cents and improved sharply from 10 cents in the year-ago period.

Management highlighted that sturdy sales performance, margin expansion, SG&A leverage and a lower tax rate favorably impacted the bottom line.

Despite a competitive retail landscape, Urban Outfitters has emerged strongly on its strategic initiatives such as store-expansion efforts, increase in direct penetration, growing wholesale operations, technology advancements and merchandising improvements. Management is aggressively focusing on efforts to enhance the performance of its brands through store refurbishment and by bringing in more compelling assortments. The company is also investing in shop-in-shops.

Urban Outfitters, Inc. Price, Consensus and EPS Surprise

Urban Outfitters, Inc. Price, Consensus and EPS Surprise | Urban Outfitters, Inc. Quote

 

Notably, this Zacks Rank #2 (Buy) stock has surged 36.6% in the past six months and comfortably outperformed the industry’s gain of 9.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

An Insight Into Revenues

In the reported quarter, net sales of $855.7 million outpaced the Zacks Consensus Estimate of $837.1 million and were up 12.4% year over year. The increase in the top line was owing to robust performance of its Urban Outfitters, Anthropologie Group and Free People brands. However, Food and Beverage segment played spoil sport.

At Urban Outfitters, net sales were up 13.3% to $322.7 million, while the same at Anthropologie Group improved 11.6% to $347.1 million. At Free People, the metric increased 13.7% to $181.3 million. In the quarter under review, Food and Beverage net sales came in at $4.6 million, down 20.9% from the prior-year quarter.

The company’s net sales surged 12.3% to $775.6 million at the Retail Segment and 13.1% to $80.1 million at the Wholesale Segment. Wholesale Segment gained from the recently launched Anthropologie home.

Comparable Retail Segment net sales jumped 10% buoyed by double-digit growth in the digital channel and increased retail store sales. Meanwhile, comparable retail segment net sales rose 15% at Free People, 10% at the Anthropologie Group and 8% at Urban Outfitters. The company stated that apparel and accessories continued to gain traction, while home, beauty and Terrain have sustained their healthy sales performance.

Margin Performance

In the quarter under review, gross profit came in at $280.7 million, up 17% from the year-ago quarter. Gross margin expanded 130 basis points to approximately 32.8% mainly due to lower markdowns at all three brands and leverage in store occupancy cost.

SG&A expenses increased 3.7% to $226.8 million, while as a percentage of net sales the same contracted 224 basis points to 26.5%.

Operating income came in at $53.9 million, up substantially from $21 million reported in the year-ago quarter, while operating margin increased 350 basis points to 6.3%.

Store Update

During the quarter under review, the company opened four new locations — two Free People stores and two Urban Outfitters stores. The company shuttered one Urban Outfitters outlet. The company plans to open 18 new stores and intends to close 10 locations during fiscal 2019.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $313.7 million, marketable securities of $166.4 million and shareholders’ equity of $1,346.4 million. The company incurred capital expenditure of $25 million during the quarter. For fiscal 2019, management anticipates capital expenditures of $110 million.

Outlook

Management hinted that based on current sales trends, it anticipates second-quarter sales comps to be almost in line with first quarter rate. The company expects gross margin rate to improve at a rate similar to that of the first quarter on account of lower merchandise markdowns and leverage in store occupancy expense.

SG&A expense is likely to increase by approximately 6% and 5% in the second quarter and fiscal 2019, respectively, attributable to higher digital marketing investments and incentive-based compensation.

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