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Urban Outfitters' (URBN) Stock Down Despite Q4 Earnings Beat

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Urban Outfitters Inc. (URBN - Free Report) reported fourth-quarter fiscal 2019 results, wherein both top and bottom lines grew year over year and the latter marked its seventh straight quarter of positive surprise. However, sales fell short of the Zacks Consensus Estimate after delivering six consecutive beats. Also, the company initiated fiscal 2020 with lower-than-expected sales.

These factors along with a soft guidance for the first quarter of fiscal 2020 seem to have weighed on investors’ sentiments. Markedly, shares of the company lost 3.8% during the after-market trading session on Mar 3. In fact, Urban Outfitters has tumbled 18.1% in the past three months, against the industry’s growth of 0.8%.



Coming to the quarterly outcome, this lifestyle specialty retail company posted adjusted earnings of 83 cents a share that surpassed the Zacks Consensus Estimate of 78 cents and improved 20.3% year over year. We note that bottom-line growth was backed by improved sales and margins along with lower taxes.

Urban Outfitters, Inc. Price, Consensus and EPS Surprise



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

An Insight Into Revenues

In the reported quarter, net sales of $1,128.9 million fell short of the Zacks Consensus Estimate of $1,133 million, though it advanced 3.7% year over year. Sales growth was driven by improvements in retail segment comps and increased wholesale sales. The company also appears to have benefitted from record holiday sales unveiled recently. However, currency headwinds dented fourth-quarter sales by roughly 50 basis points (bps).

Well, this Zacks Rank #3 (Hold) company witnessed decent performance at its Urban Outfitters, Anthropologie Group and Free People brands. Also, Food and Beverage segment sales increased double digits. At Urban Outfitters, net sales were up 3.1% to $447.5 million, while the same at Anthropologie Group improved 3.9% to $464.6 million. At Free People, nest sales increased 3.8% to $209.3 million. Meanwhile, Food and Beverage net sales came in at $7.5 million, up 18.1% from the prior-year quarter.

The company’s net sales grew 3.7% to $1,047.7 million at the Retail Segment and 2.9% to $81.2 million at the Wholesale Segment. The increase in Wholesale Segment net sales can be attributed to sales increase at Anthropologie Home business and slight growth in Free People wholesale revenues.

Comparable Retail Segment net sales increased 3% on double-digit improvement in the digital channel, somewhat negated by lower retail store sales. Brand-wise, comparable Retail Segment net sales rose 4% at Free People, 2% at the Anthropologie Group and 4% at Urban Outfitters. This was the sixth successive quarter when each of the company’s brands reported positive comparable Retail Segment net sales.

Margin Performance

In the quarter under review, adjusted gross profit came in at $376.1 million, up 6.8% from the year-ago quarter. Adjusted gross margin expanded about 100 bps to approximately 33.3%, mainly due to lower markdowns and better initial mark-ups. Additionally, adjusted gross margin was fueled by store occupancy cost leverage.

Adjusted SG&A expenses increased 4.2% to $258.3 million. As percentage of net sales, adjusted SG&A expenses grew more than 10 bps to roughly 22.9%.

Adjusted operating income came in at $117.8 million, up 12.9% from the year-ago quarter’s figure, while adjusted operating margin increased 80 bps to 10.4%.

Store Update

During fiscal 2019, the company opened 18 retail locations — four Anthropologie Group stores, five Urban Outfitters stores, six Free People stores, and three Food and Beverage restaurants. It shuttered 11 locations — three Anthropologie Group stores, three Free People stores and five Urban Outfitters stores. During the said period, the company opened five franchisee-owned stores — four Urban Outfitters outlets and one Free People outlet.

Management intends to inaugurate 24 stores and shutter 13 in fiscal 2020.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $358.3 million, marketable securities of $57.3 million and total shareholders’ equity of $1,489.1 million. Management incurred capital expenditures of $25 million during the fourth quarter and $115 million in fiscal 2019. For fiscal 2020, management anticipates capital expenditures of nearly $260 million.

In August 2017, the company’s board of directors authorized buyback of 20 million shares, out of which 14.4 million were remaining at the end of fiscal 2019. During the year ended Jan 31, 2019, the company repurchased and thereafter retired 3.5 million shares for about $121 million. This includes 2 million shares repurchased for about $64 million during the fourth quarter.

Outlook

Management stated that it has started fiscal 2020 with softer-than-expected sales. On the basis of its quarter-to-date performance, management anticipates first-quarter fiscal 2020 comps in the range of flat to low-single-digits decline for the Retail segment.

Based on the comps projection, gross margin is likely to contract about 150 bps in the first quarter. This can be attributed to increased markdown rates, escalated logistic costs and store occupancy expense deleverage. SG&A expenses are likely to increase roughly 3% in the first quarter, owing to elevated digital investments to aid digital channel sales.

Don’t Miss These Solid Retail Bets

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