It has been about a month since the last earnings report for Urban Outfitters (URBN Quick QuoteURBN - Free Report) . Shares have added about 3.9% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Urban Outfitters due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Urban Outfitters Q4 Earnings Meet Estimates, Sales Down

Urban Outfitters reported fourth-quarter fiscal 2021 results, wherein the bottom line matched the Zacks Consensus Estimate while the top line missed the same. Both the metrics declined on a year-over-year basis. We note that sales dipped across major brands — including Urban Outfitters and Anthropologie Group — except Free People and Nuuly. Even stellar digital channel performance was not enough to offset lower store net sales. Also, virtually all of the company’s stores in Europe were shut on government mandates, hurting the quarterly performance.

We note that the coronavirus pandemic has been hurting store-sales performance and inventory flows. It has been witnessing delays and higher costs with respect to bringing product into the United States and United Kingdom from Asia. However, management believes these headwinds will gradually moderate as the first quarter progresses.

Deeper Insight

This lifestyle-specialty retail company delivered adjusted earnings of 30 cents per share that matched the Zacks Consensus Estimate. Moreover, the bottom line decreased 40% from the year-ago quarter’s tally.

In the reported quarter, net sales of $1,088.4 million decreased 6.9% year over year and lagged the Zacks Consensus Estimate of $1,103 million. Brand-wise, net sales were down 4.9% year over year to $428.1 million at Urban Outfitters and 12.2% to $431.4 million at Anthropologie Group. Again, Menus & Venues net sales amounted to $3 million, down 55.9% from the prior-year quarter.

Nonetheless, the Philadelphia, PA-based company registered net sales increase of 1.6% to $219.3 million at Free People. Markedly, Nuuly, the subscription-based rental service for women’s clothes, contributed roughly $6.7 million to net sales, reflecting an increase 11.4% from the year-ago period. The company informed that lower store net sales were partly offset by double-digit improvement in digital channel sales. Notably, digital sales in Europe more than doubled, offsetting most of the store loss. But total Retail segment comp sales in February declined high single digits in Europe.

Segment-wise, Urban Outfitters’ net sales at the Retail Segment dropped 7% to $1,013.9 million, while the same at the Wholesale Segment fell 7.1% to $67.9 million. Comparable Retail segment net sales declined 7% on account of negative retail store net sales as robust conversion rates were unable to offset the drop in store traffic due to the pandemic and related occupancy restrictions.

Costs & Margins

In the quarter under review, adjusted gross profit came in at $290.1 million, down 16.7% from the year-ago quarter. Further, adjusted gross margin contracted 314 basis points (bps) to 26.7%, primarily due to higher delivery and logistics expenses and elevated carrier surcharges.

Meanwhile, SG&A expenses dropped 9.6% to $254.3 million on cost-saving efforts. Moreover, as a percentage of net sales, the metric improved 69 bps to 23.4%. This upside is attributed to a disciplined store-payroll management and overall cost-control actions. Notably, digital marketing expenses increased in the fiscal fourth quarter to support robust digital channel sales and customer growth.

Further, the company recorded operating income of $35.7 million, down 46.8% from the year-ago quarter. Also, operating margin contracted 240 bps to 3.3% on lower gross margin.

Other Financial Details

Urban Outfitters ended the quarter with cash and cash equivalents of $395.6 million and total shareholders’ equity of $1,477.4 million. As of Jan 31, 2021, total inventory declined 4.9% year over year to $389.6 million.

Further, the company generated net cash of $285.8 million in operating activities during fiscal 2021. For fiscal 2022, management now projects capital expenditures of $250 million, mainly related to construction of a new distribution facility in North America and completion of the automation equipment across its new U.K. facility.

Urban Outfitters did not buy back shares in fiscal fourth quarter. However during the fiscal year, it bought back and subsequently retired 0.5 million shares for roughly $7 million. As of Jan 31, 2021, the company had 25.9 million shares remaining under these programs.

Outlook

Management believes the fiscal first quarter to reflect a steady sales improvement in comparison to last year as it progresses. The company presently estimates first-quarter overall sales to increase in low single-digit year over year. This will be buoyed by Retail segment sales increase in low single digits and Wholesale segment sales decline in low double digits. Further, total company Retail segment comps are expected to be positive for the quarter. However, the magnitude of comps is based on several factors, including when stores in Europe are allowed to reopen.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted -40.54% due to these changes.

VGM Scores

At this time, Urban Outfitters has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Urban Outfitters has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.