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Urban Outfitters, Inc. (URBN - Free Report) reported mixed results for second-quarter fiscal 2023, wherein the top line beat the Zacks Consensus Estimate, while the bottom line missed the same. Also, earnings declined from the last fiscal year’s quarterly level, while sales grew year over year. Inflationary pressures from inbound freight and transportation coupled with a tough operating landscape hurt the overall profits in the reported quarter. Also, the supply-chain headwinds were deterrents.
Shares of URBN have lost 19.6% in the past six months compared with the industry’s 10% decline.
Deeper Insight
This lifestyle-specialty retailer delivered earnings per share of 64 cents, lagging the Zacks Consensus Estimate of 67 cents. The bottom line decreased from $1.29 per share recorded in the comparable quarter of the year-ago fiscal year.
Net sales for the three months ended Jul 31, fiscal 2022, rose 2.2% from the same-period level of fiscal 2022 to $1,183.4 million. The metric also beat the Zacks Consensus Estimate of $1,176 million.
Urban Outfitters, Inc. Price, Consensus and EPS Surprise
Brandwise, net sales were down 10.2% from the comparable period’s level in fiscal 2020 to $396.4 million at Urban Outfitters. The metric was up 18.7% to $396.4 million at Anthropologie Group and 8.7% to $271.4 million at Free People. Nuuly, the subscription-based rental service for women’s clothes, contributed $28.8 million to net sales, reflecting an increase from $9.9 million recorded in the earlier fiscal year’s comparable period, backed by a sharp rise in the subscribers. Menus & Venues’ net sales amounted to $7.5 million, up from $5.9 million recorded in the prior fiscal year’s corresponding period.
Segmentwise, net sales at the Retail unit rose 1% to $1,095.2 million, while the metric at the Wholesale unit grew 1% to $59.4 million. The Wholesale segment’s sales were buoyed by 4% growth in Free People Group wholesale sales, offset by a dip in Urban Outfitters’ wholesale sales.
We note that the comparable Retail segment’s net sales grew 1% from the same-period level of fiscal 2022, driven by low single-digit positive digital channel sales and offset by flat retail store sales. By brand, the comparable Retail segment’s net sales jumped 8% at the Free People Group and 7% at the Anthropologie Group. The same, however, dropped 9% at Urban Outfitters.
An Insight Into Margins
In the quarter under review, gross profit fell 13.9% from the same-quarter level of fiscal 2022 to $374.6 million. However, gross margin contracted 595 basis points (bps) to 31.7%, mainly due to increased markdowns at all the brands. Higher carrier fuel surcharges caused a deleveraged delivery expense.
Selling, general and administrative (SG&A) expenses shot up 7.2% from the second-quarter fiscal 2022 level to $288.7 million. As a percentage of net sales, SG&A deleveraged 113 bps to 24.4%, mainly related to store payroll costs due to increased store associate hours to aid customer traffic and elevated average wages.
This currently Zacks Rank #4 (Sell) player recorded an operating income of $85.8 million, down from $165.9 million recorded in second-quarter fiscal 2022. As a rate of sales, the operating margin decreased 700 bps to 7.3% from the level registered in the quarter ended Jul 31 in fiscal 2022.
Store Update
In the first half of fiscal 2023, URBN inaugurated 16 retail outlets, such as two Urban Outfitters, 11 Free People (including six FP Movement stores), two Anthropologie stores and one Menus & Venues restaurant. URBN shuttered four retail locations, including two Urban Outfitters, and one each of 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 Jul 31, 2022, URBN operated 261 Urban Outfitters shops in the United States, Canada and Europe; 239 Anthropologie Group stores in the United States, Canada and Europe; 183 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 37 stores (comprising 12 new FP Movement stores) and close 15 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 $91.7 million and a total shareholders’ equity of $1,707.2 million. As of Jul 31, 2022, total inventory increased 44.4% from the second-quarter fiscal 2022 level to $134.1 million.
URBN used net cash of $31.7 million from operating activities during the six months ended Jul 31. For fiscal 2023, management projects capital expenditures of nearly $225 million.
Urban Outfitters repurchased and subsequently retired 4.7 million shares for nearly $112 million during the reported quarter. As of Jul 31, 2022, URBN had 19.2 million shares remaining under its share repurchase programs.
Outlook
Management anticipated comp sales growth trends in the ongoing quarter similar to comp sales in the fiscal second quarter with low single-digit positive Retail segment comps. Depending on the quarter-to-date performance and sales projection, URBN believes that Retail segment comp sales could register low-single-digit growth for the fiscal third quarter. The Retail unit’s growth will be somewhat offset by lower sales than the Wholesale segment’s level. Overall, total sales will rise in the low-single-digit range.
Based on the sales performance and plan, Urban Outfitters believes that gross margin could decline above 400 basis points in the fiscal third quarter. This will be hugely induced by increased markdown rates from last year's low markdown rates at all brands and higher inventory levels this year.
Moreover, SG&A growth for the current quarter will rise in the high-single digits due to elevated store labor costs and customer marketing acquisition costs. This will result in a deleveraged SG&A rate from the year-ago reported figure. However, management expects the SG&A rate as a rate of sales to be more in line with the pre-pandemic levels.
3 Top Retail Stocks for You
We highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass (TGLS - Free Report) , Ulta Beauty (ULTA - Free Report) and CVS Health (CVS - Free Report) .
Tecnoglass manufactures and sells architectural glass and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy).
The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 28.2% and 47.7%, respectively, from the corresponding year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 24.4%, on average.
Ulta Beauty, a leading beauty retailer in the United States, currently has a Zacks Rank #2 (Buy). ULTA has a trailing four-quarter earnings surprise of 49.8%, on average.
The Zacks Consensus Estimate for Ulta Beauty’s current financial-year sales suggests growth of 10.4% from the corresponding year-ago reported figure. ULTA has an expected EPS growth rate of 10.7% for three-five years.
CVS Health, a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care, currently has a Zacks Rank of 2. CVS has a trailing four-quarter earnings surprise of 6.7%, on average. Shares of CVS have risen 7% in the past three months.
The Zacks Consensus Estimate for CVS Health’s current financial-year sales and earnings per share suggests growth of 6.6% and 1.1%, respectively, from the corresponding year-ago reported numbers. CVS has an expected EPS growth rate of 7.7% for three-five years.
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Urban Outfitters (URBN) Q2 Earnings Miss, Sales Improve Y/Y
Urban Outfitters, Inc. (URBN - Free Report) reported mixed results for second-quarter fiscal 2023, wherein the top line beat the Zacks Consensus Estimate, while the bottom line missed the same. Also, earnings declined from the last fiscal year’s quarterly level, while sales grew year over year. Inflationary pressures from inbound freight and transportation coupled with a tough operating landscape hurt the overall profits in the reported quarter. Also, the supply-chain headwinds were deterrents.
Shares of URBN have lost 19.6% in the past six months compared with the industry’s 10% decline.
Deeper Insight
This lifestyle-specialty retailer delivered earnings per share of 64 cents, lagging the Zacks Consensus Estimate of 67 cents. The bottom line decreased from $1.29 per share recorded in the comparable quarter of the year-ago fiscal year.
Net sales for the three months ended Jul 31, fiscal 2022, rose 2.2% from the same-period level of fiscal 2022 to $1,183.4 million. The metric also beat the Zacks Consensus Estimate of $1,176 million.
Urban Outfitters, Inc. Price, Consensus and EPS Surprise
Urban Outfitters, Inc. price-consensus-eps-surprise-chart | Urban Outfitters, Inc. Quote
Brandwise, net sales were down 10.2% from the comparable period’s level in fiscal 2020 to $396.4 million at Urban Outfitters. The metric was up 18.7% to $396.4 million at Anthropologie Group and 8.7% to $271.4 million at Free People. Nuuly, the subscription-based rental service for women’s clothes, contributed $28.8 million to net sales, reflecting an increase from $9.9 million recorded in the earlier fiscal year’s comparable period, backed by a sharp rise in the subscribers. Menus & Venues’ net sales amounted to $7.5 million, up from $5.9 million recorded in the prior fiscal year’s corresponding period.
Segmentwise, net sales at the Retail unit rose 1% to $1,095.2 million, while the metric at the Wholesale unit grew 1% to $59.4 million. The Wholesale segment’s sales were buoyed by 4% growth in Free People Group wholesale sales, offset by a dip in Urban Outfitters’ wholesale sales.
We note that the comparable Retail segment’s net sales grew 1% from the same-period level of fiscal 2022, driven by low single-digit positive digital channel sales and offset by flat retail store sales. By brand, the comparable Retail segment’s net sales jumped 8% at the Free People Group and 7% at the Anthropologie Group. The same, however, dropped 9% at Urban Outfitters.
An Insight Into Margins
In the quarter under review, gross profit fell 13.9% from the same-quarter level of fiscal 2022 to $374.6 million. However, gross margin contracted 595 basis points (bps) to 31.7%, mainly due to increased markdowns at all the brands. Higher carrier fuel surcharges caused a deleveraged delivery expense.
Selling, general and administrative (SG&A) expenses shot up 7.2% from the second-quarter fiscal 2022 level to $288.7 million. As a percentage of net sales, SG&A deleveraged 113 bps to 24.4%, mainly related to store payroll costs due to increased store associate hours to aid customer traffic and elevated average wages.
This currently Zacks Rank #4 (Sell) player recorded an operating income of $85.8 million, down from $165.9 million recorded in second-quarter fiscal 2022. As a rate of sales, the operating margin decreased 700 bps to 7.3% from the level registered in the quarter ended Jul 31 in fiscal 2022.
Store Update
In the first half of fiscal 2023, URBN inaugurated 16 retail outlets, such as two Urban Outfitters, 11 Free People (including six FP Movement stores), two Anthropologie stores and one Menus & Venues restaurant. URBN shuttered four retail locations, including two Urban Outfitters, and one each of 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 Jul 31, 2022, URBN operated 261 Urban Outfitters shops in the United States, Canada and Europe; 239 Anthropologie Group stores in the United States, Canada and Europe; 183 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 37 stores (comprising 12 new FP Movement stores) and close 15 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 $91.7 million and a total shareholders’ equity of $1,707.2 million. As of Jul 31, 2022, total inventory increased 44.4% from the second-quarter fiscal 2022 level to $134.1 million.
URBN used net cash of $31.7 million from operating activities during the six months ended Jul 31. For fiscal 2023, management projects capital expenditures of nearly $225 million.
Urban Outfitters repurchased and subsequently retired 4.7 million shares for nearly $112 million during the reported quarter. As of Jul 31, 2022, URBN had 19.2 million shares remaining under its share repurchase programs.
Outlook
Management anticipated comp sales growth trends in the ongoing quarter similar to comp sales in the fiscal second quarter with low single-digit positive Retail segment comps. Depending on the quarter-to-date performance and sales projection, URBN believes that Retail segment comp sales could register low-single-digit growth for the fiscal third quarter. The Retail unit’s growth will be somewhat offset by lower sales than the Wholesale segment’s level. Overall, total sales will rise in the low-single-digit range.
Based on the sales performance and plan, Urban Outfitters believes that gross margin could decline above 400 basis points in the fiscal third quarter. This will be hugely induced by increased markdown rates from last year's low markdown rates at all brands and higher inventory levels this year.
Moreover, SG&A growth for the current quarter will rise in the high-single digits due to elevated store labor costs and customer marketing acquisition costs. This will result in a deleveraged SG&A rate from the year-ago reported figure. However, management expects the SG&A rate as a rate of sales to be more in line with the pre-pandemic levels.
3 Top Retail Stocks for You
We highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass (TGLS - Free Report) , Ulta Beauty (ULTA - Free Report) and CVS Health (CVS - Free Report) .
Tecnoglass manufactures and sells architectural glass and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy).
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 28.2% and 47.7%, respectively, from the corresponding year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 24.4%, on average.
Ulta Beauty, a leading beauty retailer in the United States, currently has a Zacks Rank #2 (Buy). ULTA has a trailing four-quarter earnings surprise of 49.8%, on average.
The Zacks Consensus Estimate for Ulta Beauty’s current financial-year sales suggests growth of 10.4% from the corresponding year-ago reported figure. ULTA has an expected EPS growth rate of 10.7% for three-five years.
CVS Health, a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care, currently has a Zacks Rank of 2. CVS has a trailing four-quarter earnings surprise of 6.7%, on average. Shares of CVS have risen 7% in the past three months.
The Zacks Consensus Estimate for CVS Health’s current financial-year sales and earnings per share suggests growth of 6.6% and 1.1%, respectively, from the corresponding year-ago reported numbers. CVS has an expected EPS growth rate of 7.7% for three-five years.