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Urban Outfitters, Inc. (URBN - Free Report) reported solid results for second-quarter fiscal 2024, wherein the top and bottom lines beat the Zacks Consensus Estimate and improved from the prior fiscal year’s quarterly levels.
Shares of this Philadelphia, PA-based player have increased 26.9% in the past six months against the industry’s 9.8% fall.
Deeper Insight
This lifestyle-specialty retailer delivered earnings per share of $1.10, outpacing the Zacks Consensus Estimate of 89 cents. The bottom line increased from earnings of 64 cents per share recorded in the comparable quarter of the prior fiscal year.
Net sales for the three months ending Jul 31, 2023, rose 7.5% from the same-period level of last fiscal to $1,272.2 million. The metric beat the consensus estimate of $1,249 million.
Brandwise, net sales were down 12.6% from the comparable period’s level in fiscal 2023 to $346.4 million at Urban Outfitters. The metric was up 10.6% to $530.1 million at Anthropologie Group and 22% to $331.2 million at Free People. Nuuly, the subscription-based rental service for women’s clothes, contributed $55.8 million to net sales, reflecting an increase from $28.8 million recorded in the earlier fiscal year’s comparable period, backed by an 85% rise in the company’s subscribers. Menus & Venues’ net sales amounted to $8.7 million, up 16% from the level recorded in the prior fiscal year’s corresponding period.
Urban Outfitters, Inc. Price, Consensus and EPS Surprise
Segmentwise, net sales at the Retail unit rose 5.9% to $1,160.1 million, while the metric at the Wholesale unit dipped 5.2% to $56.3 million. Wholesale unit’s sales were driven by a 6.5% decline in Free People Group wholesale sales on lower sales to department stores, while Urban Outfitters wholesale sales grew by $0.5 million. We note that the comparable Retail segment’s net sales grew 4.9% from the same-period level of fiscal 2023 backed by mid-single-digit increase in retail-store sales and digital channel sales.
This was partly offset by the 1% adverse impact of foreign currency fluctuations. By brand, the comparable Retail segment’s net sales jumped 26.9% at the Free People Group and 10.6% at the Anthropologie Group. The same, however, dropped 14.1% at Urban Outfitters.
An Insight Into Margins
In the quarter under review, gross profit rose 21.6% from the same-quarter level of fiscal 2023 to $455.6 million. Also, the gross margin expanded 416 basis points (bps) to 35.8%, mainly owing to increased initial merchandise markups on reduced inbound transportation costs and lower merchandise markdowns across all the Retail segment brands.
Selling, general and administrative (SG&A) expenses rose 12% from the second-quarter fiscal 2023 level to $323.5 million. As a percentage of net sales, SG&A deleveraged 103 bps to 25.4%, mainly due to increased incentive-based compensation costs.
URBN recorded an operating income of $132.1 million, up from $85.8 million in second-quarter fiscal 2023. As a rate of sales, the operating margin increased 310 bps to 10.4% from the level registered in the quarter ending Jul 31 in fiscal 2023.
Store Update
In first-half fiscal 2024, this currently Zacks Rank #2 (Buy) player inaugurated 16 outlets, including nine Free People (including five FP Movement stores), four Urban Outfitters, two Anthropologie Group and one Menus & Venues restaurant. URBN shut down eight retail locations, including three Urban Outfitters, three Anthropologie Group, one Free People Group and one Menus & Venues restaurant. In the aforementioned period, one Urban Outfitters franchisee-owned store was opened.
As of Jul 31, 2023, URBN operated 264 Urban Outfitters stores in the United States, Canada and Europe; 237 Anthropologie Group stores in the United States, Canada and Europe; 196 Free People stores (including 36 FP Movement stores) in the United States, Canada and Europe; 11 Menus & Venues restaurants; seven Urban Outfitters franchisee-owned stores and two Anthropologie Group franchisee-owned stores.
In fiscal 2024, management plans to open about 28 stores and shut 21 outlets.
Other Financial Details
Urban Outfitters ended the quarter with cash and cash equivalents of $224.7 million and a total shareholders’ equity of $1,967.4 million. As of Jul 31, 2023, total inventory fell 15.9% from the same period in fiscal 2023. Total Retail segment’s inventory slipped 14.1% while Wholesale segment inventory tumbled 31.6%.
URBN provided net cash of $211.2 million from operating activities during the six-month period ending Jul 31.
Urban Outfitters did not repurchase any shares during the first half. As of Jul 31, 2023, URBN had 19.2 million shares remaining under its share repurchase programs.
Outlook
Management is pleased with the sturdy overall consumer demand at the start of the fiscal third quarter. This is likely to continue throughout the quarter. The third-quarter total company sales growth will be in the high-single digits, driven by mid-single-digit increase in Retail segment comp sales and high-double-digit growth in Nuuly. This is expected to be partly offset by lower sales in the Wholesale unit.
Management anticipates the gross margin for the quarter to improve more than 400 bps year over year, backed by increased initial product margins from reduced inbound freight costs and merchandise markdowns. Based on the existing sales performance and plan, SG&A expenses will increase in the low-double digits on elevated overall payroll from expected higher incentive pay from improved company performance, lower vacancy rates and increased payroll rates. Also, higher marketing expenses are expected to boost incremental customer growth at Free People and Anthropologie, resulting in SG&A rate deleverage.
Capital expenditures for the fiscal year are anticipated to be approximately $230 million, mainly related to the investments in additional distribution facilities.
Other Solid Picks in Retail
We have highlighted three other top-ranked stocks, namely Abercrombie & Fitch (ANF - Free Report) , Boot Barn (BOOT - Free Report) and American Eagle Outfitters (AEO - Free Report) .
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings per share (EPS) suggests growth of 3.4% and 736%, respectively, from the year-ago reported figures. ANF has delivered an earnings surprise of 480.6% in the last four quarters.
Boot Barn, a fashion retailer of apparel and accessories, currently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 13.5%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales suggests growth of 5.1% from the year-ago reported figure.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank of 2. AEO has delivered an average earnings surprise of 9.2% in the last four quarters.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year EPS suggests growth of 7.2% from the year-ago reported figure.
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Urban Outfitters (URBN) Q2 Earnings Beat, Sales Improve Y/Y
Urban Outfitters, Inc. (URBN - Free Report) reported solid results for second-quarter fiscal 2024, wherein the top and bottom lines beat the Zacks Consensus Estimate and improved from the prior fiscal year’s quarterly levels.
Shares of this Philadelphia, PA-based player have increased 26.9% in the past six months against the industry’s 9.8% fall.
Deeper Insight
This lifestyle-specialty retailer delivered earnings per share of $1.10, outpacing the Zacks Consensus Estimate of 89 cents. The bottom line increased from earnings of 64 cents per share recorded in the comparable quarter of the prior fiscal year.
Net sales for the three months ending Jul 31, 2023, rose 7.5% from the same-period level of last fiscal to $1,272.2 million. The metric beat the consensus estimate of $1,249 million.
Brandwise, net sales were down 12.6% from the comparable period’s level in fiscal 2023 to $346.4 million at Urban Outfitters. The metric was up 10.6% to $530.1 million at Anthropologie Group and 22% to $331.2 million at Free People. Nuuly, the subscription-based rental service for women’s clothes, contributed $55.8 million to net sales, reflecting an increase from $28.8 million recorded in the earlier fiscal year’s comparable period, backed by an 85% rise in the company’s subscribers. Menus & Venues’ net sales amounted to $8.7 million, up 16% from the level recorded in the prior fiscal year’s corresponding period.
Urban Outfitters, Inc. Price, Consensus and EPS Surprise
Urban Outfitters, Inc. price-consensus-eps-surprise-chart | Urban Outfitters, Inc. Quote
Segmentwise, net sales at the Retail unit rose 5.9% to $1,160.1 million, while the metric at the Wholesale unit dipped 5.2% to $56.3 million. Wholesale unit’s sales were driven by a 6.5% decline in Free People Group wholesale sales on lower sales to department stores, while Urban Outfitters wholesale sales grew by $0.5 million. We note that the comparable Retail segment’s net sales grew 4.9% from the same-period level of fiscal 2023 backed by mid-single-digit increase in retail-store sales and digital channel sales.
This was partly offset by the 1% adverse impact of foreign currency fluctuations. By brand, the comparable Retail segment’s net sales jumped 26.9% at the Free People Group and 10.6% at the Anthropologie Group. The same, however, dropped 14.1% at Urban Outfitters.
An Insight Into Margins
In the quarter under review, gross profit rose 21.6% from the same-quarter level of fiscal 2023 to $455.6 million. Also, the gross margin expanded 416 basis points (bps) to 35.8%, mainly owing to increased initial merchandise markups on reduced inbound transportation costs and lower merchandise markdowns across all the Retail segment brands.
Selling, general and administrative (SG&A) expenses rose 12% from the second-quarter fiscal 2023 level to $323.5 million. As a percentage of net sales, SG&A deleveraged 103 bps to 25.4%, mainly due to increased incentive-based compensation costs.
URBN recorded an operating income of $132.1 million, up from $85.8 million in second-quarter fiscal 2023. As a rate of sales, the operating margin increased 310 bps to 10.4% from the level registered in the quarter ending Jul 31 in fiscal 2023.
Store Update
In first-half fiscal 2024, this currently Zacks Rank #2 (Buy) player inaugurated 16 outlets, including nine Free People (including five FP Movement stores), four Urban Outfitters, two Anthropologie Group and one Menus & Venues restaurant. URBN shut down eight retail locations, including three Urban Outfitters, three Anthropologie Group, one Free People Group and one Menus & Venues restaurant. In the aforementioned period, one Urban Outfitters franchisee-owned store was opened.
As of Jul 31, 2023, URBN operated 264 Urban Outfitters stores in the United States, Canada and Europe; 237 Anthropologie Group stores in the United States, Canada and Europe; 196 Free People stores (including 36 FP Movement stores) in the United States, Canada and Europe; 11 Menus & Venues restaurants; seven Urban Outfitters franchisee-owned stores and two Anthropologie Group franchisee-owned stores.
In fiscal 2024, management plans to open about 28 stores and shut 21 outlets.
Other Financial Details
Urban Outfitters ended the quarter with cash and cash equivalents of $224.7 million and a total shareholders’ equity of $1,967.4 million. As of Jul 31, 2023, total inventory fell 15.9% from the same period in fiscal 2023. Total Retail segment’s inventory slipped 14.1% while Wholesale segment inventory tumbled 31.6%.
URBN provided net cash of $211.2 million from operating activities during the six-month period ending Jul 31.
Urban Outfitters did not repurchase any shares during the first half. As of Jul 31, 2023, URBN had 19.2 million shares remaining under its share repurchase programs.
Outlook
Management is pleased with the sturdy overall consumer demand at the start of the fiscal third quarter. This is likely to continue throughout the quarter. The third-quarter total company sales growth will be in the high-single digits, driven by mid-single-digit increase in Retail segment comp sales and high-double-digit growth in Nuuly. This is expected to be partly offset by lower sales in the Wholesale unit.
Management anticipates the gross margin for the quarter to improve more than 400 bps year over year, backed by increased initial product margins from reduced inbound freight costs and merchandise markdowns. Based on the existing sales performance and plan, SG&A expenses will increase in the low-double digits on elevated overall payroll from expected higher incentive pay from improved company performance, lower vacancy rates and increased payroll rates. Also, higher marketing expenses are expected to boost incremental customer growth at Free People and Anthropologie, resulting in SG&A rate deleverage.
Capital expenditures for the fiscal year are anticipated to be approximately $230 million, mainly related to the investments in additional distribution facilities.
Other Solid Picks in Retail
We have highlighted three other top-ranked stocks, namely Abercrombie & Fitch (ANF - Free Report) , Boot Barn (BOOT - Free Report) and American Eagle Outfitters (AEO - Free Report) .
Abercrombie & Fitch, a leading casual apparel retailer, 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 Abercrombie & Fitch’s current financial-year sales and earnings per share (EPS) suggests growth of 3.4% and 736%, respectively, from the year-ago reported figures. ANF has delivered an earnings surprise of 480.6% in the last four quarters.
Boot Barn, a fashion retailer of apparel and accessories, currently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 13.5%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales suggests growth of 5.1% from the year-ago reported figure.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank of 2. AEO has delivered an average earnings surprise of 9.2% in the last four quarters.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year EPS suggests growth of 7.2% from the year-ago reported figure.