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Urban Outfitters' Earnings Beat, Sales Miss

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Sturdy performance across Anthropologie and Free People brands facilitated Urban Outfitters Inc. (URBN) to post better-than-expected fourth-quarter fiscal 2014results. The quarterly earnings of 59 cents a share beat the Zacks Consensus Estimate of 55 cents and rose 5.4% year over year.  

Revenue Insight

Total net sales of Urban Outfitters climbed 5.7% to $905.9 million during the quarter, reflecting healthy comparable-store sales performance coupled with sturdy sales through new store openings and double-digit growth at its wholesale operations. However, total revenue of this Zacks Rank #3 (Hold) stock fell short of the Zacks Consensus Estimate of $911 million.

Sales were affected due to sluggish performance of the Urban Outfitters brand attributable to adverse weather conditions and weak product execution. Moreover, management hinted that the headwinds faced by the Urban Outfitters brand may impact the performance in the first quarter of fiscal 2015. As a result, shares dropped 2.7% during the after-market trading session yesterday.

Urban Outfitters’ net sales increased 4.9% to $858 million at the Retail Segment and 23.7% to $47.9 million at the Wholesale Segment. Net sales by brands fell 4.2% to $398 million at Urban Outfitters but jumped 11.7% to $374 million at Anthropologie and 25.7% to $122.9 million at Free People. Other revenue surged 24.9% to $11 million.

Comparable retail segment net sales, including the comparable direct-to-consumer channel, inched up 1%.

Comparable retail segment net sales rose by 20% and 10% at Free People and Anthropologie, respectively, while it declined 9% at Urban Outfitters.

Margin Performance

Gross profit for the quarter rose 5.8% to $332 million, whereas gross margin expanded 4 basis points to 36.7%, reflecting better merchandise margins, partly offset by higher merchandise markdowns at the Urban Outfitters brand.

Operating income tumbled 2.1% to $129.1 million, while operating margin contracted approximately 115 basis points to 14.3%.  

Stores Update

During fiscal 2014, the company opened 38 new outlets, including 16 Urban Outfitters stores, 13 Free People stores and 9 Anthropologie stores, and shuttered 1 Urban Outfitters store and 2 Anthropologie outlets on account of expiration of lease.

Management plans to open approximately 38 net new outlets in fiscal 2015, comprising 13 Urban Outfitter stores worldwide, including three new European stores; 13 Anthropology stores globally, including three new European stores; and 12 Free People stores in North America.

Other Financial Aspects

Urban Outfitters ended the quarter with cash and cash equivalents of $242.1 million, marketable securities of $281.8 million and shareholders’ equity of $1,694.2 million. Management expects capital expenditures in the range of $215 million to $235 million for fiscal 2014.

Other Stocks to Consider

Until any further upgrade in Urban Outfitters’ Zacks Rank, other well performing stocks in the retail sector include Hanesbrands Inc. (HBI) and Michael Kors Holdings Limited (KORS) both carrying a Zacks Rank #1 (Strong Buy), while G-III Apparel Group, Ltd. (GIII) has a Zacks Rank #2 (Buy).

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