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Urban Outfitters' Q4 Sales Beat Estimates & Increase Y/Y

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Urban Outfitters, Inc. URBN came out with robust sales for fourth-quarter fiscal 2020. We note that the company’s top line outpaced the Zacks Consensus Estimate in the fiscal fourth quarter, after two successive quarters of revenue miss. Also, the metric improved year over year, thanks to higher comparable Retail segment sales, and impressive performance of Anthropologie Group, Urban Outfitters and Free People brands. Moreover, the company experienced growth at its digital channel. However, top-line growth was somewhat offset by lower sales at the Food and Beverage unit, and Wholesale segment.

Management commented that promotional activity was higher than expected. However, this was required to clean the ending Retail segment inventories across all its brands. As a consequence, the company is well poised to enter the spring season.

Q4 Sales Data

Urban Outfitters reported fourth-quarter net sales of $1,169.6 million, surpassing the Zacks Consensus Estimate of $1,161 million. The metric also increased 3.6% year over year. At Anthropologie Group, net sales were up 5.7% to $491.1 million and the same at Free People grew 3.1% from the prior-year quarter to $215.8 million. At Urban Outfitters, net sales inched up 0.5% from the year-ago period to $449.9 million in the quarter. However, Food and Beverage net sales came in at $6.8 million, down 9.3% from the prior-year quarter. Nuuly, the subscription rental service for women’s clothes, contributed roughly $6 million to net sales.

Segment-wise, Urban Outfitters reported net sales of $1,090.6 million at the Retail Segment and $73.1 million at the Wholesale Segment. Net sales at the Retail Segment grew 4.1%, backed by growth in the digital channel, partly offset by lower retail store sales.

In terms of brands, comparable net sales at the Retail segment jumped 9% at Free People and 6% at Anthropologie Group, while the metric remained flat year over year at Urban Outfitters. However, Wholesale segment sales declined nearly 10% from the year-ago quarter, driven by a 12% drop in Free People.

Store Update

We note that Urban Outfitters has been rational with store openings. Encouragingly, during fiscal 2020, the company opened 26 retail outlets — 10 Free People stores, nine Anthropologie Group stores and seven Urban Outfitters stores. Simultaneously, it shuttered 12 retail locations — five Anthropologie Group stores, four Urban Outfitters stores, one Free People store, and two Food and Beverage restaurants. In the aforementioned period, two franchisee-owned stores were inaugurated — one Anthropologie Group and Urban Outfitters store each.

As of Jan 31, 2020, it operated 248 Urban Outfitters stores in the United States, Canada and Europe; 231 Anthropologie Group stores in the United States, Canada and Europe; 144 Free People stores in the United States, Canada and Europe; 11 Food and Beverage restaurants, 5 Urban Outfitters franchisee-owned stores, one Anthropologie Group franchisee-owned store, and one Free People franchisee-owned store.

Stock Performance

This Philadelphia, PA-based company has been struggling for a while now. Shares of the Zacks Rank #5 (Strong Sell) stock have lost 12.6% against the industry’s 3.9% growth in the past three months. Much of this downside can be attributed to management’s commentary about weaker-than-expected gross profit margin in the fiscal fourth quarter, during its holiday sales announcement last month.

It further added that Anthropologie and Urban Outfitters businesses were driven by higher promotional activity in apparel, which is likely to hurt gross margin more than originally envisioned. The company had earlier guided gross margin contraction of roughly 200 basis points in the quarter due to increase in markdown rates; higher logistics and labor expenses; lower margins in the wholesale segment; and the launch of Nuuly - a monthly rental subscription service for women's apparel.

Nevertheless, the aforementioned impressive sales numbers for the fiscal fourth quarter and its strong positioning for the spring season might provide some cushion to the stock.

Key Picks in Retail

Chico's FAS, Inc. CHS has an impressive long-term earnings growth rate of 15% and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez ZUMZ, also a Zacks Rank #1 stock, has an expected long-term earnings growth rate of 12%.

Costco Wholesale COST has an expected long-term earnings growth rate of 8.1% and carries a Zacks Rank of 2 (Buy).

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