Urban Outfitters (URBN) Up 4% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Urban Outfitters (URBN). Shares have added about 4% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.
Urban Outfitters Q4 Earnings Miss, Sales Improve Y/Y
Urban Outfitters reported results for fourth-quarter fiscal 2024, wherein the bottom line missed the Zacks Consensus Estimate but improved from the prior fiscal year’s quarterly levels.
Deeper Insight
This lifestyle-specialty retailer delivered adjusted earnings per share of 69 cents, lagging the Zacks Consensus Estimate of 73 cents. However, the bottom line increased 81.6% from the comparable quarter of the prior fiscal year. On a reported basis, the company posted earnings of 50 cents a share.
Net sales on an adjusted basis for the three months ending Jan 31, 2024, rose 8% from the same-period level of last fiscal to $1.50 million. On a reported basis, the company posted sales of $1.49 billion. The consensus estimate is pegged at $1.49 million.
Brandwise, adjusted net sales were down 12.5% from the comparable period’s level in fiscal 2023 to $372.6 million at Urban Outfitters. The metric was up 12.7% to $679.5 million at Anthropologie Group and 18.3% to $362.3 million at Free People. Nuuly, the subscription-based rental service for women’s clothes, contributed $72.2 million to net sales, reflecting an increase of 69.1% from the earlier fiscal year’s comparable period, backed by a 56% rise in the company’s average active subscribers. Menus & Venues’ net sales amounted to $8.8 million, up 22.2% from the level recorded in the prior fiscal year’s corresponding period.
Segmentwise, adjusted net sales at the Retail unit rose 6.2% to $1.37 billion, while the metric at the Wholesale unit grew 3.3% to $54.4 million. The Wholesale unit’s sales were driven by a 7.8% rise in Free People Group wholesale sales on increased sales to department stores, partly offset by lower wholesale sales at Urban Outfitters. We note that the comparable Retail segment’s net sales grew 4.9% from the same-period level of fiscal 2023 backed by high single-digit growth in digital channel sales and low single-digit increase in retail-store sales.
By brand, the comparable Retail segment’s net sales jumped 18.9% at the Free People Group and 12% at the Anthropologie Group. The same, however, dropped 13.6% at Urban Outfitters.
Insight Into Margins
In the quarter under review, adjusted gross profit rose 19.6% from the same-quarter level of fiscal 2023 to $451.8 million. Also, the adjusted gross margin expanded 293 basis points (bps) to 30.2%, mainly owing to increased initial merchandise markups on reduced inbound transportation costs.
Selling, general and administrative (SG&A) expenses were up 10.6% from the fourth-quarter fiscal 2023 level to $345.4 million. As a percentage of net sales, SG&A deleveraged 73 bps to 24.8%, mainly due to increased incentive-based compensation costs, and elevated marketing and creative expenses.
URBN recorded an adjusted operating income of $81.3 million, up from $42.7 million in fourth-quarter fiscal 2023. As a rate of sales, the adjusted operating margin increased 230 bps to 5.4% from the level registered in the quarter ending Jan 31, 2024.
Store Update
In fiscal 2024, the company inaugurated 26 outlets, including 11 Free People (comprising seven FP Movement stores), seven Urban Outfitters, seven Anthropologie Group and one Menus & Venues restaurant. URBN closed 20 retail locations, including eight Urban Outfitters, eight Anthropologie Group, one Free People Group and three Menus & Venues restaurants. In the aforementioned period, one Urban Outfitters franchisee-owned store was opened. As of Jan 31, 2024, URBN operated 262 Urban Outfitters stores in the United States, Canada and Europe; 237 Anthropologie Group stores in the United States, Canada and Europe; 198 Free People stores (including 38 FP Movement stores) in the United States, Canada and Europe; nine Menus & Venues restaurants; seven Urban Outfitters franchisee-owned stores and two Anthropologie Group franchisee-owned stores.
Other Financial Details
Urban Outfitters ended the quarter with cash and cash equivalents of $178.3 million and a total shareholders’ equity of $2.11 bllion. As of Jan 31, 2024, total inventory fell 6.3% from the same period in fiscal 2023. Total Retail segment inventory decreased 4.6% with Retail segment comparable inventory declining 1.9%. Wholesale segment inventory tumbled 22% on improved inventory control. URBN provided net cash of $509.4 million from operating activities during the twelve-month period ending Jan 31, 2024. During fiscal 2024, the company repurchased and subsequently retired 4.7 million common shares for about $112 million. As of Jan 31, 2024, 19.2 million common shares were available under the program.
Roadmap Ahead
Urban Outfitters outlined a robust strategy for fiscal 2025 aimed at driving growth and profitability across its brands. Starting with the first quarter, the company anticipates low-single-digit comps for both the quarter and the full year, primarily driven by positive comps at Anthropologie and Free People, along with significant revenue growth at Nuuly. It expects the Urban Outfitters brand’s comps to mirror those of the fourth quarter, gradually improving throughout the year. Total company sales growth for the first quarter is projected to be in the mid-single digits, with mid-double-digit growth in Nuuly segment sales. Regarding gross profit margins, Urban Outfitters anticipates an improvement of 25 basis points from the first quarter of fiscal 2024. This increase is mainly attributed to higher initial product margins resulting from cross-functional initiatives.
Looking at fiscal 2025, Urban Outfitters expects gross profit margin improvement of 50-100 basis points from that reported in fiscal 2024, driven by higher initial product margins across all brands and reduced markdowns at Urban Outfitters due to better inventory management in the latter half of the year. In terms of inventory management, the company aims to increase product turns by bringing products closer to demand. As a result, it anticipates inventory levels to grow at a rate below sales growth. Regarding capital expenditure, Urban Outfitters underspent in fiscal 2024 due to the timing of project cash flows, which have now shifted into fiscal 2025. For fiscal 2025, capital expenditure is planned at $210 million, with a significant portion allocated to retail store expansion and IT, home office and logistics capacity investments, including the Nuuly rental fulfillment center in Missouri.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -18.73% due to these changes.
VGM Scores
Currently, Urban Outfitters has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Urban Outfitters has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Urban Outfitters, Inc. (URBN) : Free Stock Analysis Report
