Urban Outfitters (URBN) Down 8.9% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Urban Outfitters (URBN). Shares have lost about 8.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Urban Outfitters due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Urban Outfitters Q2 Earnings Beat, Sales Improve Y/Y
Urban Outfitters 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.
It 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.
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.
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.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 6.28% due to these changes.
VGM Scores
At this time, Urban Outfitters has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Urban Outfitters has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Urban Outfitters is part of the Zacks Retail - Apparel and Shoes industry. Over the past month, The Children's Place (PLCE), a stock from the same industry, has gained 1.4%. The company reported its results for the quarter ended July 2023 more than a month ago.
The Children's Place reported revenues of $345.6 million in the last reported quarter, representing a year-over-year change of -9.3%. EPS of -$2.12 for the same period compares with -$0.89 a year ago.
For the current quarter, The Children's Place is expected to post earnings of $3.56 per share, indicating a change of +6.9% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.2% over the last 30 days.
The Children's Place has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.
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Urban Outfitters, Inc. (URBN) : Free Stock Analysis Report
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