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Urban Outfitters (URBN) Misses on Q1 Earnings & Revenues

Zacks Equity Research

Urban Outfitters Inc.’s URBN earnings missed the Zacks Consensus Estimate for the third straight quarter, when the company reported first-quarter fiscal 2018 results. This lifestyle specialty retail company reported earnings per share of 13 cents that lagged the Zacks Consensus Estimate of 16 cents. Further, the bottom line also declined 48% year over year.

Moreover, the reflection of the company’s dismal results is clearly evident in the bearish run over the past six months. The company’s shares have declined 45.5% in the past six months, underperforming the Zacks categorized Retail-Apparel/Shoe industry’s fall of 23.9%.

The underperformance of the bottom line can be attributed to higher SG&A expenses deleverage (up 3.5%) and higher effective tax rate that hampered earnings by 2 cents.

An Insight into Revenues

We observe that although net sales of $761.2 million came in below the consensus mark of $772 million but were flat year over year. The top line gained from growth in Free People wholesale sales, a jump of $11 million in non-comparable sales including the opening of three net new outlets. However, increase in sales was negatively impacted by 3% fall in URBN retail segment comps. Notably, the company’s revenues missed the estimate for the fourth straight quarter.

Net sales by brands fell 4.7% to $284.8 million at Urban Outfitters and 1% to $311.1 million at Anthropologie Group but increased 10.4% to $186.3 million at Free People. For Food and Beverage net sales came in at $5.8 million compared with $5.1 million in the prior-year quarter.

The company’s net sales declined 1.4% to $690.4 million at the Retail Segment but jumped 13.6% to $62.4 million at the Wholesale Segment.

Comparable retail segment net sales, including the comparable direct-to-consumer channel, were down 3.1% year over year. Comparable retail segment net sales fell 3.1% at Urban Outfitters and 4.4% at Anthropologie Group but increased 1.5 % at the Free People. Comparable Retail segment sales were driven by robust performance of direct-to-consumer channel. However, growth was offset by negative retail store comparable net sales.

Margin Performance

Gross profit for the quarter came in at $239.8 million, down 8.4% from the year-ago quarter, while gross margin contracted 284 basis points (bps) to approximately 31.5% primarily due to deleverage in customer delivery and logistics expense rates along with higher markdowns owing to dismal performance of women’s apparel and accessories product at Anthropologie and Urban Outfitters.

Management anticipates gross margin rate to decline year over year in second-quarter fiscal 2018 on account of rise in delivery and logistic expenses, higher markdowns at and lower initial mark up.

Operating income to $21 million from $50.5 million reported in the year-ago quarter, while operating margin shriveled approximately 380 bps to 2.8% in the quarter.

Store Update

In the reported quarter, the company opened seven new outlets – four Free People stores, one each Anthropologie Group store and Urban Outfitters store. The company shuttered four stores – one Anthropologie Group store, Urban Outfitters store, Free People and Food and Beverage restaurant – in the same time frame. During the period, the company also opened one new Food and Beverage restaurant.

During fiscal 2018, the company plans to open a total of 19 net new outlets, while shutting down eight stores to lease expiration. The company anticipates opening four net new Urban Outfitters stores, including three in Europe and one in North America; four net new Anthropologie stores, including one expanded format store; and 10 net new Free People stores. The food and beverage division has already opened one restaurant.

Urban Outfitters, Inc. Price, Consensus and EPS Surprise

 

Urban Outfitters, Inc. Price, Consensus and EPS Surprise | Urban Outfitters, Inc. Quote

Other Financial Details

The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $252.5 million, marketable securities of $118.5 million and shareholders’ equity of $1,332.7 million. For fiscal 2018, management anticipates capital expenditures of $90 million.

During fiscal 2017, the company bought back 1.3 million shares for approximately $46 million under the 20 million share buyback program announced on Feb 23, 2015. However, no shares were repurchased during first-quarter fiscal 2018. During fiscal 2016, the company repurchased 12.7 million shares for approximately $382 million under the same buyback program. The company still has 6 million shares remaining under its 20 million share repurchase authorization.

Stocks to Consider

Better-ranked stocks in the retail sector include The Children's Place, Inc. PLCE, Burlington Stores, Inc. BURL and Big Lots, Inc. BIG. The Children's Place sports a Zacks Rank #1 (Strong Buy) while Burlington Stores and Big Lots carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Children's Place delivered an average positive earnings surprise of 39% in the trailing four quarters and has a long-term earnings growth rate of 8%.

Burlington Stores delivered an average positive earnings surprise of 26.3% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

Big Lots delivered an average positive earnings surprise of 83.1% in the trailing four quarters and has a long-term earnings growth rate of 13.5%.

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Urban Outfitters, Inc. (URBN): Free Stock Analysis Report
 
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