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Urban Outfitters (URBN) Q1 Earnings & Sales Beat, Rise Y/Y

·6 min read

Urban Outfitters Inc. URBN reported sturdy first-quarter fiscal 2022 results wherein the top and the bottom line outshone the Zacks Consensus Estimate and also improved on a year-over-year basis. We note that sales across the company’s all brands and segments grew year over year.

This lifestyle-specialty retail company delivered earnings per share of 54 cents that not only beat the Zacks Consensus Estimate of 16 cents but also rebounded from the year-ago quarter’s loss of $1.41. Moreover, the bottom line improved 74.2% from 31 cents per share reported in the quarter ended Apr 30, 2019.

In the reported quarter, net sales of $927.4 million soared 57.6% year over year and also surpassed the Zacks Consensus Estimate of $898 million. Also, the metric grew 7.3% from the figure reported in the quarter ended Apr 30, 2019. Brandwise, net sales were up 47.4% year over year to $349.7 million at Urban Outfitters, 51% to $353.6 million at Anthropologie Group and 97.6% to $212.8 million at Free People. Again, Menus & Venues net sales amounted to $3.6 million, up 12.5% from the prior-year quarter. Markedly, Nuuly, the subscription-based rental service for women’s clothes, contributed $7.8 million to net sales, reflecting an increase 23.8% from the year-ago period.

Urban Outfitters, Inc. Price, Consensus and EPS Surprise

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

Urban Outfitters, Inc. price-consensus-eps-surprise-chart | Urban Outfitters, Inc. Quote

Deeper Insight

Segmentwise, Urban Outfitters’ net sales at the Retail Segment surged 53% to $857.5 million, while the same at the Wholesale Segment skyrocketed 196% to $62.1 million. Comparable Retail segment net sales rose 51% on account of double-digit growth in both retail store and digital channel sales. By brand, the comparable Retail segment net sales jumped 77% at the Free People Group, 50% at the Anthropologie Group and 42% at Urban Outfitters.

We note that sturdy consumer demand across majority of the product categories along with solid execution boosted the retail segment comps at all brands. Also, the North American stores experienced a significant improvement as the quarter progressed and witnessed consistent strength in the digital channel. Markedly, the company saw growth in its full-priced selling and the corresponding decline in markdown sales across each brand.

The Free People’s product category showed a robust comp increase, boosted by the FP Movement brand of activewear that registered about 300% sales growth from the fiscal 2020 level. The overall Free People brand delivered triple-digit direct comps that mitigated the negative store comps.

In the quarter under review, gross profit climbed to $300.7 million from $11.8 million reported in the year-ago quarter. Further, gross margin expanded to 32.4% from 2%, primarily due to the adverse COVID-19 store closure impacts on the company’s Retail and the Wholesale segments that were there in the year-earlier quarter.

Meanwhile, selling, general and administrative (SG&A) expenses shot up 7.9% to $227.1 million. However, as a percentage of net sales, the metric fell to 24.5% from 35.8% recorded in the year-earlier quarter. This decline was primarily attributed to leverage in store and field management expense.

Further, this currently Zacks Rank #2 (Buy) company recorded an operating income of $73.5 million against an operating loss of $198.7 million reported in the year-ago quarter.

Store Update

During the first quarter of fiscal 2022, the company opened 12 retail outlets, such as four Urban Outfitters, two Anthropologie Group stores and six Free People Group stores (including one FP Movement store). Meanwhile, it shuttered two Free People Group stores and one Anthropologie Group outlet. In the reported quarter, no franchisee-owned stores were opened or closed.

As of Apr 30, 2021, the company operated 251 Urban Outfitters stores in the United States, Canada and Europe; 238 Anthropologie Group stores in the United States, Canada and Europe; 153 Free People stores in the United States, Canada and Europe; 11 Menus & Venues restaurants and one Urban Outfitters franchisee-owned store.

For fiscal 2022, management plans to open about 54 stores and close 18 outlets.

Other Financial Details

Urban Outfitters ended the quarter with cash and cash equivalents of $364.2 million and total shareholders’ equity of $1,534.5 million. As of Apr 30, 2021, total inventory increased 42.3% year over year to $477.8 million.

Further, the Philadelphia, PA-based company generated net cash of $37.1 million from operating activities during the first quarter of fiscal 2022. For fiscal 2022, management projects capital expenditures worth $250 million, mainly related to expanded distribution and fulfillment capacity to boost digital growth as well as store launches.

Urban Outfitters did not buy back shares in the fiscal first quarter. However, during the last fiscal year, it repurchased and subsequently retired 0.5 million shares for roughly $7 million. As of Apr 30, 2021, the company had 25.9 million shares remaining under these programs.

Outlook

Management expects the fiscal second quarter to continue witnessing a steady sales improvement from the fiscal 2020 reading. It believes that retail segment comp sales will grow in the mid-teens range, driving the overall company sales to the low double-digit range. We note that the Anthropologie brand's positive momentum was maintained in the fiscal second quarter with store traffic and sales exhibiting significant progress. Also, the brand’s retail segment comps for the ongoing quarter are a double-digit positive.

Given the current sales performance and projection, gross profit margins for the period might improve above 100 basis points from the fiscal 2020 actuals. This growth can be mainly driven by lower markdown rates on buoyant consumer demand, a solid product performance and disciplined inventory control. Favorable markdowns are expected to offset lower initial markups weighed on by commodity and freight price increases, and deleveraged delivery and logistics costs owing to higher penetration of the digital channel.

3 More Hot Stocks in Retail

Boot Barn BOOT has a trailing four-quarter earnings surprise of 51.7%, on average, and a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

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