Urban Outfitters (URBN) Q4 Earnings Meet, Sales Improve Y/Y
Urban Outfitters, Inc. URBN reported mixed results for fourth-quarter fiscal 2023, wherein the top line beat the Zacks Consensus Estimate, while the bottom line met the same.
Also, earnings declined from the prior fiscal year’s quarterly level, while sales grew from the year-ago fiscal quarter’s tally.
Shares of this Zacks Rank #2 (Buy) player have increased 31% in the past six months compared with the industry’s 12.2% growth.
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This lifestyle-specialty retailer delivered earnings per share of 34 cents. Earnings per share, adjusted for store impairment costs of $5.5 million, came in at 39 cents and matched the Zacks Consensus Estimate. The bottom line decreased 4.9% from 41 cents per share recorded in the comparable quarter of the prior fiscal year.
Net sales for the three months ending Jan 31, fiscal 2023, rose 3.9% from the same-period level of fiscal 2022 to $1,384.6 million. The metric beat the Zacks Consensus Estimate of $1,365 million.
Brandwise, net sales were down 10.3% from the comparable period’s level in fiscal 2022 to $425.6 million at Urban Outfitters. The metric was up 7.9% to $602.9 million at Anthropologie Group and 10.9% to $306.2 million at Free People.
Nuuly, the subscription-based rental service for women’s clothes, contributed $42.7 million to net sales, reflecting an increase from $17.3 million recorded in the earlier fiscal year’s comparable period, backed by a 149% rise in the company’s subscribers. Menus & Venues’ net sales amounted to $7.2 million, up 28.6% from the level recorded in the prior fiscal year’s corresponding period.
Segmentwise, net sales at the Retail unit rose 2% to $1,289.2 million, while the metric at the Wholesale unit dipped 7% to $52.6 million. Wholesale unit sales were driven by a 13% decline in Free People Group wholesale sales on lower sales to department stores somewhat offset by growth in specialty and close-out account partners, while Urban Outfitters’ wholesale sales grew by $3 million.
We note that the comparable Retail segment’s net sales grew 3% from the same-period level of fiscal 2022 backed by a mid-single-digit increase in retail-store sales and a low single-digit rise in digital channel sales. This was partly offset by a 1% adverse impact of foreign currency fluctuations. By brand, the comparable Retail segment’s net sales jumped 15% at the Free People Group and 9% at the Anthropologie Group. The same, however, dropped 10% at Urban Outfitters.
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An Insight Into Margins
In the quarter under review, gross profit rose 1.4% from the same-quarter level of fiscal 2022 to $372.3 million. However, the gross margin contracted 68 basis points (bps) to 26.9%, mainly due to store impairment charges of $5.5 million, or 39 bps, in the reported quarter.
Retail segment merchandise margins were marginally lower as higher initial merchandise markups were offset by increased markdowns at the Urban Outfitters and Free People Group brands. Also, the lower gross margin in the Wholesale segment further contributed to the overall gross margin decrease. Nonetheless, the Nuuly segment’s gross margin grew on operating leverage from the sharp rise in subscribers.
Selling, general and administrative (SG&A) expenses shot up 6.7% from the fourth-quarter fiscal 2022 level to $335.1 million. As a percentage of net sales, SG&A deleveraged 63 bps to 24.2%, mainly due to higher marketing expenses to boost sales and customer growth, and severance expenses.
URBN recorded an operating income of $37.3 million, down from $53.3 million in fourth-quarter fiscal 2023. As a rate of sales, the operating margin decreased 130 bps to 2.7% from the level registered in the quarter ending Jan 31 in fiscal 2022.
In fiscal 2023, the company inaugurated 33 retail outlets, such as seven Urban Outfitters, 19 Free People (including 11 FP Movement stores), six Anthropologie stores and one Menus & Venues restaurant. URBN shuttered 15 retail locations, including five Urban Outfitters, six Anthropologie Group and four Free People Group stores. In the aforementioned period, five franchisee-owned stores were opened, comprising four Urban Outfitters outlets and one Anthropologie Group store.
As of Jan 31, 2023, URBN operated 263 Urban Outfitters stores in the United States, Canada and Europe; 238 Anthropologie Group stores in the United States, Canada and Europe; 188 Free People stores (including 31 FP Movement stores) in the United States, Canada and Europe; 11 Menus & Venues restaurants; six Urban Outfitters franchisee-owned stores and two Anthropologie Group franchisee-owned stores.
In fiscal 2024, management plans to open about 35 stores (comprising 10 new FP Movement stores) and close nearly 16 outlets.
Other Financial Details
Urban Outfitters ended the quarter with cash and cash equivalents of $201.3 million and a total shareholders’ equity of $1,792.7 million. As of Jan 31, 2023, total inventory rose 3.1% from the fourth-quarter fiscal 2022 level to $587.5 million. Total Retail segment inventory jumped 4% while Wholesale segment inventory slipped 7%.
URBN provided net cash of $142.7 million from operating activities during the twelve-month period ending Jan 31. For fiscal 2024, management projects capital expenditures of nearly $230 million.
Urban Outfitters repurchased and subsequently retired 4.7 million shares for nearly $112 million during fiscal 2023. As of Jan 31, 2023, URBN had 19.2 million shares remaining under its share repurchase programs.
Management highlighted that the overall consumer demand has been sturdy at the start of the first quarter of fiscal 2024 and is likely to continue throughout the quarter.
First- quarter total sales growth is likely to be similar to the fourth quarter of fiscal 2023. This increase is to be backed by the doubling of Nuuly segment sales and Retail segment comp sales rising low-single digits, somewhat offset by lower sales across the Wholesale segment. Foreign exchange is likely to hurt sales by roughly 100 bps.
Based on the current sales plan, Urban Outfitters believes gross margin to increase nearly 100 bps year over year for the first quarter. For fiscal 2024, management anticipated the gross margin to increase more than 200 bps on increased initial product margins and lower markdowns. Growth in SG&A is likely to exceed sales growth for the quarter and year. Management further stated that the delta between SG&A and sales growth rate will be larger in the first half and the second half.
Growth in SG&A is due to higher marketing expenses to aid growth in customers and sales, and increase in the overall payroll on lower vacancy rates, elevated payroll rates and anticipated higher incentive pay.
Three Stocks Hogging Limelight
We highlighted three top-ranked stocks, namely Abercrombie & Fitch ANF, American Eagle Outfitters AEO and Boot Barn BOOT.
Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and EPS suggests growth of 0.5% and 526.3%, respectively, from the year-ago reported figures. ANF delivered an earnings surprise of 107.7% in the last reported quarter.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently sports a Zacks Rank of 1. AEO delivered an earnings surprise of 82.6% in the last reported quarter.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year sales and EPS suggests growth of 3.3% and 24.2%, respectively, from the year-ago reported figures.
Boot Barn, a fashion retailer of apparel and accessories, currently carries a Zacks Rank of 2. The company has a trailing four-quarter earnings surprise of 8.7%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and EPS suggests growth of 8.2% and 9.1%, respectively, from the year-ago reported figures.
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