Urban Outfitters Inc. URBN delivered better-than-expected results for the sixth straight quarter, when it reported third-quarter fiscal 2019 financial numbers. Notably, this lifestyle specialty retail company posted earnings of 70 cents a share that surpassed the Zacks Consensus Estimate of 63 cents and improved sharply from 41 cents in the year-ago period.
Analysts hinted that sturdy sales performance, margin expansion, and a lower tax rate favorably impacted the bottom line. Meanwhile, shares of this Zacks Rank #3 (Hold) company jumped roughly 5% during the after-market trading session on Nov 19. We note that the stock has surged 23% in a year compared with the industry’s growth of 7%.
An Insight into Revenues
In the reported quarter, net sales of $973.5 million outpaced the Zacks Consensus Estimate of $968 million and were up 9% year over year. The company witnessed decent performance at its Urban Outfitters, Anthropologie Group and Free People brands. Sales at Food and Beverage segment increased in double-digits.
At Urban Outfitters, net sales were up 7.2% to $379.2 million, while the same at Anthropologie Group improved 9.4% to $385 million. At Free People, the metric increased 12% to $202.2 million. Meanwhile, Food and Beverage net sales came in at $7.1 million, up 14.5% from the prior-year quarter.
Urban Outfitters, Inc. Price, Consensus and EPS Surprise
Urban Outfitters, Inc. Price, Consensus and EPS Surprise | Urban Outfitters, Inc. Quote
The company’s net sales surged 8.7% to $878.9 million at the Retail Segment and 12.4% to $94.7 million at the Wholesale Segment. The increase in Wholesale Segment net sales can be attributed to sales increase at Free People, Anthropologie Home business and Urban Outfitters’ BDG brand.
Comparable Retail Segment net sales jumped 8% buoyed by double-digit growth in the digital channel and increased retail store sales. Meanwhile, comparable Retail Segment net sales rose 12% at Free People, 8% at the Anthropologie Group and 7% at Urban Outfitters. This was the fifth successive quarter when each of the company’s brand reported positive comparable Retail Segment net sales.
In the quarter under review, gross profit came in at $337.7 million, up 13.4% from the year-ago quarter. Gross margin expanded 134 basis points to approximately 34.7%, primarily due to lower markdowns across all three brands and leverage in store occupancy expenses.
SG&A expenses increased 7.3% to $241.3 million on account of rise in direct selling and marketing expenses and increase in bonus and share-based compensation expense. As a percentage of net sales, SG&A expenses contracted 40 basis points to 24.8%.
Operating income came in at $96.4 million, up substantially from $72.9 million reported in the year-ago quarter, while operating margin increased 174 basis points to 9.9%.
During the nine months ended on Oct 31, the company opened 14 new locations — four Anthropologie Group stores, four Urban Outfitters stores, three Free People stores and three Food and Beverage restaurants. It shuttered four locations — two Anthropologie Group stores and one each Urban Outfitters and Free People stores. During the said period, three franchisee-owned Urban Outfitters outlets were opened.
During the reported quarter, the company opened seven new locations — two Urban Outfitters stores, two Anthropologie stores and three food and beverage locations. The company shuttered one each Free People and Anthropologie stores. In the final quarter, the company plans to four new outlets and close eight stores.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $329 million, marketable securities of $237.4 million and shareholders’ equity of $1,460.6 million. Management incurred capital expenditure of $34 million during the quarter. For fiscal 2019, management anticipates capital expenditures of $120 million.
Last year in August, the company’s board of directors authorized a share buyback of 20 million, of which 16.4 million shares were remaining as of Oct 31, 2018. During nine-month period ended on Oct 31, 2018, the company repurchased 1.5 million shares for about $58 million.
Management expects fourth-quarter gross margin rate to improve at a rate equivalent to the improvement attained in the third quarter. This can be attributed to increased initial mark-ups, reduced merchandise markdowns and leverage in store occupancy expense. SG&A expenses are likely to increase by approximately 5% during the final quarter due to rise in digital-marketing investments, higher incentive-based compensation and increased store payroll.
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