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

Urban Outfitters, Inc. URBN reported better-than-expected results for first-quarter fiscal 2024 wherein the top and the bottom line beat the Zacks Consensus Estimate. Also, sales and earnings grew year over year.

Shares of this Zacks Rank #3 (Hold) player have increased 5.7% in the past six months against the industry’s 16.2% drop.

Deeper Insight

This lifestyle-specialty retailer delivered earnings per share of 56 cents, surpassing the Zacks Consensus Estimate of 36 cents. The bottom line increased 69.7% from 33 cents per share recorded in the prior fiscal year’s comparable quarter.

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

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Net sales for the three months ending Apr 30, fiscal 2024, rose 5.9% from the same-period level of fiscal 2023 to $1,113.7 million. The metric beat the Zacks Consensus Estimate of $1,091 million.

Brandwise, net sales were down 13.7% from the comparable period’s level in fiscal 2023 to $308.7 million at Urban Outfitters. The metric was up 12.8% to $473.6 million at Anthropologie Group and 11.4% to $273.7 million at Free People.

Nuuly, the subscription-based rental service for women’s clothes, contributed $51.5 million to net sales, reflecting an increase from $22.8 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 $6.1 million, up 3.4% from the level recorded in the prior fiscal year’s corresponding period.

Segmentwise, net sales at the Retail unit rose 4% to $1,004.1 million, while the metric at the Wholesale unit dipped 11% to $58.1 million. Wholesale unit’s sales were driven by a 14% decline in Free People Group wholesale sales on lower sales to department stores and specialty customers, while Urban Outfitters wholesale sales grew by $1 million.

We note that the comparable Retail segment’s net sales grew 5% from the same-period level of fiscal 2023 backed by a low-single-digit increase in retail-store sales and a high 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 17% at the Free People Group and 13% at the Anthropologie Group. The same, however, dropped 13% at Urban Outfitters.

An Insight Into Margins

In the quarter under review, gross profit rose 14.8% from the same-quarter level of fiscal 2023 to $371.2 million. Also, the gross margin expanded 260 basis points (bps) to 33.3%, mainly owing to increased initial merchandise markups at all brands on lower inbound transportation costs. The metric also gained from lower merchandise markdowns at the Anthropologie Group and Free People Group brands.

Selling, general and administrative (SG&A) expenses increased 8.2% from the first-quarter fiscal 2023 level to $299.8 million. As a percentage of net sales, SG&A deleveraged 59 bps to 26.9%, mainly due to increased compensation costs.

URBN recorded an operating income of $71.4 million, up from $46.2 million in first-quarter fiscal 2023. As a rate of sales, the operating margin increased 200 bps to 6.4% from the level registered in the quarter ending Apr 30 in fiscal 2023.

Store Update

In first-quarter fiscal 2024, the company inaugurated five Free People (including two FP Movement stores). URBN shut down five retail locations, including three Urban Outfitters, one Anthropologie Group and one Menus & Venues restaurant. In the aforementioned period, one Urban Outfitters franchisee-owned store was opened.

As of Apr 30, 2023, URBN operated 260 Urban Outfitters stores in the United States, Canada and Europe; 237 Anthropologie Group stores in the United States, Canada and Europe; 193 Free People stores (including 33 FP Movement stores) in the United States, Canada and Europe; 10 Menus & Venues restaurants; seven Urban Outfitters franchisee-owned stores and two Anthropologie Group franchisee-owned stores.

In fiscal 2024, management plans to open about 33 stores and close nearly 24 outlets.

Other Financial Details

Urban Outfitters ended the quarter with cash and cash equivalents of $171.7 million and a total shareholders’ equity of $1,850.7 million. As of Apr 30, 2023, total inventory fell 6.3% from the first-quarter fiscal 2023 level to $590.3 million. The Total Retail segment’s inventory slipped 5% while the Wholesale segment‘s inventory tumbled 23%.

URBN provided net cash of $36.3 million from operating activities during the three-month period ending Apr 30. For fiscal 2024, management projects capital expenditures of nearly $230 million.

Urban Outfitters did not repurchase any shares during the fiscal first quarter. As of Apr 30, 2023, URBN had 19.2 million shares remaining under its share repurchase programs.

Outlook

Management is impressed with the sturdy overall consumer demand at the start of the first quarter of 2024. This is likely to continue throughout the second quarter, wherein the total company sales growth will be in the mid-single digits. This growth will be backed by a mid-single-digit increase in the Retail segment’s comp sales and a high double-digit rise in the Nuuly segment’s sales year over year. This growth will be partly offset by lower sales in the Wholesale segment. Currency headwinds are expected to affect total sales growth by about 100 bps.

URBN’s gross margin rate for the second quarter is likely to improve nearly 300 bps year over year, buoyed by increased initial product margins from lower inbound freight costs and reduced merchandise markdowns.

Based on the existing sales plan, SG&A growth for the impending quarter will grow in the low double-digits, driven by increased overall payroll owing to the higher incentive pay, fall in vacancy rates and elevated payroll rates. Further, the inventory levels in the second quarter are likely to increase at a rate below sales growth.

Solid Picks in Retail

We have highlighted three top-ranked stocks, namely Abercrombie & Fitch ANF, American Eagle Outfitters AEO and Hibbett Sports HIBB.

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 earnings per share suggests growth of 2.1% and 472%, respectively, from the year-ago reported figures. ANF delivered a negative trailing four-quarter earnings surprise of 141.2%.

American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank #2 (Buy). AEO has delivered an earnings surprise of 23.3% in the last reported quarter.

The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year sales and earnings per share suggests growth of 1.4% and 15.5%, respectively, from the year-ago reported figures.

Hibbett, a sporting goods retailer, currently carries a Zacks Rank of 2. The company has a negative trailing four-quarter earnings surprise of 13.9%, on average.

The consensus estimate for Hibbett’s current financial-year sales suggests growth of 5.7% from the year-ago reported figure.

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American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report

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

Hibbett, Inc. (HIBB) : Free Stock Analysis Report

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