Urban Outfitters’ Sales and EPS Zoom to Record High

Net sales increased 3% Y-o-Y to a record $891 million in Q2 FY17

u1Specialty retailer Urban Outfitters Inc. (NASDAQ: URBN) announced its Q2 FY17 financial results on August 16th, 2016.

The Philadelphia, Pennsylvania-based company comprises of a portfolio of global brands such as Anthropologie, Bhldn, Free People, Terrain, Urban Outfitters and Vetri Family, which offer a variety of lifestyle merchandise and consumer products to defined customer niches. The Company operates through two segments: Retail and Wholesale. The Company offers retail and wholesale of general consumer products through 240 Urban Outfitters stores in the U.S., Canada, and Europe; 220 Anthropologie Group stores in the U.S., Canada, and Europe; 121 Free People stores in the U.S. and Canada; Free People wholesale, which sells its product to approximately 1,800 specialty stores and select department stores worldwide; and 7 Vetri Family restaurants, as of July 31st, 2016. It also offers heirloom quality wedding gowns, bridesmaid frocks, assorted jewelry, footwear, lingerie, and decorations under the Bhldn brand. Read more about Urban Outfitters’ financial results below.

Q2 FY17 financial highlights

Urban Outfitters’ net sales grew 3% Y-o-Y to a record $891 million in Q2 FY17. Comparable Retail segment’s net sales, which include the comparable direct-to-consumer channel, increased 1% during the reporting quarter. Comparable Retail segment net sales increased 5% at Urban Outfitters, remained flat at Free People, and decreased 3% at the Anthropologie Group. Wholesale segment net sales increased 4% during Q2 FY17.

u2Under the Company’s Retail segment, sales at Urban Outfitters stores rose 3.5% Y-o-Y to $354.3 million during Q2 FY17, sales at Anthropologie stores declined 0.6% Y-o-Y to $368.3 million, and sales at Free People stores rose 6.4% Y-o-Y to $164.4 million during the reporting quarter. Vetri Family restaurants, which were acquired during Q1 FY17, brought in $3.6 million during the quarter under review. The Company’s Wholesale segment sales grew 4.3% Y-o-Y to $74.8 million during Q2 FY17.

Urban Outfitters’ gross margins expanded by 179 basis points in Q2 FY17, mainly driven by growth in the Urban Outfitters and Anthropologie Group brands maintained margins. Both these brands delivered higher initial margins and lower merchandise markdowns compared to the prior year period. These increases were partially offset by a lower gross profit rate at the Free People brand due to lower maintained margins and higher merchandise markdowns.

For Q2 FY17, Urban Outfitters’ selling, general, and administrative expenses as a percentage of net sales expanded by 48 basis points due to an increase in direct marketing and technology related expenses to support direct-to-consumer growth and direct store controllable expenses to support the Company’s 4% square footage growth.

In all, Urban Outfitters’ Q2 FY17 net income jumped to $77.0 million versus $66.8 million in the year-ago period, with diluted EPS increasing to a record high of $0.66 from $0.52 in the year-ago period.

H1 FY17 financial highlights

For H1 FY16, net sales rose to $1.65 billion versus $1.60 billion in the prior year period. The Company’s gross margins expanded by 142 basis points versus the prior year’s comparable period, due to improvement in the Urban Outfitters and Anthropologie Group brands maintained margins, with both brands delivering lower merchandise markdowns compared to the prior year. These increases were partially offset by a lower gross profit rate at the Free People brand.

For H1 FY16, Urban Outfitters’ selling, general, and administrative expenses as a percentage of net sales expanded by 98 basis points when compared to the prior year’s comparable period, due to an increase in direct marketing and technology related expenses to support direct-to-consumer growth and direct store expenses to support the Company’s 4% square footage growth.

In all, Urban Outfitters’ H1 FY17 net income was higher at $106.4 million versus $99.6 million in the year-ago period, with diluted EPS at $0.91 versus $0.76 in the prior-year period.

Other highlights

Store update: During H1 FY17, Urban Outfitters opened a total of 12 new stores including 8 Free People stores, 3 Anthropologie Group stores and 1 Urban Outfitters store. However, the Company closed 3 stores including 1 Free People store, 1 Anthropologie Group store and 1 Urban Outfitters store. During H1 FY17, the Company opened 1 new Vetri Family restaurant and acquired 6 Vetri Family restaurants.

Inventory update: As of July 31st, 2016, total inventory decreased by 4% to $17 million on a year-over-year basis. The decrease in total inventory is primarily related to the decline in comparable Retail segment inventory, which decreased 4% at cost.

u3Share repurchase

On February 23rd, 2015, the Company’s Board of Directors authorized the repurchase of 20 million common shares under a share repurchase program. Under this authorization, the Company repurchased and subsequently retired 0.3 million common shares for approximately $11 million during the six months ended July 31st, 2016. The Company repurchased and subsequently retired a total of 12.7 million common shares for approximately $382 million during FY16 under this authorization.

u4Guidance for full year FY16

Although the Company has not provided any guidance for EPS and net sales, the projected net capital expenditure as a percentage of net sales is shown to be spread across four areas: Home Office, Fulfillment, Technology, and Stores.

Stock Performance

u5Urban Outfitters’ stock ended the day at $37.81, gaining 2.83%, at the close on Friday, August 19th, 2016, having vacillated between an intraday high of $37.82 and a low of $36.75 during the session. The stock’s trading volume was at 3,672,559 for the day. The Company’s market cap was at $4.31 billion as of Friday’s close.

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