Customer tastes and preferences keep changing. Hence, the retailer industry needs changing designs and collection more often than any other industry. Apparel retailers, in particular, need to bring in new fashion clothing every time in order to resonate with the customers. Moreover, a large number of players make the industry much more competitive, resulting in a price war. Some of the players such as H&M and Zara are stealing the show by offering a trendier collection at low prices. This has affected sales of many apparel retailers such as Urban Outfitters (URBN, Financial) and American Eagle Outfitters (AEO, Financial). Let us take a look at each of them.
Urban Outfitters’ Q2
Although Urban Outfitters’ second-quarter results were in line with the analysts’ expectations, it did fall prey to the competitors. Its revenue surged 7%, to $811 million, over last year. This increase in the top line was not driven by higher sales at existing stores but was driven by the addition of 9 new stores and noncomparable store sales growth. Also, the wholesale segment was one of the key performers with a 36% jump in its revenue.
However, sales at Urban Outfitters brand dropped 10% over the prior year. Lower demand for its products and decreased store traffic resulted in the decline. But this was offset by strong performance in the Anthropologie and the Free People Group, which surged 6% and 21%, respectively.
Earnings for the quarter dropped 4% to $0.49 per share, over the previous year. The fashion retailer was unable to manage its costs efficiently. Its focus on providing cheaper products to attract customers, weighed on its bottom line.
Along with the Wholesale segment, another point of focus for Urban Outfitters is the e-commerce segment. It was one of those first few companies that recognized the need to provide an online shopping facility to the customers. In fact, the retailer plans to continue to expand this segment along with new and innovative offerings for the customers.
The case of American Eagle Outfitters
American Eagle Outfitters, too, is having a tough time in attracting customers and managing costs at the same time. A highly competitive environment and deep discounts provided by each player has made it difficult for American Eagle to witness growth.
Its second quarter numbers were lackluster with sales dropping 2% over last year, clocking in at $711 million. The primary reason for this decrease was same store sales decline of 7%. The retailer shut 5 stores during the quarter. Due to lower demand for its products, the company plans to close 150 stores during the year. This is because it wants to get rid of unprofitable stores, which are weighing on the bottom line. Its earnings plunged 70% to $0.03 per share over last year’s quarter.
Both the retailers need to ramp up their marketing efforts in order to lure more customers. Also, new designs are crucial to their success. Therefore, it is important to focus on these two areas to revive its business and combat competition.
Conclusion
Clearly, Urban Outfitters is doing better than its peer and has posted a better quarter. Its wholesale business and the e-commerce segment are its key strengths, which has been driving growth. Additionally, Free People and Anthropologie Group are also major contributors. With its efforts to bring new products and focus on its strong segments, this retailer should be given a thought.
