Urban Outfitters (URBN, Financial) turned in an outstanding performance as both the Anthropologie and Free People brands drove its net sales. These brands registered 10.26% and 30.42% yearly growth, respectively, in wholesale as well as in retail segment in the last quarter.
However, the disappointment continues with its top-performing brand Urban Outfitters that slipped 5.1% for the quarter, especially at the retail segment that experienced a 12% drop in its net sales. But the solid performance of its wholesale segment that grew about 27% on yearly basis helped the company to put these soft results aside.
Also, deleverage in the store occupancy costs driven by negative store comp sales and pre-opening rent expenses along with lower merchandise margin at the urban outfitters brand, resulting from the cheap performance of the products guided its gross profit rate, declined by 209 basis points to 34.8% for the quarter.
Urban is on the right track
Nevertheless, Urban Outfitters looks solid going forward as it plans to open nearly 30 to 40 new stores during the year at home as well as abroad. The retailer intends to unlock approximately 12 new stores for Urban Outfitters brand, including 3 new European stores. It is also focused to release nearly 15 new Anthropologie stores globally, together with 3 new European stores and 12 new stores for its new Free People stores in North America.
Further these stores will be spread over around 3,000 square feet, twice the size of many of the earlier stores that should allow the brands to offer more of the expanded product assortments that will certainly increase its productivity and profitability as it moves forward.
While these stores remain under way, the company also has plans to extend its product offerings to food under Urban Outfitters brand. The company is setting up a massive three-story Urban Outfitters lifestyle store at Herald Square in Manhattan, which is expected to go live by next month featuring coffee bar, hair salon and other service-oriented attributes.
This diversified product portfolio therefore should resurrect its slipping sales under Urban Outfitters in the future as the company is determined to roll out many such amenity-laden large stores that should certainly excite investors. The company has recently launched “Without Walls” –Â a lifestyle category extension to its urban outfitters brand. There are eight small Without Walls shops at present existing in urban stores and in the Without Walls website, which is accessible through Urban Outfitters' main website.
Receiving positive responses
Urban Outfitters has received a positive response from these stores of late, and expects it to grow at a good pace going forward. Also, the company has definite plans to open additional shops with added active products to its Urban Outfitters brand that should drive its growth in remaining quarters.
Besides, Urban Outfitters expects both the Anthropologie and Free People brands to do well in the market as it is growing at a healthy pace currently. Both this brands have delivered exceptionally world class performance during the quarter. Free people registered 25% yearly growth in the retail segment, while its wholesale segment was even better that posted impressive 27% yearly growth for the brand.
However the company was busy in category expansion during the quarter that drove its domestic growth to a great extent followed by new outlets in Asia, which helped the company to post healthy growth across the world. Urban Outfitters is again focused to improve its product offering and creative execution that should further enhance its operational margin going forward.
For example, the merchant and design team is continuously working on the product assortment including shoes, intimate apparel, special occasion and the dresses. The company has recently launched Movement activewear under free people brand that should complement the base apparel assortment for the company and help it clear sales across all the channels that will drive its growth in the long-run.
In addition to this, Urban Outfitters has experienced solid growth in its Wholesales segment from its expanded product offerings such as living and home, beauty, music and some food offerings as nearly 45% of the wholesales domestic sales growth was driven by these extended product categories. Urban Outfitters further expects that this penetration will help the company drive its sales this fall going forward as it plans to roll out wholesale shoe assortments, expected to begin shipping inthe early stage of fall.
Besides, the company has opened two new wholesale showrooms in Tokyo and London that should attract many new customers and will drive more numbers of shop-in-shops in Europe and Asia. This should boost its wholesales segment going forward. Also the company had registered 105% jump in its wholesales in the reported quarter and expects it grow at a healthy pace in the upcoming quarters.
Wrapping it up
Urban Outfitters currently trades at trailing P/E of 18.76 and forward P/E of 15.09, which states that the company still carries cheap valuation and offers potential opportunity for investors to get profited from its growth. The analysts have estimated CAGR of 14.66%, higher than that of industry’s CAGR of 13.24% for the next five years. Considering its robust growth in at both the Anthropologies and Free People brands with strategic initiatives to revive its less performing brand, urban outfitter the company is a good pick.
