Urban Outfitters Inc. (URBN, Financial) posted its first-quarter results for the period that ended on April 30. Shares of the American multinational clothing company fell drastically after the results were revealed. Diluted earnings per share was 25 cents for the quarter. Net sales rose by 8% to $739 million. Shares closed at $40.72 a share on trading day Monday. Shares were, however, traded at $34.20 per share, a 16% decline in afternoon trading on Tuesday.
Number mix
The Philadelphia-based clothing company posted an earnings of 25 cents per share for the quarter. A group of analysts estimated the EPS to be around $0.30 on sales of $757.6 million, according to a data compiled by Thomson Reuters. Urban Outfitters posted revenues of $739 million for the quarter, a 7% increase year over year. However, analysts had estimated the company to post a revenue of $757.6 million. Same-store sales saw an increase of 4%, which missed analysts' expectations by a percentage point. Sales increased 1% at Anthropologie, 17% at Free People and 5% at Urban Outfitter stores. Free People is the company's smallest brand. The Anthropologie unit did not perform well, and that threw analysts off guard. The 1% rise in comparable sales was far behind analysts' expectations of 4.7%. The company said that the performance from the Anthropologie brand was a "disappointment." Greater discounts are expected in the second quarter as the company intends to increase efforts to attract more young women. Sales from the specific brand rose 3.8% to $311.4 million.
Not only sales but total inventories also increased 14% year over year to $49 million. A positive point to be noted here is that the retail store has recently opened around seven new stores, although it closed down a Urban Outfitters store. Gross margins declined 33.3% in the quarter as compared to the 34.8% for the same quarter in the prior year. The main reason for the drop was the discounting strategies implemented by the company. Urban Outfitters also spent heavily on a shift it made in its distribution centers. Heavy investments were also made in Web marketing which grabbed a chunk of the company's profits. Richard Hayne, CEO of the 1970-founded company, said that the growth in the retail segment comparable net sales was due to their omni-channel strategy. He was also quoted as saying, "I am pleased to announce record first quarter sales and positive Retail segment comparable net sales at each of our brands.”
Road ahead
In-spite of the drop in some figures, it seems that Urban Outfitters can gain their momentum back soon. Lindsay Mann, an analyst at Goldman Sachs (GS, Financial) said that May is off to a great start. All the product issues that the company is facing currently will be resolved in the months to come, she said. Moreover, for the fourth quarter, the company crossed $1 billion in revenues, a phenomenon which is occurring for the first time in Urban Outfitter's history. Stocks of the company also went on to clear many all-time highs. Moreover, Urban Outfitter's stocks are one of the best performing stocks on S&P 500 this year. Ever since the crater which took place in August last year, shares are recovering steadily.
Plans for a boost
For the fiscal year 2015, the company bought back 7.7 million shares worth $258 million. Urban Outfitters has also planned to purchase back around 20 million common shares. The company could offer 38 cents dividend for 1% introductory yield. Moreover, it could even avoid paying 20% of its normalized expected income from operations. However, the Philadelphia-based company has to take steps in that direction. Sadly, JPMorgan Chase & Co (JPM, Financial) lowered its price target on shares from $50 to $34, or overweight to neutral. As if this was not enough, Wedbush Securities also lowered the price target of shares. It said that the perception about the Anthropologie brand should change in the mind of investors. Instead of assuming that the low same-store sales were the beginning of future bad performances, investors should believe that it is just transitory. Oppenheimer Holdings, Inc. (OPY, Financial) downgraded its recommendation to Perform. However, some analysts believe that the slump in share value is due to the results and will bounce back soon. Financial analysts at Stifel Nicolaus (SF, Financial) went on to rate Urban Outfitter's stock as a BUY stating that the fragility at the Anthropologie brand will be short lived.
