Shares of Urban Outfitters (URBN, Financial), a specialty retailer of apparel, have registered a growth of 21% in the last year. This growth is largely driven by the company’s performance during the same period. Its recently reported fourth quarter numbers were also impressive, wherein both the top line and the bottom line beat the Street’s estimates. Thus, its shares went higher after the announcement. Let’s check.
The case of mixed earnings
Revenue jumped 11.6%, to $1.011 billion, over last year’s quarter, beating the analysts’ estimate of $1.005 billion. The key factors that contributed to the growth were higher comparable store sales and new store openings. Also, the higher sales at the retail division and double digit growth in wholesale operations drove revenue higher. The company opened 38 new stores in fiscal year 2015.
Revenue from Urban Outfitters brand surged 10.1% to $438.4 million over last year. Similarly, the Anthropologie and the Free People brand registered a growth of 9% and 24.2%, respectively, clocking in at $413 million and $152.6 million. Other revenue jumped 16.1% to $7 million during the same period.
Revenue from the retail segment climbed 11.1% to $953.3 million. Also, revenue rose 20.6% at the wholesale segment, clocking in at $57.8 million. Thus, both the retail and the wholesale segment registered strong growth. Comparable store sales at the retail segment were up 6%, driving sales higher. The comp sales included same store sales growth of 4%, 6% and 18% at Urban Outfitters, Anthropologie and Free People.
The gross margin dropped 207 basis points to 34.6%, mainly because of higher promotions during the holiday season, higher markdowns and lower merchandise markups. Nonetheless, Urban Outfitters is expected to improve its margins by 100 basis points in 2016.
Earnings for the quarter were a penny higher than last year, clocking in at $0.60 per share. This was higher than the analysts’ estimate of $0.57 per share because of a lower number of shares outstanding. The bottom line actually declined 9.5% to $80.3 million owing to higher cost of sales and an increase in SG&A expenses. Also, currency headwinds resulted in lower income.
Points to ponder
The apparel retailer is making efforts to revive its underperforming brands. The efforts include store refurbishment and bringing in new assortments. The new merchandise and renovated stores should help in driving store traffic. Further, it plans to expand its store network. It is expected to add 32 outlets in 2016, which includes four Urban Outfitters, 13 Anthropologie and 15 Free People stores in North America.
Also, the company bought back 3.8 million shares in the last quarter of fiscal 2015. This made investors happy. Additionally, it has authorized an additional buyback of 20 million shares in the coming years.
Urban Outfitters has also increased its promotions so that the company enters the spring season with a clean inventory. Thus, the spring season should attract customers with its new collection.
To wind upÂ
The specialty retailer has had a great quarter and expects to register even better quarters through its efforts to expand. However, the company announced that its bottom line will be hurt in the current fiscal due to currency headwinds. Nonetheless, its great performance and future prospects should be something to bank upon. I believe this retailer should be owned for a long term.
