Costs hurt Urban Outfitters’ Q3 earnings as core brand continues slow recovery

The high cost of promotions/discounting weighed on Urban Outfitters Monday as the apparel retail group saw its Q3 earnings fall short of analysts’ expectations, sending its shares down 4.9% to $29.19 in extended trading.

Urban Outfitters reported earnings fell to $47.1m/35 cents per share in the quarter to October 31, from $70.3m/47 cents a year earlier, below the 41 cents analysts had expected.

However, revenue grew 5.2% year-on-year to a record $814m, just ahead of analysts’ view, and fueled by strong performances at its Anthropologie and Free People brands.

But comps sales fell 1%. By brand, same-store sales dipped 7% at Urban Outfitters but rose 2% at Anthropologie and leapt 15% at Free People.
Wholesale sales, meanwhile, jumped 26%.

Gross margins fell to 34.81% of sales in the quarter, as it slashed prices to encourage more sales at its stores. SG&A expenses rose nearly 11% on increased marketing and technology costs.

Its core Urban Outfitters brand has been revamping stores, refining merchandising to target the 18-28 age group, and improve marketing. However, the turnaround is slow on lower mall footfall and in a highly promotional market.

A “disappointed” chief executive Richard Hayne said: “There is much work to be done to improve the merchandise margins and store performance at the Urban brand.”

He noted that quarter-end inventories were “heavier than we would like at the Urban brand, but were controlled at the other brands.”

However, he also said the brand’s direct-to-consumer business is “showing strong gains”.
He added: “As consumers’ trips to less differentiated malls [become] fewer, the direct-to-consumer channel is more efficient, concluding that the new shopping pattern raises the bar for brick-&-mortar sites, “where the store experience needs to be elevated”.

Looking ahead, Hayne saw features such as in-store pickup and same-day delivery, as well as mobile points of sale, as “exciting opportunities to reinvent the store and the store experience.”

He noted the “Urban consumer is back, she is shopping online and is coming back to the stores… The team now needs to execute and align the stores so they are telling the same story.”

Know what’s next. Become a WGSN member today to benefit from our daily trend intelligence, retail analytics, consumer insights and bespoke consultancy services.