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Urban Outfitters turnaround still slow but the company has a plan

Trying to balance strong customer response to its expanded offer against weaker customer traffic is tough. The latter seems to have won so far in Urban Outfitters’ case as its shares slid Monday after the multi-brand retailer reported weaker-than-expected Q3 sales.

So what’s the company’s solution for its tepid growth? Well, that’s already in place with key category expansion. But there’s a new string to its bow too – and it’s an unexpected one. Urban Outfitters is to buy the Vetri Family group of restaurants, including the Pizzeria Vetri chain, for undisclosed terms.

Why? CEO Richard A Hayne said: “Spending on casual dining is expanding rapidly, and thus, we believe there is tremendous opportunity to expand the Pizzeria Vetri concept.”

OK, back with the core business. What did the markets think of UO’s figures? The shares, which closed off 7.4% , fell a further 7.8% in after market trading to $20.91.

Let’s look at the detail: earnings may have come in at $52m/42 cents per share, up from $47.1m/35 cents a year ago, matching analysts’ expectations, but total revenues, were up only 1.3% to $825.3m, fell short of their $870.9m forecast.

Same-store sales rose a modest 1%. By brand, Free People comps rose 3%; Urban Outfitters gained 1%, and Anthropologie was flat.

Meanwhile, wholesale net sales declined 5%, which the company attributed to shipment delays at its new distribution facility in Pennsylvania, however the gross margin improved to 34.9% from 34.8%. Inventory fell by $26m, or by 5% on-year, as Urban Outfitters heads into the Holiday season.

Was the company downbeat? Not at all. Hayne said he was “pleased” to deliver sales, margin and profit growth despite “weaker” customer traffic. “I believe the strong customer response to expanded category offerings at each brand bodes well for our future growth,” he added.

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