Urban Outfitters, Inc. reported total company net sales for the second quarter of fiscal 2018 were $873 million, a 2 percent decrease as compared to the same quarter last year. Comparable Retail segment net sales, which include the comparable direct-to-consumer channel, decreased 4.9 percent. By brand, comparable Retail segment net sales increased 2.9 percent at Free People, but decreased 4.0 percent at the Anthropologie Group and 7.9 percent at Urban Outfitters. The decline in comparable Retail segment net sales was due to negative retail store sales, which was partially offset by continued sales growth in the company’s direct-to-consumer channel. Wholesale segment net sales increased 10 percent.
“While we are disappointed in our second quarter performance, we have a number of initiatives underway including: speed to customer, international growth, wholesale expansion and digital investments,” said Richard A. Hayne, Chief Executive Officer. “We believe these initiatives combined with encouraging fashion apparel trends could lead to improved topline performance in future quarters,” finished Mr. Hayne.
For the three and six months ended July 31, 2017, the gross profit rate decreased 440 basis points and 369 basis points, respectively, versus the prior year’s comparable periods. The decline in gross profit rate for both periods was driven by higher markdowns due to underperforming women’s apparel and accessories product at Anthropologie and Urban Outfitters, deleverage in delivery and logistics expenses primarily due to the penetration of the direct-to-consumer channel and deleverage in initial merchandise mark-ups at the Anthropologie and Urban Outfitters brands due to a change in product mix.
Selling, general and administrative expenses decreased by $2.1 million, or 1.0 percent, during the three months ended July 31, 2017, compared to the prior year’s comparable period primarily due to the net benefit of our store organization project. For the three months ended July 31, 2017, selling, general and administrative expenses, expressed as a percentage of net sales, deleveraged by 26 basis points when compared to the prior year’s comparable period primarily due to the negative comparative Retail segment net sales and increased spending in digital marketing. Selling, general and administrative expenses increased by $5.2 million, or 1.2 percent, during the six months ended July 31, 2017, compared to the prior year’s comparable period primarily due to approximately $8.1 million, or 50 basis points, of nonrecurring expenses related to severance and fees associated with our store organization project. For the six months ended July 31, 2017, selling, general and administrative expenses, expressed as a percentage of net sales, deleveraged by 62 basis points when compared to the prior year’s comparable period primarily due to the nonrecurring expenses related to our store organization project and the negative comparable Retail segment net sales.
The company’s effective tax rate for the second quarter of fiscal 2018 was 35.1 percent compared to 35.5 percent in the prior year period. The effective tax rate for the first half of fiscal 2018 is 37.1 percent compared to 36.7 percent in the prior year period. The increase in the first half effective tax rate was due to the ratio of foreign taxable losses to global taxable profits in the first half and the prospective adoption of the new accounting standard related to share-based compensation.
Net income for the three and six months ended July 31, 2017, was $50 million and $62 million, respectively, and earnings per diluted share was 44 cents and 54 cents, respectively.
As of July 31, 2017, total inventory decreased by $2 million, or 0.6 percent, on a year-over-year basis. Comparable Retail segment inventory decreased 4.6 percent at cost, which was partially offset by inventory to stock non-comparable stores.
On February 23, 2015, the company’s Board of Directors authorized the repurchase of 20 million common shares under a share repurchase program. Under this authorization, the company repurchased and subsequently retired 5.0 million common shares for approximately $91 million during the six months ended July 31, 2017. The company repurchased and subsequently retired 1.3 million common shares for approximately $46 million under this authorization during the year ended January 31, 2017. As of July 31, 2017, 1.0 million common shares are remaining under this authorization.
During the six months ended July 31, 2017, the company opened a total of 12 new locations including: 6 Free People stores, 4 Urban Outfitters stores, 1 Anthropologie Group store and 1 Food and Beverage restaurant; and closed 6 locations including: 3 Free People stores, 1 Urban Outfitters store, 1 Anthropologie Group store and 1 Food and Beverage restaurant.
Urban Outfitters, Inc., offers lifestyle-oriented general merchandise and consumer products and services through a portfolio of global consumer brands comprised of 245 Urban Outfitters stores in the United States, Canada, and Europe and websites; 225 Anthropologie Group stores in the United States, Canada and Europe, catalogs and websites; 130 Free People stores in the United States and Canada, catalogs and websites and 12 Food and Beverage restaurants, as of July 31, 2017. Free People wholesale sells its product through approximately 1,900 department and specialty stores worldwide, third-party websites and the company’s own retail stores.
