Urban Outfitters, Inc. reported earnings dropped 58.2 percent in the third quarter but were in line with Wall Street estimates. Sales growth of 3.9 percent was offset by a 410 basis point decline in gross margins due to heightened markdowns.

Earnings per share of 40 cents were in line with Wall Street’s consensus estimate of 40 cents. Revenues of $1.18 billion were slightly ahead of Wall Street’s consensus estimate of $1.16 billion.

Net income in the quarter was $37.2 million for the three months ended October 31, 2022.

For the nine months ended October 31, 2022, net income was $128.2 million and earnings per diluted share were $1.36.

Total company net sales for the three months ended October 31, 2022, increased 3.9 percent over the same period last year to a record $1.18 billion. Total Retail segment net sales increased 2 percent, with comparable Retail segment net sales increasing 4 percent, partially offset by a 2 percent negative impact of foreign currency translation. The increase in Retail segment comparable net sales was driven by mid-single-digit positive digital channel sales and low single-digit positive retail store sales.

By brand, comparable retail segment net sales increased 13 percent at the Anthropologie Group, 8 percent at the Free People Group and decreased 9 percent at Urban Outfitters. Wholesale segment net sales decreased 3 percent, driven by a 4 percent decrease in Free People Group wholesale sales, partially offset by a 6 percent increase in Urban Outfitters wholesale sales. Nuuly segment net sales increased by $22.6 million driven by a 185 percent increase in our subscribers during the quarter versus the prior year’s comparable quarter.

For the nine months ended October 31, 2022, total company net sales increased 6.0 percent compared to the same period last year. Total Retail segment net sales increased 5 percent, with comparable Retail segment net sales also increasing 5 percent. The relative proportion of Retail segment sales attributable to store and digital channels changed due in large part to the temporary global store closures and occupancy restrictions in the first nine months of the prior year due to the pandemic. With those restrictions not present in the first nine months of the current year, Retail segment comparable sales increased due to double-digit growth in retail store sales due to increased store traffic, while digital channel sales were flat.

By brand, comparable Retail segment net sales increased 13 percent at the Anthropologie Group and 10 percent at the Free People Group and decreased 6 percent at Urban Outfitters. Wholesale segment net sales increased 1 percent, driven by a 2 percent increase in Free People Group wholesale sales, partially offset by a decline in Urban Outfitters wholesale sales. Nuuly segment net sales increased by $56.5 million driven by a 200 percent increase in our subscribers during the period versus the prior year’s comparable period.

“We are pleased to announce record Q3 sales fueled by strong ‘comps’ at the Anthropologie and Free People brands,” said Richard A. Hayne, Chief Executive Officer. “As we approach the all-important Black Friday/Cyber Monday weekend, we are encouraged by sales quarter-to-date,” finished Hayne.

For the three months ended October 31, 2022, the gross profit rate decreased by 416 basis points compared to the prior year’s comparable period. Gross profit dollars decreased 8.6 percent to $357.0 million. The decrease in gross profit rate and dollars was primarily due to higher markdowns at all three brands as compared to record low markdown rates in the comparable prior year quarter, with the Urban Outfitters brand having the largest variance.

For the nine months ended October 31, 2022, the gross profit rate decreased by 410 basis points compared to the prior year’s comparable period. Gross profit dollars decreased 6.4 percent to $1.05 billion. The decrease in gross profit rate and dollars was primarily due to higher markdowns at all three brands as compared to record low markdown rates in the comparable prior year period, as well as lower initial merchandise markups driven largely by higher inbound transportation expenses.

As of October 31, 2022, total inventory increased by $116.5 million, or 18.6 percent, on a year-over-year basis. Retail segment inventory increased by 17 percent driven by higher costs, earlier than planned receipts due to improved supply chain speed and excess slower selling product in certain categories. Wholesale segment inventory increased by 39 percent due to softness in department store sales.

For the three months ended October 31, 2022, selling, general and administrative expenses increased by $24.9 million, or 9.1 percent, compared to the prior year’s comparable period, and expressed as a percentage of net sales, deleveraged 121 basis points. The deleverage in SG&A as a rate to sales and growth in SG&A dollars was primarily related to increased store payroll expenses incurred due to increased store associate hours to support increased customer traffic and higher average wages in order to attract and retain employees, as well as marketing expenses to support increased sales and customer growth.

For the nine months ended October 31, 2022, SG&A expenses increased by $94.1 million, or 12.2 percent, compared to the prior year’s comparable period, and expressed as a percentage of net sales, deleveraged 139 basis points. The deleverage in SG&A as a rate to sales and growth in SG&A dollars was primarily related to higher store payroll expenses to support retail store sales growth in the nine months ended October 31, 2022, along with increased store associate hours to support increased customer traffic and higher average wages in order to attract and retain employees. Additionally, marketing expenses increased to support sales and customer growth.

The company’s effective tax rate for the three months ended October 31, 2022 was 28.8 percent, compared to 23.0 percent in the prior year period. The company’s effective tax rate for the nine months ended October 31, 2022 was 28.8 percent, compared to 23.6 percent in the prior year period. The increase in the effective tax rate for the three and nine months ended October 31, 2022, was attributable to the ratio of foreign taxable earnings to global taxable earnings, tax rate law changes and the prior year’s favorable impact of equity activity.

Net income for the three months ended October 31, 2022 was $37.2 million and earnings per diluted share were $0.40, down 58.2 percent from $88.9 million, or 89 cents.

Net income for the nine months ended October 31, 2022 was $128.2 million and earnings per diluted share were $1.36, down 52.5 percent from $269.7 million, or $2.71, a year ago.

On August 22, 2017, the company’s Board of Directors authorized the repurchase of 20 million common shares under a share repurchase program; all shares were repurchased and the authorization was completed by the end of June 2022. On June 4, 2019, the company’s Board of Directors authorized the repurchase of 20 million common shares under a new share repurchase program. During the nine months ended October 31, 2022, the company repurchased and subsequently retired 4.7 million common shares for approximately $112 million. As of October 31, 2022, 19.2 million common shares were remaining under the program.

During the nine months ended October 31, 2022, the company opened  23 new retail locations, including 13 Free People Group stores (including 7 FP Movement stores), 5 Urban Outfitters stores, 4 Anthropologie Group stores, and 1 Menus & Venues restaurant. The company closed 4 retail locations including 2 Urban Outfitters stores, 1 Anthropologie Group store and 1 Free People Group store. During the nine months ended October 31, 2022, 2 Urban Outfitters franchisee-owned stores and one Anthropologie Group franchisee-owned store were opened.

Urban Outfitters, Inc. offers lifestyle, general merchandise and consumer products and through a portfolio of global consumer brands comprised of 264 Urban Outfitters stores in the U.S., Canada and Europe and websites; 241 Anthropologie Group stores in the United States, Canada and Europe, catalogs and websites; 185 Free People stores in the United States, Canada and Europe, catalogs and websites, 11 Menus & Venues restaurants, 4 Urban Outfitters franchisee-owned stores and 2 Anthropologie Group franchisee-owned stores as of October 31, 2022. Free People, FP Movement and Urban Outfitters wholesale sell their products through department and specialty stores worldwide, digital businesses and the company’s retail segment.

Photo courtesy Urban Outfitters