Urban Outfitters, Inc.’s profits vaulted 67.6 percent in the first quarter on a 5.9 percent revenue gain and significantly improved gross margins. Healthy double-digit retail gains at Free People and Anthropologie offset declines at Urban Outfitters’ retail business and at wholesale channels.
Total company net sales for the three months ended April 30, 2023, reached a record $1.11 billion against $1.05 billion. Total Retail segment net sales increased 4 percent, with comparable Retail segment net sales rising 5 percent, partially offset by a 1 percent negative impact of foreign currency translation. The increase in Retail segment comparable net sales was driven by high-single-digit positive growth in digital channel sales and low-single-digit positive growth in retail store sales.
By brand, comparable Retail segment net sales increased 17 percent at the Free People Group and 13 percent at the Anthropologie Group and decreased 13 percent at Urban Outfitters.
Wholesale segment net sales decreased 11 percent driven by a 14 percent decrease in Free People Group wholesale sales due to reduced sales to department stores and specialty customers, while Urban Outfitters wholesale sales increased by $1 million.
Nuuly segment net sales increased by $28.6 million, driven by a 118 percent increase in our subscribers as of the current quarter end versus the end of the prior year’s comparable quarter.
“We are pleased to report record first-quarter sales and earnings per share driven by a 5 percent increase in comparable Retail segment sales, strong growth in Nuuly Rent and a significant improvement in gross margins,” said Richard A. Hayne, CEO of Urban Outfitters. “We are equally pleased that Q1’s sales strength has continued quarter-to-date.”
For the three months ended April 30, 2023, the gross profit rate increased by 260 basis points compared to the three months ended April 30, 2022. Gross profit dollars increased 14.8 percent to $371.2 million from $323.3 million in the three months ended April 30, 2022. The increase in gross profit rate was primarily due to higher initial merchandise markups at all three brands, primarily driven by lower inbound transportation costs.
The gross profit rate also benefited from lower merchandise markdowns at the Anthropologie Group and Free People Group brands.
As of April 30, 2023, total inventory decreased by $39.6 million, or 6.3 percent, compared to total inventory as of April 30, 2022. Total Retail segment inventory decreased by 5 percent, primarily due to better inventory control supported by a more reliable supply chain. Wholesale segment inventory decreased by 23 percent, in line with the reduction in wholesale sales.
For the three months ended April 30, 2023, selling, general and administrative expenses increased by $22.8 million, or 8.2 percent, compared to the three months ended April 30, 2022, and expressed as a percentage of net sales, deleveraged 59 basis points. The deleverage in SG&A expenses, as a rate to sales, was primarily related to higher compensation costs, including higher incentive-based compensation costs due to improved company performance. The dollar growth in SG&A expenses was due to higher compensation costs, including higher incentive-based compensation costs due to improved company performance and increased marketing expenses to support increased sales and customer growth.
Urban Outfitter’s effective tax rate for the three months ended April 30, 2023 was 27.1 percent, compared to 28.7 percent in the three months ended April 30, 2022. The decrease in the effective tax rate for the three months ended April 30, 2023, was attributable to the ratio of foreign taxable earnings to global taxable earnings and the favorable impact of general business credits in the current year.
Net income for the three months ended April 30, 2023 was $52.8 million, and record first-quarter earnings per diluted share was $0.56. In the year-ago quarter, earnings were $31.5 million, or 33 cents.
On August 22, 2017, Urban Outfitters’ Board of Directors authorized the repurchase of 20 million common shares under a share repurchase program, with all shares repurchased and the authorization completed by the end of June 2022. On June 4, 2019, Urban Outfitters’ Board of Directors authorized the repurchase of 20 million common shares under a new share repurchase program. During the year ended January 31, 2023, the company repurchased and subsequently retired 4.7 million common shares for approximately $112 million. During the three months ended April 30, 2023, the company did not repurchase any common shares. As of April 30, 2023, 19.2 million common shares were remaining under the program.
During the three months ended April 30, 2023, Urban Outfitters opened 5 Free People Group stores, including 2 FP Movement stores, and closed 5 retail locations, including three Urban Outfitters stores, 1 Anthropologie Group store and 1 Menus & Venues restaurant.
During the three months ended April 30, 2023, one Urban Outfitters franchisee-owned store was opened.
Urban Outfitters ended the quarter with 260 Urban Outfitters stores in the U.S., Canada and Europe and websites; 237 Anthropologie Group stores in the United States, Canada and Europe, catalogs and websites; 193 Free People stores, including 33 FP Movement stores, in the United States, Canada and Europe, catalogs and websites, 10 Menus & Venues restaurants, 7 Urban Outfitters franchisee-owned stores and 2 Anthropologie Group franchisee-owned stores. 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