Urban Outfitters, Inc. reported modest growth in the second quarter as high-single-digit growth at Free People Group and  Anthropologie Group offset a decline at the Urban Outfitters chain.

Total company net sales for the three months ended July 31, 2022, increased 2.2 percent over the same period last year to a record $1.18 billion. Total Retail segment net sales increased 1 percent, with comparable Retail segment net sales also increasing 1 percent. The increase in Retail segment comparable net sales was driven by low single-digit positive digital channel sales, while retail store sales were flat. By brand, comparable Retail segment net sales increased 8 percent at the Free People Group and 7 percent at the Anthropologie Group and decreased 9 percent at Urban Outfitters. Wholesale segment net sales increased 1 percent, driven by a 4 percent increase in Free People Group wholesale sales, partially offset by a decline in Urban Outfitters wholesale sales. Nuuly segment net sales increased by $18.8 million driven by a significant increase in our subscribers.

“We are pleased to announce record Q2 sales fueled by strong ‘comps’ at the Anthropologie and Free People brands,” said Richard A. Hayne, CEO.

For the three months ended July 31, 2022, the gross profit rate decreased by 595 basis points compared to the prior year’s comparable period. Gross profit dollars decreased 13.9 percent to $374.6 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. Lower initial merchandise markups driven largely by higher inbound transportation expenses further contributed to the deleverage. Additionally, higher carrier fuel surcharges resulted in a deleverage in delivery expenses.

Urban Outfitters, Inc. announced net income of $59 million, or 64 cents a share, down from $127.3 million, or $1.28, a year ago. Wall Street’s consensus estimates had been 67 cents. 

For the six months ended July 31, 2022, total company net sales increased 7.2 percent compared to the same period last year. Total Retail segment net sales increased 6 percent, with comparable Retail segment net sales increasing 5 percent. The relative proportion of Retail segment sales attributable to store and digital channels changed significantly due in large part to the temporary store closures and occupancy restrictions in the United States, Europe and Canada in the first half of the prior year due to the pandemic. With those restrictions not present in the first half of the current year, Retail segment comparable sales increased due to double-digit growth in retail store sales due to increased store traffic, partially offset by low-single-digit negative digital channel sales. By brand, comparable Retail segment net sales increased 12 percent at the Anthropologie Group and 11 percent at the Free People Group and decreased 4 percent at Urban Outfitters. Wholesale segment net sales increased 3 percent, driven by a 6 percent increase in Free People Group wholesale sales, partially offset by a decline in Urban Outfitters wholesale sales. Nuuly segment net sales increased by $33.9 million driven by a significant increase in its subscribers.

For the six months ended July 31, 2022, the gross profit rate decreased by 407 basis points compared to the prior year’s comparable period. Gross profit dollars decreased 5.2 percent to $697.9 million. The decrease in gross profit rate and dollars was primarily due to higher markdowns at all three brands and lower initial merchandise markups driven largely by higher inbound transportation expenses.

Net income for the six months ended July 31, 2022 was $91 million and earnings per diluted share were $0.96.

As of July 31, 2022, total inventory increased by $214.3 million, or 44.4 percent, on a year-over-year basis. Retail segment inventory at cost increased by 42 percent and Wholesale segment inventory increased by 64 percent. The increase in inventory for both segments was driven by higher inbound transportation expenses, planned earlier receipts to protect sales against a volatile supply chain, as well as excess products in certain categories and classes.

For the three months ended July 31, 2022, SG&A expenses increased by $19.3 million, or 7.2 percent, compared to the prior year’s comparable period, and expressed as a percentage of net sales, deleveraged 113 basis points. The deleverage in SG&A as a rate to sales and growth in SG&A dollars was primarily related to store payroll expenses due to increased store associate hours to support increased customer traffic as well as higher average wages in order to attract and retain employees.

For the six months ended July 31, 2022, selling, general and administrative expenses increased by $69.2 million, or 13.9 percent, compared to the prior year’s comparable period, and expressed as a percentage of net sales, deleveraged 150 basis points. The deleverage in SG&A as a rate to sales and growth in SG&A dollars was primarily related to the increased penetration of retail store sales in the current year as the company incurred higher store payroll expenses to support the retail store sales growth in the six months ended July 31, 2022.

The company’s effective tax rate for the three months ended July 31, 2022 was 28.8 percent, compared to 22.4 percent in the prior year period. The company’s effective tax rate for the six months ended July 31, 2022 was 28.8 percent, compared to 23.8 percent in the prior year period. The increase in the effective tax rate for the three and six months ended July 31, 2022, was attributable to the ratio of foreign taxable earnings to global taxable earnings, tax rate law changes and the prior year favorable impact of equity activity.

On August 22, 2017, the company’s Board of Directors authorized the repurchase of 20 million common shares under a share repurchase program. 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 six months ended July 31, 2022, the company repurchased and subsequently retired 4.7 million common shares for approximately $112 million. As of July 31, 2022, 19.2 million common shares were remaining under the program.

During the six months ended July 31, 2022, the company opened a total of 16 new retail locations, including 11 Free People Group stores (including 6 FP Movement stores), 2 Urban Outfitters stores, 2 Anthropologie Group stores, and 1 Menus & Venues restaurant. It closed 4 retail locations, including 2 Urban Outfitters stores, 1 Free People Group store and 1 Anthropologie Group store. During the six months ended July 31, 2022, 2 Urban Outfitters franchisee-owned stores and 1 Anthropologie Group franchisee-owned store were opened.

As of July 31, 2022, Urban Outfitters’ portfolio includes

  • 261 Urban Outfitters stores and websites in the U.S., Canada and Europe;
  • 239 Anthropologie Group stores, catalogs and websites in the U.S., Canada and Europe;
  • 183 Free People stores, catalogs and websites in the U.S., Canada and Europe;
  • 11 Menus and Venues restaurants;
  • 4 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 its retail segment.

Photo courtesy Anthropologie