Urban Outfitters, Inc. reported total company net sales for the three months ended July 31, 2019, decreased 3.0 percent over the same period last year to $962 million.
Total company net sales for the three months ended July 31, 2019, decreased 3.0 percent over the same period last year to $962 million. Comparable Retail segment net sales decreased 3 percent, driven by negative retail store sales, partially offset by growth in the digital channel. By brand, comparable Retail segment net sales increased 6 percent at Free People and decreased 3 percent at the Anthropologie Group and 5 percent at Urban Outfitters. Wholesale segment net sales decreased 8 percent.
Net income was $60.3 million, or 61 cents a share, down 35.0 percent from $92.8 million, or 84 cents, a year ago.
“I am pleased to report that customer reaction to our early fall apparel assortments have improved significantly from our second quarter results,” said Richard A. Hayne, chief executive officer. “Third quarter-to-date ‘comp’ sales are positive at all three brands.”
For the three and six months ended July 31, 2019, the gross profit rate decreased by 304 basis points and 242 basis points versus the prior year’s comparable periods, respectively. The decrease in gross profit rate for both periods was driven by higher markdowns, deleverage in delivery and logistics expenses and store occupancy deleverage. The higher markdowns were largely driven by underperforming women’s apparel at the Anthropologie and Urban Outfitters brands. The deleverage in delivery and logistics expenses is primarily due to the increase in penetration of the digital channel. The deleverage in store occupancy was due to negative store and Retail segment comparable net sales.
As of July 31, 2019, total inventory increased by $64.4 million, or 17.2 percent, on a year-over-year basis. Comparable Retail segment inventory increased 5 percent at cost. The remainder of the increase was primarily related to an increase in inventory in transit.
Selling, general and administrative expenses decreased by $1.2 million, or 0.5 percent, during the three months ended July 31, 2019, compared to the prior year’s comparable period. Selling, general and administrative expenses increased by $1.1 million, or 0.2 percent, during the six months ended July 31, 2019, compared to the prior year’s comparable period. As a percentage of net sales, selling, general and administrative expenses deleveraged by 62 basis points and 36 basis points during the three and six months ended July 31, 2019, when compared to the prior year’s comparable periods, respectively. The deleverage in both periods was primarily driven by increased marketing expenses to support our digital sales growth as well as the launch of our new monthly women’s apparel subscription rental service, Nuuly.
The company’s effective tax rate for the three months ended July 31, 2019, was 26.0 percent compared to 21.7 percent in the prior year period. The company’s effective tax rate for the six months ended July 31, 2019, was 25.2 percent compared to 22.3 percent in the prior year period. The increase in the effective tax rate for the three and six-month periods was primarily due to the ratio of foreign taxable profits to global taxable profits and the prior year favorable impact of equity activity.
Net income for the three and six months ended July 31, 2019, was $60 million and $93 million, respectively, and earnings per diluted share was $0.61 and $0.91, respectively.
On February 1, 2019, the company adopted an accounting standards update that amended the previous accounting standards for lease accounting. The adoption resulted in the recognition of approximately $1.3 billion of lease liabilities and corresponding right-of-use assets of approximately $1.1 billion, with the offsetting balance representing a reduction in the previously recognized deferred rent balance. The adoption did not result in a material impact on the company’s Condensed Consolidated Statements of Income.
On August 22, 2017, the company’s Board of Directors authorized the repurchase of 20 million common shares under a share repurchase program. During the six months ended July 31, 2019, the company repurchased and subsequently retired 8.1 million common shares for approximately $217 million under this program. During the year ended January 31, 2019, the company repurchased and subsequently retired 3.5 million common shares for approximately $121 million under this 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. As of July 31, 2019, 26.3 million common shares were remaining under the programs.
During the six months ended July 31, 2019, the company opened a total of seven new retail locations including: three Anthropologie Group stores, three Free People stores and one Urban Outfitters store; and closed five retail locations including: two Anthropologie Group stores, one Free People store and two Food and Beverage restaurants. During the six months ended July 31, 2019, one Anthropologie Group franchisee-owned store was opened.
Urban Outfitters, Inc. operates 246 Urban Outfitters stores in the United States, Canada and Europe and websites; 228 Anthropologie Group stores in the United States, Canada and Europe, catalogs and websites; 137 Free People stores in the United States, Canada and Europe, catalogs and websites, 11 Food and Beverage restaurants, 4 Urban Outfitters franchisee-owned stores, 1 Anthropologie Group franchisee-owned store and 1 Free People franchisee-owned store, as of July 31, 2019. Free People, Anthropologie Group and Urban Outfitters wholesale sell their products through approximately 2,200 department and specialty stores worldwide.
