Urban Outfitters Inc. announced net income of $34 million, or 35 cents a share, for the three months ended July 31, down from $60.3 million, or 61 cents, a year ago.
Total company net sales for the three months ended July 31, 2020, decreased 16.5 percent over the same period last year to $803 million. Comparable Retail segment net sales decreased 13 percent, driven by negative retail store sales due to stores being closed for part of the quarter and lower store productivity once opened, partially offset by strong double-digit growth in the digital channel. By brand, comparable Retail segment net sales increased 11 percent at Free People and decreased 8 percent at Urban Outfitters and 25 percent at the Anthropologie Group. Total Retail segment net sales decreased by 14 percent. Wholesale segment net sales decreased by 51 percent.
“I’m pleased to announce URBN produced solid revenues and profits for the second quarter driven by strength in the digital channel,” said Richard A. Hayne, Chief Executive Officer. “Notably, all brands were profitable and enter the fall selling season with lean inventories and positive momentum,” finished Hayne.
For the three months ended July 31, 2020, the gross profit rate decreased to 29.6 percent from 32.8 percent in the prior year’s comparable period. Gross profit dollars decreased 24.6 percent to $238.0 million from $315.9 million. The decrease in gross profit rate was primarily due to an increase in delivery and logistics expenses due to penetration of the digital channel, followed by store occupancy expense rate deleverage. The deleverage in store occupancy expense was due to store closures during the quarter as well as lower store sales productivity once stores reopened. Merchandise markdowns were lower in the quarter while initial merchandise mark-up rate was flat versus the prior year’s comparable period. Both the Urban Outfitters and Free People brands delivered record low markdown rates in the quarter. Lastly, due to disciplined inventory control and better than planned product performance, inventory reserves for the Retail and Wholesale segments were reduced by $21.7 million in total during the quarter versus the prior year’s comparable period.
As of July 31, 2020, total inventory decreased by $88.3 million, or 20.1 percent, on a year-over-year basis. Comparable Retail segment inventory decreased 14 percent at cost. The decrease in inventory was due to a 14 percent decrease in Retail segment inventory and a 53 percent decrease in Wholesale segment inventory.
For the three months ended July 31, 2020, selling, general and administrative expenses decreased by $69.2 million, or 29.1 percent, compared to the prior year’s comparable period and expressed as a percentage of net sales, leveraged by 372 basis points. The leverage and decrease in selling, general and administrative expenses for the three months ended July 31, 2020, was primarily related to disciplined store payroll management, overall expense control measures and the benefit of COVID-19 related government relief packages. Digital marketing expenses grew during the quarter to support strong digital channel sales and customer growth.
The company’s effective tax rate for the three months ended July 31, 2020, was 50.1 percent compared to 26.0 percent in the prior-year period. The company’s effective tax rate for the six months ended July 31, 2020, was a benefit of 19.8 percent compared to an expense of 25.2 percent in the prior-year period. The increase in expense for the three months ended July 31, 2020, was due to the partial reversal of the tax benefit recorded in the three months ended April 30, 2020, based on the improved company performance in the second quarter. The change in the effective tax rate for the six months ended July 31, 2020, was primarily driven by the year-to-date operating loss compared to operating income in the prior-year period.
During the six months ended July 31, 2020, the company opened a total of five new retail locations including three Urban Outfitters stores and two Anthropologie Group stores; and closed four retail locations including three Urban Outfitters stores and one Free People store. During the six months ended July 31, 2020, three Urban Outfitters franchisee-owned stores and one Free People franchisee-owned store were closed.
Urban Outfitters, Inc., offers lifestyle-oriented general merchandise and consumer products and services through a portfolio of global consumer brands comprised of 248 Urban Outfitters stores in the United States, Canada and Europe and websites; 233 Anthropologie Group stores in the United States, Canada and Europe, catalogs and websites; 143 Free People stores in the United States, Canada and Europe, catalogs and websites, 11 Menus & Venues restaurants, 2 Urban Outfitters franchisee-owned stores and 1 Anthropologie Group franchisee-owned store, as of July 31, 2020.
Photo courtesy Urban Outfitters
