Urban Outfitters, Inc.’s earnings dropped 23.2 percent in the fourth quarter coming in below analysts’ consensus estimates. Sales came in slightly ahead of targets with strength at its Anthropologie, Free People and Nuuly brands.
Urban Outfitters’ other brands include BHLDN, FP Movement, Terrain, Urban Outfitters, and Menus & Venues.
Net income was $31.5 million and earnings per diluted share of $0.34 for the three months ended January 31, 2023. In the year-ago period, earnings were $41.0 million, or 41 cents a share. Earnings of 34 cents were below Wall Street’s consensus estimate of 38 cents.
For the year ended January 31, 2023, net income was $159.7 million and earnings per diluted share were $1.70. In 2022, earnings were $310.6 million, or $3.13 a share.
Total company net sales for the three months ended January 31, 2023, increased 3.9 percent to a record $1.38 billion. Sales topped Wall Street’s consensus estimate of $1.37 billion.
Total Retail segment net sales in the quarter increased 2 percent, with comparable Retail segment net sales increasing 3 percent, partially offset by a 1 percent negative impact of foreign currency translation. The increase in Retail segment comparable net sales was driven by mid-single-digit positive growth in retail store sales and low single-digit positive growth in digital channel sales. By brand, comparable Retail segment net sales increased 15 percent at the Free People Group and 9 percent at the Anthropologie Group and decreased 10 percent at Urban Outfitters. Wholesale segment net sales decreased 7 percent driven by a 13 percent decrease in Free People Group wholesale sales due to a decrease in sales to department stores partially offset by growth in specialty and close-out account partners, while Urban Outfitters wholesale sales increased by $3 million. Nuuly segment net sales increased by $25.5 million driven by a 149 percent increase in our subscribers as of the current quarter end versus the end of the prior year’s comparable quarter.
For the year ended January 31, 2023, total company net sales increased 5.4 percent to $4.8 billion compared to the year ended January 31, 2022. Total Retail segment net sales increased 4 percent, with comparable Retail segment net sales also increasing 4 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 prior year due to the pandemic. With those restrictions not present in the current year, Retail segment comparable sales increased due to high single-digit positive growth in retail store sales due to increased store traffic and low single-digit positive growth in digital channel sales. By brand, comparable Retail segment net sales increased 11 percent at the Free People Group and 11 percent at the Anthropologie Group and decreased 7 percent at Urban Outfitters. Wholesale segment net sales decreased 1 percent, driven by a 1 percent decrease in Free People Group wholesale sales primarily due to a decrease in sales to department stores, partially offset by an increase in sales to specialty accounts. Nuuly segment net sales increased by $81.9 million due to a 149 percent increase in our subscribers as of the current fiscal year-end versus the end of the prior year’s comparable period.
“We are pleased to report record fourth-quarter sales driven by strength at the Anthropologie, Free People and Nuuly brands,” said Richard A. Hayne, Chief Executive Officer. “We enter the spring selling season with an improved inventory position which bodes well for merchandise margin opportunity in fiscal 2024.”
For the three months ended January 31, 2023, the gross profit rate decreased by 68 basis points compared to the three months ended January 31, 2022. Gross profit dollars increased 1.4 percent to $372.3 million from $367.3 million in the year ended January 31, 2022. The decrease in gross profit rate was primarily due to store impairment charges of $5.5 million, or 39 bps, in the three months ended January 31, 2023. Retail segment merchandise margins were slightly lower as improved initial merchandise markups were offset by higher markdowns at the Urban Outfitters and Free People Group brands as compared to the comparable prior year quarter. A decline in the Wholesale segment gross profit rate also contributed to the total company gross profit decline as a result of increased sales discounts to clear out excess merchandise. Finally, the Nuuly segment gross profit rate improved due to operating leverage from the significant growth in subscribers.
For the year ended January 31, 2023, the gross profit rate decreased by 308 basis points compared to the year ended January 31, 2022. Gross profit dollars decreased 4.5 percent to $1.43 billion from $1.49 billion in the year ended January 31, 2022. The decrease in gross profit rate and dollars was primarily due to higher markdowns driven by the Urban Outfitters and Free People Group brands in the Retail segment as compared to record low markdown rates in the comparable prior year period. Additionally, during the year ended January 31, 2023, the company recorded store impairment charges of $6.4 million.
As of January 31, 2023, total inventory increased by $17.8 million, or 3.1 percent, compared to total inventory as of January 31, 2022. Total Retail segment inventory increased by 4 percent and Wholesale segment inventory decreased by 7 percent.
For the three months ended January 31, 2023, selling, general and administrative expenses increased by $21.1 million, or 6.7 percent, compared to the three months ended January 31, 2022, and expressed as a percentage of net sales, deleveraged 63 basis points. The deleverage in SG&A as a rate to sales and growth in SG&A dollars was primarily related to increased marketing expenses to support increased sales and customer growth and severance expenses.
For the year ended January 31, 2023, SG&A increased by $115.2 million, or 10.6 percent, compared to the prior year’s comparable period, and expressed as a percentage of net sales, deleveraged 118 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 primarily due to 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 January 31, 2023 was 23.6 percent, compared to 21.1 percent in the three months ended January 31, 2022. The company’s effective tax rate for the year ended January 31, 2023 was 27.8 percent, compared to 23.2 percent in the year ended January 31, 2022. The increase in the effective tax rate for the three and twelve months ended January 31, 2023 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.
