Urban Outfitters Inc. reported earnings dipped slightly in the second quarter but the company noted that its flagship Urban Outfitters chain is continuing to regain momentum.
The Urban chain saw a 4 percent comp gain in the quarter after seeing declines last year, with the North American group outperforming its European counterpart. The gain was driven by a high single-digit increase in regular-priced sales.
“Year-over-year increases in both conversion and average transaction value drove the regular price increase and demonstrate the willingness of the Urban customer to buy at full price when we provide her with compelling product and exciting experience,” said Richard Hayne, CEO, on a conference call with analysts.
Similar to the first quarter, six of Urban's eight major product categories delivered positive regular-priced comps, including the critical women's apparel division. Finding additional space for emerging strong categories like beauty, intimates and dresses boosted sales. In July, a prototype store with a new floor set and a number of category shop-in-shops opened to a good response and the Urban team is in the process of reproducing this floor set across the store fleet.
“One of the brand's most important achievements for the quarter was a 400-plus basis point improvement in the year-over-year markdown rate,” added Hayne. “Fewer markdowns more than offset a decrease in IMU and resulted in significant merchandise margin improvement for the brand.”
The Urban chain is also working to increase selling space in existing stores by holding less back stock in stores and opening up backspace for selling. It’s also speeding up arrivals of new items and integrating more digital capabilities into the store experience, including testing the use of in-store beacon messaging to send notifications to shoppers.
Overall, earnings in the quarter slipped to $66.8 million, or 52 cents a share, from $67.5 million, or 49 cents, a year ago. Total sales increased 6.9 percent to $867.5 million. Among its other chains, comps increased 14 percent at Free People and 2 percent at the Anthropologie Group. Wholesale segment net sales rose 21 percent.
In its wholesale segment, the company noted that its activewear line, FP Movement, continues to do well in its own stores, with initial sales to wholesale accounts set for spring.
Gross margins in the quarter declined 71 basis points, primarily driven by higher delivery and fulfillment center expenses largely related to the increase in direct-to-consumer sales penetration as well as incremental costs associated with the transition of its South Carolina fulfillment center to Gap, PA. SG&A expenses, expressed as a percentage of net sales, increased 29 basis points, primarily due to increased marketing and technology expenses which drove higher direct-to-consumer traffic.