Urban Outfitters Tops Wall Street’s Targets In Q1

Urban Outfitters Inc. announced a record net income of $54 million, or 54 cents a share, on sales of $927 million for the first quarter ended April 30. Wall Street on average was looking for 16 cents a share on sales of $898 million.

Due to the material impact of COVID-19 on its business operations in fiscal 2021, including mandated store closures, this release includes a comparison of fiscal 2022 results to fiscal 2020, in addition to a comparison of fiscal 2022 results to fiscal 2021. Management views the comparison of fiscal 2022 results to fiscal 2020 as the more meaningful measurement of the company’s business performance.

Sales Results For Fiscal 2022 Compared To Fiscal 2020 And Fiscal 2021
Total company net sales for the three months ended April 30, 2021, were a record $927 million. Net sales increased 7.3 percent compared to the three months ended April 30, 2019. Comparable Retail segment net sales increased 10 percent, driven by strong double-digit growth in digital channel sales, partially offset by negative retail store sales due to reduced store traffic impacted by temporary store closures and occupancy restrictions in Europe and Canada. By brand, comparable Retail segment net sales increased 44 percent at the Free People Group, 9 percent at Urban Outfitters and 1 percent at the Anthropologie Group. Total Retail segment net sales also increased 10 percent. Wholesale segment net sales decreased 24 percent due in part to realigning the Free People brand customer base to focus on more regular price selling.

Total company net sales for the three months ended April 30, 2021, increased 57.6 percent compared to the three months ended April 30, 2020. Comparable Retail segment net sales increased 51 percent, driven by strong double-digit growth in both retail store and digital channel sales. By brand, comparable Retail segment net sales increased 77 percent at the Free People Group, 50 percent at the Anthropologie Group and 42 percent at Urban Outfitters. Total Retail segment net sales increased 53 percent. Wholesale segment net sales increased 196 percent. Net sales for the three months ended April 30, 2020, were significantly impacted by the COVID-19 pandemic including mandated store closures for all of the company’s stores and the majority of its wholesale partners.

“The first quarter was one for the record books; record sales, a record low markdown rate, and record earnings per share,” said Richard A. Hayne, Chief Executive Officer. “Strong ‘comps’ were driven by powerful demand and superb execution by all teams. In May, sales trends have accelerated further which we believe bodes well for second-quarter results,” finished Hayne.

Operating Results For The Three Months Ended April 30, 2021, Compared To Three Months Ended April 30, 2019
Total company net sales for the three months ended April 30, 2021, were a record $927 million. Net sales increased 7.3 percent compared to the three months ended April 30, 2019. Comparable Retail segment net sales increased 10 percent, driven by strong double-digit growth in digital channel sales, partially offset by negative retail store sales due to reduced store traffic impacted by temporary store closures and occupancy restrictions in Europe and Canada. By brand, comparable Retail segment net sales increased 44 percent at the Free People Group, 9 percent at Urban Outfitters and 1 percent at the Anthropologie Group. Total Retail segment net sales also increased 10 percent. Wholesale segment net sales decreased 24 percent due in part to realigning the Free People brand customer base to focus on more regular price selling.

For the three months ended April 30, 2021, the gross profit rate increased to 32.4 percent from 31.1 percent in the three months ended April 30, 2019. Gross profit dollars increased 11.7 percent to $300.7 million from $269.1 million. The increase in gross profit rate was primarily due to record low first-quarter merchandise markdown rates in the Retail segment and benefits associated with negotiated rent concessions with landlords and international government assistance programs. All three brands recorded lower merchandise markdown rates with the Urban Outfitters and Free People brands achieving record low first-quarter merchandise markdown rates. This was partially offset by an increase in delivery and logistics expenses and lower initial merchandise markups. Delivery and logistics expense deleverage was primarily driven by the increased penetration of the digital channel as well as an increase in home category net sales. Lower initial merchandise markups are primarily due to higher inbound freight and logistics expenses.

As of April 30, 2021, total inventory increased by $69.4 million, or 17.0 percent, compared to total inventory as of April 30, 2019. The increase in inventory is due to the improving sales trend as well as ongoing challenges in the supply chain. Due to extended lead times, we are bringing in product earlier to ensure we can meet our sales demand. As a result, while Retail segment’s comparable inventory was down 3 percent as compared to April 30, 2019, the significant increase in inventory in transit more than offset it.

For the three months ended April 30, 2021, selling, general and administrative expenses decreased by $1.9 million, or 0.8 percent, compared to the three months ended April 30, 2019, and expressed as a percentage of net sales, decreased to 24.5 percent from 26.5 percent in the three months ended April 30, 2019. The leverage in selling, general and administrative expenses as a rate to sales and decrease in dollars were primarily related to disciplined store payroll management and overall expense control. This was partially offset by an increase in digital marketing expenses during the quarter to support the strong digital sales and customer growth.

The company’s effective tax rate for the three months ended April 30, 2021, was 27.0 percent compared to 23.7 percent in the three months ended April 30, 2019. The increase in the effective tax rate for the three months ended April 30, 2021, was primarily due to the ratio of foreign taxable losses to global taxable profits and a lower benefit of equity activity compared to the three months ended April 30, 2019.

Net income for the three months ended April 30, 2021, was $54 million and record first-quarter earnings per diluted share was $0.54.

Operating Results For the Three Months Ended April 30, 2021, Compared To Three Months Ended April 30, 2020
Total company net sales for the three months ended April 30, 2021, increased 57.6 percent compared to the three months ended April 30, 2020. Comparable Retail segment net sales increased 51 percent, driven by strong double-digit growth in both retail stores and digital channel sales. By brand, comparable Retail segment net sales increased 77 percent at the Free People Group, 50 percent at the Anthropologie Group and 42 percent at Urban Outfitters. Total Retail segment net sales increased 53 percent. Wholesale segment net sales increased 196 percent. Net sales for the three months ended April 30, 2020, were significantly impacted by the COVID-19 pandemic including mandated store closures for all of the company’s stores and the majority of its wholesale partners.

For the three months ended April 30, 2021, the gross profit rate increased to 32.4 percent from 2.0 percent in the prior year’s comparable period. Gross profit dollars increased by $288.8 million to $300.7 million from $11.8 million in the prior year’s comparable period. The increase in gross profit rate was due to the negative impacts the COVID-19 mandated store closures had on the company’s Retail segment and its partners in the Wholesale segment in the prior-year quarter. The mandated store closures resulted in a significant deleverage in store occupancy and an increase in merchandise markdowns in the prior-year quarter. The company also recorded a meaningful increase in inventory obsolescence reserves in the prior-year quarter due to the impact the store closures had on the aging of the company’s inventory. Finally, during the prior-year quarter, the company recorded a $14.5 million store impairment charge.

As of April 30, 2021, total inventory increased by $142.1 million, or 42.3 percent, on a year-over-year basis. During the three months ended April 30, 2020, the company canceled or delayed many orders to reduce inventory levels as a result of the significant impacts the COVID-19 pandemic was having on its operations, particularly with the mandated store closures, and recorded a meaningful increase in inventory obsolescence reserves.

For the three months ended April 30, 2021, selling, general and administrative expenses increased by $16.6 million, or 7.9 percent, compared to the prior year’s comparable period and expressed as a percentage of net sales, decreased to 24.5 percent from 35.8 percent in the prior year’s comparable period. The leverage in selling, general and administrative expenses for the three months ended April 30, 2021, was primarily related to leverage in-store and field management expense due to the company continuing to employ and pay a large portion of regional and store management teams despite store closures and reduced sales related to the COVID-19 pandemic in the prior-year quarter. Additionally, in the prior-year quarter, the company recorded a significant increase in the allowance for doubtful accounts reserves for wholesale customer accounts receivables as a result of the significant disruption and uncertainty in the wholesale macro-environment due to the COVID-19 pandemic.

The company’s effective tax rate for the three months ended April 30, 2021, was an expense of 27.0 percent compared to a benefit of 30.3 percent in the prior-year period.

Net income for the three months ended April 30, 2021, was $54 million and record first-quarter earnings per diluted share was $0.54.

Photo courtesy Urban Outfitters