Urban Outfitters (URBN) Q1 Earnings In Line, Sales Beat

Urban Outfitters Inc. (NASDAQ:URBN) posted first-quarter fiscal 2017 earnings of 25 cents a share that came in line with the Zacks Consensus Estimate and remained flat year over year. Higher share repurchase activity provided cushion to the bottom line, as we note that net income fell 9.8% during the quarter under review. Nevertheless, investors applauded the company’s top-line performance that improved year over year and also beat analysts’ expectations. As a result, shares of this Zacks Rank #3 (Hold) company rose 7.2% during after-market trading hours yesterday.

An Insight into Revenues

Net sales of Urban Outfitters came in at $762.6 million during the reported quarter, up 3.2% from the year-ago figure of $739 million, and also ahead of the Zacks Consensus Estimate of $760 million. The top line gained from a rise in comparable retail segment net sales, an increase in wholesale segment sales and a jump of $9.5 million in non-comparable sales, including the opening of 2 net new outlets and sales contribution from the newly acquired Vetri Family restaurants.

Urban Outfitters, Anthropologie Group and Free People brands all contributed to top-line growth in the quarter. The company is making all possible efforts to enhance the performance of its brands through store refurbishment and by bringing in more compelling assortments.

Net sales by brands grew 1.2% to $299.3 million at Urban Outfitters, 1.3% to $315.3 million at Anthropologie Group, and 9.5% to $144.5 million at Free People. The company’s net sales advanced 2.2% to $700.2 million at the Retail Segment, and surged 15.5% to $62.4 million at the Wholesale Segment.

Comparable retail segment net sales, including the comparable direct-to-consumer channel, inched up 1%. Comparable retail segment net sales rose 2% at Urban Outfitters, remained flat at the Anthropologie Group and declined 2% at Free People.

Margin Performance

Gross profit for the quarter came in at $261.9 million, up 6.3% from the year-ago quarter, whereas gross margin expanded 100 basis points to 34.3%

Management anticipates gross margin rate to improve marginally year over year in the second quarter of fiscal 2017.

Operating income declined 4.8% to $50.5 million, while operating margin shriveled approximately 60 basis points to 6.6% in the quarter.

Store Update

During the quarter, Urban Outfitters opened 4 new outlets – 3 Free People stores and 1 Anthropologie Group store. Over the period, the company closed 2 stores – 1 Urban Outfitters store and 1 Anthropologie Group store. During the quarter, the company acquired 6 Vetri Family restaurants.

During fiscal 2017, the company plans to open a total of approximately 24 net new outlets, excluding the food & beverage division. The company expects to open 4 net new Urban Outfitters stores, including 1 in Europe; 8 net new Anthropologie stores, including 2 in Europe; and 12 net new Free People stores. During the second quarter, the company aims to open 6 new Free People outlets in North America, 2 new Anthropologie stores in North America and 1 new Urban Outfitters store in Europe.

Other Financial Aspects

Urban Outfitters ended the quarter with cash and cash equivalents of $228.1 million, marketable securities of $59.6 million, long-term debt of $75 million, and shareholders’ equity of $1,174.1 million. For fiscal 2017, management anticipates capital expenditures of $170 million.

During the quarter under review, the company bought back 0.3 million shares for approximately $11 million under the 20 million share buyback program announced on Feb 23, 2015. During fiscal 2016, the company repurchased 12.7 million shares for approximately $382.5 million under the same buyback program. The company still has 7 million shares remaining under its 20 million share repurchase authorization.

Stocks to Consider

Better-ranked stocks in the retail sector include Abercrombie & Fitch Co. (NYSE:ANF) , The Children's Place, Inc. (NASDAQ:PLCE) and New York & Company Inc. (NYSE:NWY) , all carrying a Zacks Rank #2 (Buy).