Urban Outfitters Cannot Overcome Eroding Margin

Investing

Published: May 18, 2015 4:26 pm

Last Updated: April 28, 2020 8:59 am

Urban Outfitters Inc. (NASDAQ: URBN) reported first-quarter fiscal 2016 results after markets closed Monday afternoon. The specialty retailer reported diluted earnings per share (EPS) of $0.25 and $739 million in revenues. In the same period a year ago, the company reported EPS of $0.26 on revenue of $686.3 million. First-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.30 and $758.25 million in revenue.

Same-store sales, including direct-to-consumer sales, rose 4% year-over-year in the quarter. Same-store sales were up 17% at the company’s Free People stores and 1% at the Anthropologie stores. Sales at the namesake stores were up 5%.

Third-quarter gross profit rose from $238.5 million to $246.2 million, but margin fell by 141 basis points, primarily due to lower initial margins at the Urban Outfitters Brand and higher delivery and fulfillment expenses across the company. SG&A rose by nearly $15 million, causing income from operations to fall by about $7.8 million. Net income was down by more than $5 million.

The company said it bought back 400,000 shares in its third quarter for approximately $17 million under a 10 million-share repurchase program, and 9.7 million shares for about $353 million, which completed another 10-million share repurchase authorization. The company’s board has approved a new repurchase authorization plan for 20 million shares.

Urban Outfitters did not offer guidance, but the consensus estimates for the second quarter call for EPS of $0.55 on revenues of $891.1 million. For the full year, analysts are expecting EPS of $2.05 on revenues of $3.64 billion.

Although the company posted record first-quarter sales, analysts were expecting more and they were expecting a larger profit. It appears that the reduction in margin combined with low initial margins on the namesake brand were simply too much for the other brands to overcome. The stock will take a beating tomorrow.

Shares traded down about 12% in after-hours trading Monday, at $35.85 in a 52-week range of $27.89 to $47.25. The stock closed Monday up 2.85% at $40.72. Thomson Reuters had a consensus analyst price target of $45.09 before the results were announced. The highest price target is $54.00.

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