Urban Outfitters Finally Gets Back in Fashion

By Markets Fool.com


Source: Urban Outfitters.

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For a while now, many apparel retailers have struggled to deal with highly competitive industry conditions that have required a lot of promotional activity to get inventory out the door. Urban Outfitters has had its share of challenges to overcome, with the once-trendy retailer seeing some signs of life after seemingly going out of style. Coming into Monday afternoon's fiscal-fourth-quarter financial report, Urban Outfitters had largely convinced shareholders that a turnaround was imminent, but even past reports of record holiday and fourth-quarter sales apparently didn't do justice to just how strong a quarter the retailer had. Let's take a closer look at Urban Outfitters' results and whether they'll set the stage for an even stronger year in 2015.

Urban Outfitters meets high expectations
Urban Outfitters had already prepared investors for record results, so it was good to see the final numbers live up to the hype. Sales rose 12% to $1.01 billion, marking the first time that the retailer topped the $1 billion mark in quarterly revenue. Same-store sales climbed by 6%, showing healthy results in existing stores. Net income actually fell by more than 9%, but an aggressive reduction in the number of shares outstanding pushed earnings per share up by a penny from last year to $0.60 per share.

Perhaps the best news of all for Urban Outfitters was that the company managed to see success in all of its business lines. The namesake Urban Outfitters concept had lagged badly in the third quarter, but same-store sales this time around rose by 4% from year-ago levels. Free People continued to lead the way higher for the company, with comps rising 18%. Anthropologie Group also had respectable performance with 6% higher comps. Gains of more than 20% in Urban Outfitters' wholesale sales segment also helped push overall revenue higher.

Not all of the news for Urban Outfitters was good, though. Gross margins fell by more than two full percentage points, with the company blaming higher markdowns and lower initial markups. The Urban Outfittres brand continued to underperform, and total inventory rose 15% to $47 million from the year-ago period, reflecting both new store expansion and greater inventory levels from existing stores.


Source: Urban Outfitters.

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CEO Richard Hayne celebrated the billion-dollar quarter, revealing his pleasure at positive comparable-store sales at all of the chain's brands. "It is encouraging to see this sales trend continue into Q1," Hayne said, expressing confidence in the company's continued success this year.

Will Urban Outfitters keep climbing higher?
What's clear is that Urban Outfitters isn't just focusing on its business in order to try to juice its stock price higher. Late last month, the company announced another 20 million-share repurchase program, which at current prices would cost about $800 million and represent about 15% of Urban Outfitters' total outstanding share count. The tactic has been instrumental in offsetting the drops in net income, but ideally, the retailer will be able to start becoming more profitable not just through buybacks but on a total net income basis as well.

Yet profitability is also a key component of what investors in Urban Outfitters are looking for. The retailer had already released most of its sales-related data, so the only thing that today's report really filled in the blanks on was the extent to which those sales were profitable. Evidence that Urban Outfitters is still trying to maximize its bottom-line results rather than simply looking at endless margin-sacrificing promotions to drive sales is comforting for those who've been concerned about the retailer's past struggles.

Urban Outfitters investors were pleased with the report, as the stock climbed about 2.5% in the first 30 minutes of after-hours trading following the earnings announcement. Still, as the stock moves back toward its highest levels since 2013, Urban Outfitters will need to keep showing consistent growth from all of its storefronts, especially its long-struggling namesake business. Without follow-through, Urban Outfitters could see its climb reverse direction quickly.

The article Urban Outfitters Finally Gets Back in Fashion originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.