Credit: Shutterstock photoUrban Outfitters Inc.URBN posted lower-than-expected earnings, when the company reported fourth-quarter fiscal 2017 results. Further, the company's top-line fell short of the Zacks Consensus Estimate for the second consecutive quarter.
Following the quarterly numbers, the company's shares declined 1.6% during after-market trading hours on Mar 7. In fact, the Zacks Rank #5 (Strong Sell) company's shares have declined 25.1% in the past three months, underperforming the Zacks categorized Retail-Apparel/Shoe industry which has witnessed a fall of 19.6%.
This lifestyle specialty retail company posted quarterly earnings of 55 cents a share that missed the Zacks Consensus Estimate by a penny and fell 9.8% from 61 cents in the year-ago period. The underperformance of the bottom line can be attributed to higher SG&A expenses deleverage (up 3.5%). Even the top-line growth and lower effective tax rate failed to cushion the bottom line.
An Insight into Revenues
We observe that although net sale of $1,030.2 million came in below the consensus mark of $1,037 million, the same increased 1.7% from the year-ago figure of $1,013.4 million. The top line gained from growth in direct-to-consumer channel, a jump of $19 million in non-comparable sales, the opening of two net new outlets and sales contribution from the newly acquired Vetri Family restaurants.
Except Urban Outfitters all other brands like Anthropologie Group, Free People along with Food and Beverage segments contributed to top-line growth in the quarter. Further, the company is making all possible efforts to enhance their performance.
Net sales by brands fell 0.4% to $413.8 million at Urban Outfitters but increased 1.5% to $424 million at Anthropologie Group and 4.4% to $186.3 million at Free People. For Food and Beverage net sales came in at $6 million compared with $1.8 million in the prior-year quarter.
The company's net sales advanced 1.8% to $956 million at the Retail Segment but declined 0.6% to $74.2 million at the Wholesale Segment.
Comparable retail segment net sales, including the comparable direct-to-consumer channel, were flat year over year. Comparable retail segment net sales rose 2% at Urban Outfitters and 1.2% at Free People but decreased 2.9 % at the Anthropologie Group. Comparable Retail segment sales were driven by robust performance of direct-to-consumer channel. However, growth was offset by negative retail store comparable net sales.
Margin Performance
Gross profit for the quarter came in at $340.3 million, down 2.5% from the year-ago quarter, while gross margin contracted 142 basis points (bps) to approximately 33% primarily owing to deleverage in customer delivery and logistics expense rates. Further, it was impacted by lesser initial mark-up and higher markdowns at both the Anthropologie and Urban Outfitters brands.
Management anticipates gross margin rate to decline year over year in first-quarter fiscal 2018 on account of rise in delivery and logistic expenses. Operating income declined 14.5% to $99.5 million, while operating margin shriveled approximately 180 bps to 9.7% in the quarter.
Store Update
In fiscal 2017, the company opened 29 new outlets - 15 Free People stores, 10 Anthropologie Group stores and four Urban Outfitters stores. The company shuttered seven stores - two Free People store, three Anthropologie Group store and two Urban Outfitters store - in the same time frame. During the period, the company also opened two new restaurants and acquired six Vetri Family restaurants which are included in the Food and Beverage division.
During fiscal 2018, the company plans to open a total of 19 net new outlets, while shutting down seven stores to lease expiration. The company anticipates opening four net new Urban Outfitters stores, including one in Europe and three in North America; four net new Anthropologie stores, including one expanded format store; and 10 net new Free People stores. The food and beverage division is also planning to open one restaurant.
In the first quarter, the company plans to open six net new outlets, including five new Free People stores in North America, one new expanded format Anthropologie store.
Other Financial Details
Urban Outfitters ended the quarter with cash and cash equivalents of $248.1 million, marketable securities of $111.1 million and shareholders' equity of $1,313.1 million. For fiscal 2018, management anticipates capital expenditures of $90 million.
During fiscal 2017, the company bought back 1.3 million shares for approximately $46 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 million under the same buyback program. The company still has 6 million shares remaining under its 20 million share repurchase authorization.
Stocks to Consider
Better-ranked stocks in the retail sector include Kate Spade & Company KATE , The Children's Place, Inc. PLCE and Genesco Inc. GCO , all the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Kate Spade & Company delivered an average positive earnings surprise of 14.6% in the trailing four quarters and has a long-term earnings growth rate of 28.3%.
Children's Place delivered an average positive earnings surprise of 36.3% in the trailing four quarters and has a long-term earnings growth rate of 10.3%.
Genesco delivered an average positive earnings surprise of 31.4% in the trailing four quarters and has a long-term earnings growth rate of 9.5%.
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Urban Outfitters, Inc. (URBN): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
