Shares of Urban Outfitters Inc. URBN jumped 6.4% in the aftermarket trading session yesterday on better-than-expected fourth-quarter fiscal 2015 results. Earnings of 60 cents a share beat the Zacks Consensus Estimate of 57 cents and came a penny above the year-ago quarter, thanks to lesser shares outstanding.
However, net income declined 9.5% year over year to $80.3 million due to higher cost of sales and increased selling, general and administrative expenses. Going forward management hinted that an exposure to the Canadian and the European markets could hurt fiscal 2016 earnings per share due to foreign currency headwinds.
Revenue Insight
Total net sales of Urban Outfitters climbed 11.6% to $1,011 million during the quarter, attributable to a $46 million jump in non-comparable store sales, new store openings and double-digit growth at its wholesale operations. The top line also surpassed the Zacks Consensus Estimate of $1,005 million.
Urban Outfitters, Anthropologie and Free People brands contributed to the company’s performance. Management is making every effort to revive the namesake brand through store refurbishment and bringing in more compelling assortments.
Net sales by brands increased 10.1% to $438.4 million at Urban Outfitters, 9% to $413 million at Anthropologie and 24.2% to $152.6 million at Free People. Other revenues surged 16.1% to $7 million. The company’s net sales increased 11.1% to $953.3 million at the Retail Segment and 20.6% to $57.8 million at the Wholesale Segment.
Comparable retail segment net sales, including the comparable direct-to-consumer channel, increased 6%. Comparable retail segment net sales rose 18% and 6% at Free People and Anthropologie, respectively, while it climbed 4% at Urban Outfitters.
Margin Performance
Gross profit for the quarter grew 5.3% to $349.6 million, whereas gross margin contracted 207 basis points to 34.6% because of lower initial merchandise markups followed by increased markdowns. Management expects gross margin to improve 100 basis points during fiscal 2016, despite an adverse impact of 50 basis points due to the relocation of the East Coast fulfillment center to Gap, PA from Trenton, SC.
Operating income slid 4% to $124 million, while operating margin contracted approximately 199 basis points to 12.3%.
Stores Update
During fiscal 2015, the company opened 38 outlets including 11 Urban Outfitters stores, 15 Anthropologie Group stores and 12 Free People stores. The company also closed 3 Urban Outfitters stores due to expirations of lease.
Management plans to open approximately 32 outlets in fiscal 2016, comprising 4 Urban Outfitter stores in North America, 13 Anthropologie Group stores globally (including 1 European store), and 15 Free People stores in North America.
Other Financial Aspects
Urban Outfitters ended the quarter with cash and cash equivalents of $154.6 million, marketable securities of $104.2 million and shareholders’ equity of $1,326 million. Management anticipates capital expenditures in the range of $150 million to $160 million for fiscal 2016.
During the quarter, the company bought back 3.8 million shares for approximately $126 million. During fiscal 2015, the company repurchased 7.7 million shares for approximately $258 million, and has 2.3 million shares remaining at its disposal under the 10 million shares buyback program announced on May 27, 2014. This February, the company’s board of directors authorized the buyback of an additional 20 million shares.
Better Ranked Stocks
Better-ranked stocks in the retail sector include Aéropostale, Inc. ARO, American Eagle Outfitters, Inc. AEO and DSW Inc. DSW, all carrying a Zacks Rank #2 (Buy).
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