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Tight Inventories Boost 3Q Results

Retailers reporting third-quarter results Thursday bolstered their bottom line by keeping inventories tight.

NEW YORK — Retailers reporting third-quarter results Thursday bolstered their bottom line by keeping inventories tight.

Pacific Sunwear of California Inc., Kohl’s Corp. and Target Corp. each cited better inventory controls for their higher gross margin rates, which increased their profits. At Urban Outfitters Inc., gross margins fell, but the retailer’s top and bottom lines swelled during the quarter, strengthened by strong demand for its three brands.

Urban Outfitters’ net profits rose over 40 percent on a 33.5 percent revenue gain in the quarter ended Oct. 31. The specialty retailer earned $37.2 million, or 22 cents a diluted share, matching analysts’ estimates. Comparatively, the Philadelphia-based company had a profit of $26 million, or 15 cents, a year earlier. Third-quarter net revenues jumped to $288.8 million from $216.4 million a year ago.

Consolidated comparable-store sales were up 13 percent, the company said, consisting of a 19 percent jump in comps at Urban Outfitters stores, a 7 percent comp increase at Anthropologie and a 21 percent comp surge for Free People. “This year’s third quarter was the best in the company’s history,” said Richard A. Hayne, chairman and president of Urban Outfitters, on a post-earnings report conference call with analysts and investors. He said comp-store sales were driven by demand for apparel and accessories at Free People as well as home product sales at Anthropologie.

Operating margin was 21 percent of net sales during the quarter, the highest in the company’s history, Hayne said. Gross profit margin, however, fell to 41.6 as a percent of sales versus 42.3 percent a year ago. The company attributed the decrease to having too much of some items and taking “aggressive” markdowns to clear them from stores.

Looking to the fourth quarter, the company said November sales “continue to run significantly above our plan.” Urban plans to open 30 to 32 new stores this year, including four new Free People sites. The company opened 21 stores so far, including its first Free People hard shop within Bloomingdale’s here on 59th Street. Sales have already been “exceptional,” the company said.

Meanwhile, Target Corp. delivered earnings per share three cents above Wall Street analysts’ consensus estimate, while also seeing significant gross margin growth. For the third quarter ended Oct. 30, net earnings from continuing operations swelled 34.3 percent to $435 million, or 49 cents a share, from $324 million, or 36 cents, in the prior year, on a total revenue gain of 11.9 percent to $12.21 billion from $10.91 billion. Same-store sales rose 5.9 percent in the quarter.

Douglas A. Scovanner, chief financial officer, chief accounting officer and executive vice president of Target, said on a conference call that the retailer “enjoyed exceptional gross margin rate expansion in the quarter, totaling 121 basis points and reflecting substantial improvement in markup. In addition, favorable markdown and inventory shrink experience contributed to our strong gross margin rate performance.”

Scovanner went on to say the credit card operations also continue “to contribute meaningfully to our overall profitability.” The business added $158 million on a pretax basis to Target’s earnings, which is a 31.3 percent year-over-year gain.

Gregg W. Steinhafel, president of Target Stores, said on the call the same-store sales growth was “driven primarily by an increase in average transaction amount.” Bolstering comps was a strong performance in men’s wear, women’s wear, food and commodities.

After the market closed, Kohl’s Corp. posted a significant gain in profits as sales rose 13.7 percent. Net income climbed 15.3 percent to $155.1 million, or 45 cents, from $134.6 million, or 39 cents, in the same period last year on sales that rose to $3.1 billion from $2.7 billion.

Larry Montgomery, Kohl’s chairman and chief executive officer, said in a statement that he was “pleased with our performance on the gross margin line as a result of continued focus on inventory management. Our expenses were on plan and allowed us to make investments in marketing some of our new merchandise brands that will pay dividends in the fourth quarter.”

Also after the market was Pacific Sunwear, which said net earnings in the three months ended Oct. 29 rose 20 percent to $40.5 million, or 54 cents a diluted share, matching analysts’ estimates. That compared with a profit of $33.7 million, or 44 cents, last year. Third-quarter revenues advanced 13.6 percent to $377.5 million, while same-store sales were up 4.6 percent.