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NEW YORK — Urban continued to thrive, and American Eagle to struggle, as Pennsylvania’s two Outfitters reported second-quarter results last week.
This story first appeared in the August 19, 2003 issue of WWD. Subscribe Today.
While a paucity of “active, fun looks” contributed to nearly a 20 percent decline in American Eagle Outfitters’ quarterly profits, Urban Outfitters’ income jumped by more than half.
Philadelphia-based Urban Outfitters Inc. posted a whopping 51.4 percent jump in second-quarter earnings, netting $9.5 million, or 47 cents a diluted share, from $6.3 million, or 32 cents, in the year-ago quarter. Sales rose 21.7 percent for the three months ended July 31 to $122.9 million from $101 million.
Separately, the company said that Steve Feldman, chief financial officer, will leave the company to pursue other business opportunities. Additionally, Freeman Zausner, a former employee who has served as a consultant to the firm, was appointed chief administrative officer. Richard Hayne, chairman and president, noted in a statement that during Feldman’s five-year tenure, the company had “more than doubled its sales and profits.”
The company also said last week that its board authorized a 2-for-1 split of its common stock, with the additional share distributed on Sept. 19 to shareholders of record on Sept. 5.
Urban said that the sales gain was fueled by a 20 percent increase in the number of stores and a comparable-store sales gain of 11 percent. The comps for the quarter reflected a 10 percent increase at Urban Outfitters Retail and a 12 percent jump at Anthropologie Retail.
By division, UO store sales rose 18.8 percent to $60.8 million during the quarter, while Anthropologie sales moved ahead 24.6 percent to $47.9 million. Direct-to-consumer sales advanced 37.2 percent to $9.2 million and Free People sales were up 6.7 percent to $5.1 million.
Hayne said in a statement, “Our brands are distinctive and resonate powerfully with the customer, and given that each brand is in a relatively early stage of growth, we believe the company has tremendous potential. This stock split is an affirmation of that belief.”
For the six months, income rose by 44.1 percent to $15.9 million, or 79 cents a diluted share, from $11 million, or 58 cents. Sales gained 17.9 percent to $230 million from $195.1 million.
While executives at Warrendale, Pa.-based American Eagle said they want to put the fun back into their assortment for fall, second-quarter financial results certainly didn’t deliver any pleasure.
“Overall our assortment was just too serious for back-to-school,” Roger Markfield,?president and co-chief executive, said on a conference call. “We needed more active, fun looks. We are working very hard to correct course now and I am confident that the right changes are being implemented for holiday and forward.”
Net income fell to $8.1 million, or 11 cents a diluted share, for the three months ended Aug. 2, in line with its estimates but 19.6 percent below the $10.1 million, or 14 cents, earned in the like period last year. Total sales improved 5.6 percent to $337.1 million from $319.2 million, but comps went the other way, eroding 5.5 percent on a consolidated basis, and 5.3 percent at its AE stores. Sales for the quarter included $19.3 million from the Bluenotes/Thriftys operation.
“We are addressing the underlying strength and strategic direction of these business units to make them more productive over the long term,” the ceo said. “Strategically, the assortment needs to be consistent with the AE brand. We must make ourselves distinct in the marketplace, but not leave some of that marketplace behind.”
In addition, he said the firm, which operates 717 AE stores and 11 Bluenotes/Thriftys stores, would focus more on key items, clarity of the presentation and value. “Our customer must see big, powerful key items without too much clutter,” he said. “We must have compelling value items — that is what our customer comes to us for.”
Although back-to-school started off slowly and is below plan so far, Markfield said there are many strong items, noting that at least 70 percent of AE’s floor set is working and selling through. Specifically, he said women’s denim, graphic T-shirts, pants, outerwear, underwear and personal care are comping positively.
However, he said while unit sales to date in August are up, the average unit price is down, contributing to an 8 percent comp drop through the first 10 days of August.
“We were so focused on setting ourselves apart, we overemphasized certain categories, like women’s sweaters, and made the collection too fashion-focused for the b-t-s customer,” Markfield acknowledged. “We should have been more active-oriented. We should have had a whole lot more hoodies and things like that.”
In addition, he said the firm erred when it opted to de-emphasize its logo on several key items and eventually eliminate it altogether. “The AE brand has been painstakingly established over time. It is a mass brand and the customer expects to make that branded connection with our product,” Markfield said.
To learn more about its customers and how they are evolving, AE said it is conducting a major customer research effort across the country to better understand them.
For the first half, earnings withered 36.4 percent to $14.5 million, or 20 cents a diluted share, compared to $22.8 million, or 31 cents. Sales picked up 5.3 percent to $628.9 million from $597.1 million, while comps slid 5.6 percent.
“The AE brand is enduring,” the ceo stated. “We aren’t a niche player. We are one of the biggest players in this category and as we move forward we are making all the necessary adjustments to our business, both tactically and strategically.”