Urban Outfitters Profits Shrink 20.9%

Markdowns, expenses weigh on the retailer.

Urban Outfitters

Steep promotions and higher expenses contributed to a 20.9 percent decline in Urban Outfitters Inc.’s second-quarter net income.

This story first appeared in the August 16, 2011 issue of WWD.  Subscribe Today.

Glen Senk, chief executive officer, told analysts on a conference call that sales at the Anthropologie unit had decelerated over the past 10 days as consumers reevaluated the political and economic scene.

But he also noted that the women’s assortments at both Anthropologie and Urban Outfitters had been weak, and said the company was working to improve those collections and streamline its merchandising and e-commerce efforts.

For the period ended July 31, the Philadelphia-based retailer posted a profit of $56.7 million, or 35 cents a diluted share. This compared with earnings of $71.7 million, or 42 cents a share, in the year-ago quarter. Despite the decline, profits came in 3 cents ahead of Wall Street projections.

A 16.6 percent jump in e-commerce sales to $112.6 million boosted total sales by 10.3 percent to $609.2 million, from $552.2 million a year earlier. Sales came in ahead of the $604.5 million analysts expected.

Quarterly gross margin as a percentage of sales slid to 37.9 percent from year-ago margin of 42.5 percent, as selling, general and administrative expenses for the quarter rose 11.9 percent to $143.1 million.

Comparable-stores sales fell 2 percent, but when including direct sales, they improved 1 percent for the quarter. Comps at Free People and Urban Outfitters increased 1 percent and 18 percent, respectively, while comps at Anthropologie were flat.

Although the company vowed to tread with caution in the quarters to come, Urban plans to open 55 to 57 stores this year, focusing on the Free People and Urban Outfitters’ European division.