By  on November 12, 2009

Urban Outfitters Inc.’s third-quarter profits topped both its own year-ago performance and analysts’ estimates as strong sales at Anthropologie helped it overcome weakness at the flagship brand.

The Philadelphia-based retailer said for the three months ended Oct. 31, net income rose 5.3 percent to $63.4 million, or 36 cents a diluted share, compared with $59.3 million, or 35 cents a share, in the year-ago quarter. Net sales climbed 5.8 percent to $505.9 million from $478 million in 2008.

Analysts projected earnings per share of 35 cents on revenue of $499.4 million, according to Yahoo Finance.

Retail sales increased 7.1 percent to $475.4 million, with comparable-store sales down 2 percent, while direct sales grew 21 percent to $79.8 million. Wholesale revenues fell 10 percent to $30.5 million.

By concept, Urban Outfitters posted a 2.9 percent decline in revenue to $202.3 million, while Anthropologie, the company’s more contemporary brand, saw sales jump 14.3 percent to $181.6 million. Comps slid 5 percent at the Urban Outfitters division, but rose 3 percent at Anthropologie.

Free People recorded an 8.1 percent increase in revenue to $10.5 million despite a 13 percent drop in same-store sales. Home and garden unit Terrain had a 4.7 percent decline in sales to $1.2 million.

In the nine months, net income contracted 10.5 percent to $142.2 million, or 83 cents a share, as sales rose 1.7 percent to $1.35 billion, versus $1.33 billion.

“The retail landscape has always been dynamic, but the pace of change continues to gain velocity. The customer is changing — there is a new definition of luxury, a new definition of value, a new set of values,” chief executive officer Glen Senk said on a conference call with analysts and investors.

Senk said there is “minimal evidence of price elasticity on compelling product.” He noted that value went beyond price, encompassing “authenticity, scarcity, freshness, compelling differentiated product and a meaningful emotional connection.”

The ceo touted the company’s quarterly gross margin, which improved to 41.5 percent of sales from 40.1 percent. Improvements in initial merchandise margins were partially offset by increased markdowns to clear seasonal inventories. Still, for the period, inventories fell $18 million, or 8 percent, on a year-over-year basis. Selling, general and administrative costs, however, increased $9.3 million to $114.3 million, due partially to deleveraging of fixed store costs.

“Urban is one of the last early-cycle growth stories left in retail. The U.S. store base can more than double, and international growth is in the first inning,” said Jeffries & Co. retail analyst Randal Konik, who added that, “coupled with multiple margin drivers, [company] earnings should significantly outpace peers and Street expectations.”

Shares of the firm ended the day at $32.80, up 53 cents, or 1.6 percent, in Nasdaq trading. They came within 75 cents of their 52-week high in intraday trading.

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