Flagship Division Still a Challenge for Urban Outfitters

CEO Richard Hayne said the company remains “very cautious” about its prospects for the first quarter as turnaround efforts kick in.

Sales at Urban Outfitters were down 4.2 percent to $398 million.

Throwing optimism aside, Urban Outfitters Inc. chief executive officer Richard Hayne said the company remains “very cautious” about its prospects for the first quarter based on continued weakness at its flagship division.

This story first appeared in the March 11, 2014 issue of WWD.  Subscribe Today.

“Customer reaction to the new spring fashion offerings at our Anthropologie and Free People brands has been strong, but given the continued challenges facing the Urban Outfitters brand, we remain very cautious about [Urban’s] first-quarter performance,” he said.

Hayne noted that the weather played a significant role in the quarter’s results, with the number of store days either totally or partially lost to inclement weather in the quarter rising to 312 from just 13 during the year-ago period.

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Still, he was reluctant to blame the Urban unit’s difficulties on the weather, saying during a conference call late Monday that discussions about issues including weather, lingering youth unemployment and even Internet penetration were “off point. Sales correlate directly with fashion hits and misses, and I believe the Urban brand has had fewer hits than normal.”

To correct the situation at the brand, which he said had become “too siloed with too little communication across functional areas,” efforts are under way to improve procedures and policies, but that better financial results were unlikely before the close of the first quarter, with corporate earnings experiencing “significant downward pressure” during the period.

Shares closed down 5 cents, or 0.1 percent, at $37.51 during regular trading hours Monday.

The guarded forecast came as the Philadelphia-based specialty store reported results for the fourth quarter ended Jan. 31, which included revenue results that were reported on Feb. 10. Net income for the quarter rose 7.6 percent to $88.7 million, or 59 cents a diluted share, from $82.5 million, or 56 cents, in the year-ago quarter. Analysts, on average, expected earnings per share of 55 cents.

As reported, revenues were up 5.7 percent to $905.9 million from $856.8 million with comparable retail segment sales up 1 percent. Comp increases of 20 percent at Free People and 10 percent at Anthropologie were offset by a 9 percent decrease at Urban Outfitters, where net sales were down 4.2 percent to $398 million. Net sales at Anthropologie rose 11.7 percent to $374 million, and Free People was up 25.7 percent to $122.9 million.

Gross margin held steady at 36.7 percent of sales, while year-end inventories rose 10.2 percent to $311.2 million.

For the full year, net income was up 19 percent to $282.4 million as sales rose 10.4 percent to $3.09 billion.