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Urban Outfitters Income, Sales Rise

Stock soars 12.4 percent on second-quarter results.

Urban Outfitters

It didn’t take long for Richard Hayne to reacclimate to life atop Urban Outfitters Inc.

This story first appeared in the August 21, 2012 issue of WWD.  Subscribe Today.

Hayne, cofounder and chairman, took back his spot as chief executive officer when Glen Senk left in January, and he has been on the move since, plotting the company’s next steps.

The company boosted sales and controlled inventories in the second quarter, which helped it heartily top estimates. Earnings per share came in 9 cents better than the 33 cents analysts expected and investors sent the stock up 16.8 percent to $36.52 in after-hours trading.

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Urban is charging ahead in Europe, setting its sights on Asia and looking to draw in new customers by devoting more dollars to online marketing.

Hayne hinted of other changes to come, telling analysts on a conference call that the retailer is “currently engaged in a process of rethinking the bricks-and-mortar experience with a goal of making it more exciting and enticing.” The ceo declined to get into specifics, but said the retooling would focus the stores on “experience and entertainment” and roll out in the next two years.

The firm is also slowing somewhat the pace of new store expansion in North America given that it’s approaching what it sees as the upper limit of its footprint, which is up to about 250 stores for both Urban Outfitters and Anthropologie and about 100 for Free People. Globally, the firm has 456 doors and expects to add a total of 51 stores this year.

Hayne was sanguine on Europe’s troubled debt markets and precarious financial situation. He said comparable-store sales in London were soft, with some product misfires and a shift in tourist business given the Queen’s Jubilee and the Olympics.

“We don’t see this as a long-term issue,” he said. “Barring any huge macro event, and we’re betting against that, we continue to expect to open more stores across northern Europe and… we are excited about increasing our direct-to-consumer business across Europe, so it’s pretty much business as usual and we expect a return to normalcy there.”

The firm’s Free People unit is looking for wholesale partners in Asia and is also planning a direct-to-consumer launch in the region.

In the U.S., the company has put in place a system that lets it fulfill online or in-store orders from any store or fulfillment center.

It has also expanded its Web-only offering and is ramping up its efforts to acquire new customers.

Hayne said the company has historically weighed how much it costs to attract a new customer with how much revenue that new customer generated immediately.

“We are now able to utilize our internal consumer database to calculate an approximate lifetime value of new customers and thus we can more accurately adjust the cost to the benefits of acquisition,” he said. Taking that into account, the company increased its Web-based marketing spend by 21 percent in the second-quarter and plans to boost it even more in the second half.

Urban’s second-quarter net income rose 8.1 percent to $61.3 million, or 42 cents a diluted share, from $56.7 million, or 35 cents, a year earlier.

Sales for the three months ended July 31 increased 11 percent to $676.3 million from $609.2 million. Comp sales rose 12 percent at the Free People unit and 6 percent at Urban Outfitters and were flat at Anthropologie.

Urban Outfitters also operates the BHLDN and Terrain chains and overall comps fell 1 percent, although comp inventories were down a sharper 5 percent as the firm strove to run a tighter ship. Direct-to-consumer sales increased 22 percent and wholesale sales rose 17 percent.