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Urban Outfitters Inc. on Monday reported record second-quarter net income and admitted it’s on the hunt for acquisitions.
This story first appeared in the August 20, 2013 issue of WWD. Subscribe Today.
The retailer had net income of $76 million for the three months ended July 31 and net income of $123 million for the six months ended July 31. Earnings per diluted share were 51 cents for the three months and 83 cents for the six months.
Total company net sales for the second quarter rose 12 percent over the same quarter last year to $759 million. Comparable retail segment net sales, which include the comparable direct-to-consumer channel, increased 9 percent. Comp retail segment net sales jumped 38 percent at Free People, 9 percent at Anthropologie and 5 percent at Urban Outfitters. Wholesale segment net sales rose 17 percent.
“There’s enormous growth potential in the Asian market, especially China and Hong Kong,” said Richard Hayne, chief executive officer.
Regarding acquisitions, Hayne said, “We’re in discussions with a couple folks. That’s moving along nicely and hopefully we’ll have more to report. We have the opportunity to make one or more acquisitions. We want to complement and add product expertise in areas where we don’t have it or add whole new adjacent businesses. The perfect candidate would be a slightly smaller company rather than a larger one.”
He declined to reveal potential acquisition candidates.
During the second quarter, operating income rose 24 percent to $119.3 million, from $95.9 million, in the prior quarter. For the six months, operating income rose to $192.3 million from $148.8 million.
Gross profit in the second quarter rose 17 percent to $298.5 million from $135.5 million in the year-ago second quarter.
The gross profit rate in the second quarter improved by 169 basis points versus the prior year’s comparable period. For the six months, the gross profit rate improved by 148 basis points versus last year. The improvement for both periods was due to fewer markdowns, primarily at Anthropologie.
As of July 31, total inventories increased by $24 million, or 8 percent, on a year-over-year basis. Comparable retail segment inventories were flat.
For the three months, selling, general and administrative expenses as a percentage of net sales rose by 14 basis points compared to the year-ago period. SG&A expressed as a percentage of net sales for the six months fell by 24 basis points compared to last year’s period due to the leverage of direct selling controllable expenses driven by strong positive retail segment sales. The leverage in direct-selling controllable expenses was partially offset by increases in marketing expenses.
Urban plans to open 16 Urban Outfitters next year, five of which will be in Europe; nine Anthropologie units, and 14 Free People stores in North America. The company has budgeted capital expenditure of $210 million for new stores and the expansion of the home office.
“We continue to look at the entire world as an expansion opportunity for all our brands in terms of the direct-to-consumer channel,” Hayne said. “Urban leads with 140 countries. We’re in the very early stages of realizing the worldwide potential each brand possesses.”