Philadelphia-based Urban Outfitters Inc. Monday beat Wall Street estimates despite a small decline in net income in its second quarter.
In the three months ended July 31, net income declined to $66.8 million, or 52 cents a diluted share, 1 percent below the $67.5 million, or 49 cents, reported in last year’s quarter but above the 49 cents a share that analysts on average expected.
Sales rose 6.9 percent to $867.5 million from $811.3 million but below the $881.2 million estimated by analysts.
Richard Hayne, chief executive officer of the specialty store group, noted that the record second-quarter sales included “positive retail segment growth at each brand.” Retail sales were up a total of 5.8 percent to $795.7 million while wholesale sales rose 21.3 percent to $71.7 million.
Comparable retail segment net sales, which include the comparable direct-to-consumer channel, increased 4 percent. Comparable retail segment net sales increased 14 percent at Free People, 4 percent at Urban Outfitters and 2 percent at the Anthropologie Group, which includes Bhldn and Terrain as well as Anthropologie. Urban’s net sales were up 4.1 percent to $352.2 million, Anthropologie’s up 4.6 percent to $370.7 million and Free People’s ahead 20.5 percent to $154.6 million.
“Without question, the brands’ strong execution of our long-term strategy helped fuel that sales growth and laid the groundwork for future increases as well,” Hayne said.
Total inventories rose by $22 million or 6 percent, primarily due to stocking new and non-comparable stores. The company plans to open four Urban Outfitters stores in North America, 13 new Anthropologie stores globally, including one in Europe, and 15 Free People stores in North America during the remainder of the year.
In the quarter and first half, respectively, the gross profit rate declined by 71 and 104 basis points versus last year’s comparable periods but proved a pleasant surprise for at least one analyst tracking the firm.
“Better-than-expected gross margins drove the bulk of the beat,” said Nomura’s Simeon Siegel. “We believe that many had been bracing for a weaker Anthropologie result for the quarter and sales did miss the Street on the top line. However, Anthropologie comps remain positive as third-quarter comparisons ease.”
Francis Conforti, chief financial officer, told analysts on a late-afternoon conference call, “Our gross margin rate for the third quarter could increase versus the prior year. This growth could be driven by meaningful improvement in the Urban Outfitters brand maintained margin if their product performance and inventory management continue to progress favorably.”