Urban Outfitters

Urban Outfitters is showing signs of strength ahead of the holiday shopping season. 

The retailer — which counts Urban Outfitters, Anthropologie, Free People, Terrain and Bhldn among its brands, in addition to rental subscription service Nuuly and a food and beverage business in the company portfolio — revealed quarterly earnings Monday afternoon, with bottom-line profits rising 38 percent for the quarter, year-over-year, thanks to strength in the Urban and Free People brands, along with reduced overhead expenses. 

Investors seemed unsure of how to respond to the news, since the company’s top-line revenues actually decreased. Shares of Urban Outfitters, which closed up 4.44 percent to $31.66 each Monday, teetered back and forth in after-hours trading as a result. 

But Richard A. Hayne, chief executive officer of Urban Outfitters, said in a statement that he was “pleased to announce Urban delivered record Q3 earnings per share in spite of an incredibly difficult operating environment. Our 38 percent increase in net profits was driven by strong product assortments combined with tight control of inventory and expenses.” 

For the three-month period ending Oct. 31, total company revenues were $969 million, down from $987 million the same time last year. But many of the company’s losses (more than $3 million) were in the food and beverage business. In fact, Urban Outfitters, Free People and even Nuuly increased their profit margins, year-over-year. 

More precisely, Urban Outfitters’ revenues for the quarter were $394 million, up from $374 million the same time last year. Free People’s revenues were $206 million, up from $205 million a year ago, while Nuuly logged $6.7 million in revenues, up from more than $2 million last year. Anthropologie, however, the brand known for its festive occasion wear, registered revenues of $358 million, down from $398 million a year ago. 

As a result, the company had $76.7 million in profits for the quarter, up from $55.6 million a year earlier.

Not surprisingly, comparable retail segment net sales were flat for the quarter as a result of negative retail store sales and reduced in-store traffic with coronavirus cases on the rise and many consumers still fearful of in-person shopping experiences. 

By brand, comparable retail segment net sales increased 17 percent at Free People and 4 percent at Urban Outfitters, but fell 9 percent at the Anthropologie Group.

“We think the Free People and Urban brands are already taking advantage of fashion trends,” Hayne said on Monday evening’s conference call with analysts. “Since COVID-19, Free People has benefited from the highest digital penetration. We believe FP Movement has the potential to be a billion-dollar brand and we plan to invest in this brand aggressively.”

He added that Urban’s home category was also strong during the quarter.

Meanwhile, wholesale segment net sales decreased 24 percent during the quarter. The losses were offset, however, by double-digit growth in the digital channel. 

“Urban has doubled off of its lows this year, holding in quite well throughout the pandemic, primarily due to their existing e-comm penetration [about] 40 percent of sales pre-COVID-19, about [two times] the typical specialty retailer),” Ike Boruchow, senior retail analyst at Wells Fargo, wrote in a note. “Their robust e-comm platform was able to insulate their performance from the staggering in-store declines that brick-and-mortar retail experienced as a result of the pandemic, enabling the company to not see as much multiple contraction [year-to-date] as more store-reliant retailers.”

Possible headwinds include increased carrier rates and markdowns during the fourth quarter.

The company ended the quarter with $624 million in cash and cash equivalents and 630 stores, or 250 Urban Outfitters locations, 234 Anthropologie units and 146 Free People shops, in addition to the company’s e-commerce businesses and catalogues. Free People also opened its first FP Movement stand-alone store during the quarter. 

Company shares are up more than 22.5 percent year-over-year.