Urban Outfitters Inc., which last month warned of a tough third quarter, missed the Street’s consensus for earnings per share.
This story first appeared in the November 18, 2014 issue of WWD. Subscribe Today.
The company released results Monday in which profits for the period fell 32.9 percent. For the three months ended Oct. 31, net income fell to $47.1 million, or 35 cents a diluted share, from $70.3 million, or 47 cents, a year ago.
Net sales rose 5.2 percent to $814.5 million from $774.0 million.
Analysts were expecting EPS of 41 cents a share on sales of $813 million.
Shares of Urban shed 4.9 percent to $29.31 in early after hours trading following the retailer’s report after the equity markets closed.
Last month the company noted the persistence of negative comparable-store sales trends that began earlier in the third quarter. Comps for the period, which includes direct-to-consumer, fell 1 percent. Retail comps at Free People rose 15 percent and at the Anthropologie Group were up 2 percent. Retail comps at its core Urban Outfitter stores were down 7 percent. Wholesale sales rose 26 percent.
The company said wholesale gross profit fell by 295 basis points in the quarter, due mostly to “lower initial merchandise markup followed by higher markdowns at the stores and store occupancy expense deleverage due to negative store” comps, primarily driven by poor performance at the Urban nameplate.
Richard A. Hayne, chief executive officer, said, in a conference call to analysts that the company’s “overall performance in this year’s third quarter was subpar,” noting that the disappointment at its Urban brand “deflated” what would otherwise be “powerful performance” at the company.
Hayne also noted that lighter store traffic resulted in fewer transactions. “For some reason, which we can’t explain, September was a particularly poor month,” although there was some improvement starting in October, he said. In addition, West Coast stores in North America performed better than their East Coast counterparts, Hayne said.
At the end of the quarter, “inventories were heavier than we would like at the Urban brand, but were controlled at the other brands.”
The ceo also noted that direct-to-consumer, compared with last year, required fewer promotions to drive sales. Further, as consumers’ “trips to less differentiated malls [become] fewer,” the direct-to-consumer channel is more efficient. Hayne concluded that the new shopping pattern raises the bar for brick-and-mortar sites, where the store experience needs to be elevated.
Looking ahead, Hayne saw features such as in-store pickup and same-day delivery, as well as mobile points of sale, as “exciting opportunities to reinvent the store and the store experience.”
He said the Urban consumer is back, she is shopping online and is “coming back to the stores…. The team now needs to execute and align the stores” so they are telling the same story.
Francis J. Conforti, the company’s chief financial officer, said for fiscal year 2016, the company plans to invest in technology, Web, mobile and omnichannel capability. Within the brands, the company will “continue to invest in product category growth, shoes at Free People, home at Anthropologie and beauty at Urban.”
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