Urban Outfitters Inc. is the latest retailer to experience the negative effects of Omicron.
On Tuesday, ahead of the retailer’s presentation at ICR 2022, the virtual retail conference, Urban Outfitters — which counts Urban Outfitters, the Anthropologie Group, Free People, Terrain and Bhldn among its brands, in addition to rental subscription service Nuuly and a food and beverage business under the greater company umbrella — revealed net sales for the two-month and 11-month time periods ending Dec. 31.
While total company net sales were positive, higher-than-expected transportation costs, reduced store occupancy and increased promotional activity in Free People’s wholesale division put a damper on holiday sales.
“Our top line is coming in exactly as we expected it to,” Frank Conforti, copresident and chief operating officer at Urban Outfitters, said during the ICR presentation Tuesday morning. “What was different for us in the fourth quarter was our inbound freight costs were higher than we expected. Obviously, it was really expensive to get product here. We relied very heavily on air and it was expensive to get product here. It came in more expensive than we had anticipated.”
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He added that the Free People brand “slowed just a little,” while in-store traffic was down for the quarter. That’s in addition to reduced store hours, in part because of employee absenteeism as associates tested positive for the latest strain of COVID-19.
“Our stores were a little weaker than we had anticipated,” Conforti explained. “I think we had thought our stores would pick up closer to the holidays. We just didn’t see that lift closer to the holidays as we had in previous seasons when people wanted their packages under the tree in time.
“The cost pressures will definitely be a headwind in all of those categories in the first half of the year,” he continued. “It’s a complicated year.”
Melanie Marein-Efron, chief financial officer at Urban Outfitters, added during the presentation that “there’s been disruption from absenteeism” in stores.
“Clearly there is an impact,” she said. “Once we’re limiting our store hours, we’re limiting our sales.”
These headwinds aren’t specific to Urban Outfitters. In fact, supply chain woes and dwindling store traffic have become industrywide concerns as the Omicron variant continues to rage throughout the world. On Monday, Lululemon revised its guidance downward thanks to supply chain constraints and labor issues. The same day Abercrombie & Fitch said it lost revenues throughout the holiday season because of lack of inventory. Walmart and Macy’s temporarily cut store hours recently because so many employees have been falling sick with Omicron.
But in Urban Outfitters’ case, investors didn’t seem to mind. Company shares closed up 1.81 percent Tuesday to $28.71 each, thanks in part to strong overall holiday sales.
“We feel good about the consumer; the consumer is still out there spending,” Conforti said. “The variant is affecting our business. But the consumer seems to be resilient and continues to be spending at a high rate. And it doesn’t seem to be taking a lot of promotions to get her to spend.”
Total company net sales for the two months ending Dec. 31 were up 14.6 percent, compared with the same timeframe in December 2019, or in pre-pandemic times. Total retail segment net sales also grew, up 15 percent during the quarter, while comparable retail net sales rose 14 percent, thanks to double-digit growth in digital channel sales. Comparable retail sales, however, offset some of the gains with high-single-digit negative retail store sales.
By brand, comparable retail segment net sales during the holiday shopping season were up 47 percent at the Free People Group, 15 percent at the Anthropologie Group and 3 percent at Urban Outfitters, compared with 2019’s pre-pandemic holiday season. In the wholesale division, net sales fell 18 percent, primarily from promotional activity in the Free People Group.
The retailer is now expecting total fourth-quarter gross margins to deleverage thanks to higher-than-expected inbound transportation costs.
For the 11-month period ending Dec. 31, total company net sales rose 14.4 percent, compared with the same period in 2019, while comparable retail segment net sales were up 16 percent during the same timeframe, led by double-digit growth in digital channel sales. Gains were offset by low double-digit negative retail store sales, driven by reduced store traffic. Net sales in the wholesale segment were also down — 22 percent — in the last 11 months, compared with 2019 levels, which the company credits to increased promotions in Free People’s wholesale division.
In the last 11 months, Urban Outfitters opened 55 new brick-and-mortar retail locations, or 29 Free People (including 18 FP Movement), 17 Urban Outfitters and nine Anthropologie stores, for a total of 680 stores spread across North America and Europe.
Shares of Urban Outfitters are down approximately 5.2 percent, year-over-year.