INSIGHT: Urban Outfitters eyes growth on upbeat Q3
- Q3 profit rose 5.2% to a record $62.4m
- Sales up 6% to $506.9m
- Eyes 50 new stores next year
Strong sales at its Anthropologie chain have combined with inventory and cost controls to help lifestyle retailer Urban Outfitters Inc to a 5.2% rise in third-quarter earnings - and prompted the company to suggest its new store growth will get back on track next year.
"These results highlight our ability to deliver compelling merchandise and a unique shopping experience under difficult market conditions," noted CEO Glen T Senk.
Speaking on a conference call with analysts, Senk explained that the 'new normal' for retailers as they readjust after the recession means shoppers are also more discriminating and seeking more value for money - which "doesn't necessarily equate to a lower price."
Company executives also hinted that while around 33 new stores will be opened this year - 25 in the first nine months and another eight in the pipeline for the fourth quarter - expansion is likely to be lifted to around 50 new stores next year.
Between 15 and 20 units each are planned during 2010 for Urban Outfitters, Anthropologie and Free People, but the company said it wants to limit the number of Anthropologie stores in North America to 250, and the number of Urban stores in North America to 250.
"We all feel fairly comfortable that we will get back to our targeted number next year. We have quite a few deals in the pipeline," Senk noted.
The firm said its net income for the three months to 31 October rose to a record $62.4m, or $0.36 per share, from $59.3m or $0.35 per share, a year ago.
Sales were up to $506.9m, a rise of 6% over the $478m posted in the same quarter last year, but same-store sales fell 2%.
By division, comparable sales grew 3% at Anthropologie - which opened its first European store on London's Regent Street at the end of October - fell 5% at its namesake brand and plunged 13% at Free People.
Direct-to-consumer sales jumped 21%, but wholesale revenues tumbled 10%, the company said, although it noted its new Leifsdottir wholesale line "continued to gain momentum."
Gross profit margin increased by 65 basis points, although improvements in initial merchandise margins were partially offset by markdowns to clear seasonal merchandise, the company said.
At the end of the quarter, inventories were down 8% year-on-year. On a same-store basis the company has managed to cut inventories by 15% at cost and 8% in units - which leaves it well-positioned for the upcoming holiday season.
Senk said lower inventory levels were the result of work to "improve our planning and allocation process, reduce merchandise costs, improve merchandise quality and, most importantly, add an unprecedented level of speed and flexibility within our supply chain."
He added: "We will continue to focus on achieving appropriate reductions in our inventory weeks-of-supply because we believe it positively impacts the customer experience, and ultimately results in improvement to maintained margins.
He also noted that there are "a lot of systemic improvements we are making with regard to planning and allocation that will allow us to localise the assortment in a very productive way.
"But there is continued opportunity for us to be faster, better quality, and less expensive."
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