• Q4 sales grow 12% to a record US$1.01bn
  • Comparable sales up 6%
  • Net profit drops to $80.3m from $88.7m
Urban Outfitters latest initiatives seem to be bearing fruit

Urban Outfitter's latest initiatives seem to be bearing fruit

Urban Outfitters has closed its financial year with what analysts believe is a relatively strong set of sales numbers, albeit it driven by extensive discounting.

The US lifestyle retailer revealed a 12% sales increase in the three months ended 31 January to a record US$1.01bn. Comparable sales were up 6%, with an 18% increase at Free People, 6% at the Anthropologie Group and 4% at Urban Outfitters. Wholesale segment net sales rose 21%.

Conlumino CEO Neil Saunders notes the swing back into positive sales growth at the core Urban Outfitters brand comes after a year of sales declines. "Extensive competition within the younger apparel segment combined with a more spendthrift shopper have been unhelpful trends," he said.

"All that noted, its latest initiatives seem to be bearing fruit. The new in-store concept, Without Walls, is more on-trend and appeals to those consumers looking for the outdoor aesthetic as well as those who are interested in personal fitness – giving Urban Outfitters a small slice of the rapidly growing athleisure market."

Net profit for the period, however, declined to $80.3m from $88.7m a year earlier. Gross margin narrowed by 207 basis points, primarily due to lower initial merchandise mark-ups followed by higher markdowns, driven by under-performance at the Urban Outfitters brand.

For the full year, total sales grew 7.4% to $3.32bn, while comparable sales increased 2%. Earnings in the 12 month period dropped to $232.4m from $282.4m a year earlier.

FBR & Co analyst Susan Anderson, believes the results show "encouraging signs" at Urban Outfitters, and notes the potential for improved markdowns in the first quarter.

"We were also encouraged by slightly positive reg-price in-store comps, improved customer acquisition/reactivation, and performance disparity by region (versus under-performance in all regions), which could indicate the beginnings of recovery."

Stifel analyst Richard Jaffe, however, believes there remains work to be done moving forward, including "improving initial mark-up (which should begin in the 3Q), decrease markdowns (previous mds were driven by redundant style offerings and a bloated inventory position; not fashion misses) and store productivity".

Nonetheless, he added: "We believe the brand is on the mend and expect meaningful improvement in the 2H."