Behind URBN’s $1.27B Q2 Sales Is Nuuly’s 94% Growth, 16% Inventory Reduction

Earnings Beat

Based on the latest quarter’s earnings report for Urban Outfitters Inc (NASDAQ:URBN), the company has exceeded market expectations and delivered solid financial performance, with EPS reported as $1.10, outpacing the consensus estimate by $0.22; GAAP EPS was also $1.10, beating by $0.22; revenue at $1.27 billion exceeded by $23.31 million.

Upcoming Growth Projections

Next quarter anticipates slightly lower EPS estimates at $0.82, with projected GAAP EPS at $0.80 and revenue expected to slightly increase to an average of $1.27 billion.

Revenue Growth

Urban Outfitters, Inc. achieved an overall revenue growth of 7.5% in Q2 2023, indicating a robust performance across segments. While the wholesale segment faced challenges, the strength in the retail and Nuuly segments contributed to the company’s positive growth trajectory.

Sales Growth By Brand

The Anthropologie Group’s net sales rose 10.6% to $530.1 million, driven by women’s clothes, accessories, and shoes. Urban Outfitters’ net sales fell 12.6% to $346.4 million due to North American issues affecting both brick-and-mortar and internet platforms. The Free People Group’s net sales rose 22.0% to $331.2 million, driven by double-digit ‘comp’ sales in-store and online.

Nuuly, an outfit rental service, saw net revenues rise 93.8% to $55.8 million and active subscribers rise 85%. Menus & Venues net sales rose 15.4% to $8.7 million. Urban Outfitters, Inc.’s net sales reached $1.27 billion, a 7.5% increase, driven by the Free People Group and Nuuly.

 Inventory Analysis: (July 31, 2023 vs. July 31, 2022)

The brand’s inventory dropped 16% year-over-year, aligning with its inventory control program. Retail inventory fell 14%. This saw Urban Outfitters drop 13% while Anthropologie and Free People grew somewhat. Wholesale inventory fell 32%. This dramatic 34% drop was caused by the Free People Group. In comparison, the Nuuly Segment’s inventory value rose 101% year-over-year. The brand’s focus on supply chain stability and improved inventory management caused significant inventory level changes across the board.

Other Growth Drivers

Anthropologie, Free People, and FP Movement all had double-digit revenue growth in Q2 for URBN. Nuuly, the company’s garment rental service, saw 85% subscriber growth, demonstrating the market’s preference for rental models. Anthropologie’s premium brand partnerships and product developments have attracted a younger clientele, meeting consumer desires.

URBN’s marketing initiatives led to 10% new customer growth and 30% retention, demonstrating effective consumer engagement. URBN’s gross margin grew due to supply chain efficiency and other factors, making key brands profitable. URBN has invested in Kansas City distribution facilities to improve inventory management and order fulfillment.

URBN plans to open 270 stores worldwide and set sales goals for its fashion, accessories, and home businesses. Finally, URBN’s $46 million strategic capital allocation in Q2 2023 focused on technology integration, shop expansion, and fulfillment optimization to position it for growth and innovation.

Conclusion

Strong brand performance, innovative product offerings, effective customer engagement strategies, and ambitious expansion plans position URBN for continued retail industry success. With a strong financial base and ability to adapt to shifting consumer preferences, URBN is well-positioned for long-term growth and offers an attractive investment opportunity.

Based on the chart we’ve observed, this stock has been in consolidation for quite some time, and we believe it is poised for a move towards $37.81 in the short term and $45 in the medium to long term, making now the appropriate moment to overweight this stock.

Disclosure: We don’t hold any position in the stock.