Urban Outfitters (URBN) Q4 Earnings Beat Fails To Lift Stock

Urban Outfitters Inc. (NASDAQ:URBN) delivered better-than-expected results for the third straight quarter, when it reported fourth-quarter fiscal 2018 financial numbers. Notably, this lifestyle specialty retail company posted earnings per share of 69 cents that surpassed the Zacks Consensus Estimate of 63 cents and also improved 25.5% year over year.

Despite robust quarterly numbers, the company’s shares declined 5% in after-hours trading. Investors took an apprehensive stance after it reported substantial decline in GAAP earnings and margins. Urban Outfitters’ GAAP earnings came in at 1 cent per share, sharply below the prior-year quarter earnings of 55 cents. The decline can be primarily attributed to new tax law, wherein the company had to pay repatriation charges and write down certain net deferred tax assets of roughly $64.7 million.

However, the company outperformed the industry in the past six months. While the stock has soared 71%, the industry gained 27.4% owing to robust top- and bottom-line surprise history.

An Insight Into Revenues

In the reported quarter, net sales of $1,089.1 million surpassed the Zacks Consensus Estimate of $1,086 million and were up 5.7% year over year. The increase in the top line was owing to robust performance of its Urban Outfitters, Anthropologie Group and Free People brands. Also, the company registered double-digit growth in the digital channel, marginally overshadowed by fall in retail store sales.

At Urban Outfitters, net sales were up 4.9% to $433.9 million while the same at Anthropologie Group improved 5.5% to $447.2 million. At Free People, the metric increased 8.2% to $201.7 million. In the quarter under review, Food and Beverage net sales came in at $6.3 million compared with $6 million in the prior-year quarter.

The company’s net sales inched up 0.6% to $1,010.2 million at the Retail Segment and 6.3% to $78.9 million at the Wholesale Segment.

Comparable retail segment’s net sales, including the comparable direct-to-consumer channel, were up 4% year over year. Meanwhile, comparable retail segment net sales inched up 2% at Urban Outfitters, 5% at Anthropologie Group and 8% at the Free People brands. Also, the company registered double-digit growth in direct-to-consumer channel. At the Wholesale segment, net sales improved 6.3%. Comparable sales were driven by robust apparel sales performance.

Urban Outfitters, Inc. Price, Consensus and EPS Surprise

Urban Outfitters, Inc. Price, Consensus and EPS Surprise | Urban Outfitters, Inc. Quote

Margin Performance

In the quarter under review, adjusted gross profit came in at $352 million, up 2.1% from the year-ago quarter. On the contrary, adjusted gross margin contracted 120 basis points to approximately 32.3% primarily due to deleverage in customer delivery and logistics expense rates and also merchandise mark-ups.

While adjusted operating income increased to $104.3 million from $103.9 million in the year-ago quarter, operating margin came in at 9.6%, down 60 basis points year over year.

Store Update

In fiscal 2018, this Zacks Rank #3 (Hold) company opened 18 new outlets — eight Free People stores, five Urban Outfitters store, four Anthropologie Group store and one Beverage restaurant. This apart, Urban Outfitters shuttered 11 stores — three Anthropologie Group store, two Urban Outfitters stores, three Food and Beverage restaurant and three Free People stores — in the same time frame.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $282.2 million, marketable securities of $165.1 million and shareholders’ equity of $1,300.9 million.

In fiscal 2018, the company repurchased 8.1 million of shares for $157 million. At the end of the quarter, the company has an outstanding authorization of 17.9 million shares.

Key Picks

Some better-ranked stocks in the retail sector are G-III Apparel Group (NASDAQ:GIII) , Delta Apparel (NYSE:DLA) and Michael Kors Holdings Limited (NYSE:KORS) . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

G-III Apparel Group delivered a positive earnings surprise in the last three quarters.

Delta Apparel has an impressive long-term earnings growth of 15%.

Michael Kors Holdings pulled off an average positive earnings surprise of 32.7% in the trailing four quarters.

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