Urban Outfitters had record sales in Q2. In North America, all business categories had sales growth except women's accessories. Men's apparel and accessories had the strongest growth in both North America and Europe. Traffic was lower in Europe, primarily due to weakness in the London stores. Urban Outfitters is continuing to invest in Europe by opening new stores in Northern Europe and expanding its Direct-to-Consumer business in Europe. It is exploring the possibility of opening a store in Asia in the next 2 years.
Urban Outfitters is focusing on its core customer and trying to bring newness and surprise to its offerings.
In Anthropologie, the company is reducing its price points and will be below last year's prices. The price points will be closer to 2010 averages.
Urban Outfitters is de-accelerating the opening of new stores in North America. Worldwide, it plans to open 51 new stores in fiscal year 2013 and 11 in Q3. Of the 51 stores, 18 will be Urban Outfitters, 15 will be Free People, 16 will be Anthrolpologie, 1 will be Terrain and 1 will be BHLDN. It will also increase the distribution of its Free People wholesale product globally, focusing on the U.K. this year and Japan in fiscal year 2014.
In its Direct-to-Customer business, Urban Outfitters had a 31 percent increase in traffic to its website and a 75 percent increase in web-exclusive product available. It successfully launched its pick, pack and ship capability, which allows it to fulfill an online or in-store order from any store or fulfillment facility. This will (1) allow the website to sell items that had been returns to stores without have to return them to fulfillment facilities, (2) reduce the instances of out-of-stock items since it can choose from either stores or fulfillment facilities and (3) help in managing disposal of in-store markdowns.
The consumer trend so far is still a bottom-driven cycle. Urban Outfitters performs better in a tops-driven cycle but believes it has adjusted to the new environment.
Financials.
Sales in Q2 increased by 11 percent as a result of a 22 percent growth in Direct-to-Consumer and an increase in noncomparable net store sales. Urban Outfitters opened 14 new stores in Q2. Comp retail store sales increased by 4 percent, including 12 percent growth at Free People, 6 percent growth at Urban Outfitters and flat sales at Anthropologie. Total comp store sales declined by 1 percent as a result of a 4 decrease in average selling price and a 1 percent decrease in units per transaction. The number of transactions increased by 4 percent.
Gross profit increased by 10 percent, but the rate declined 30 basis points to 37.6 percent. The decline was the result of deleveraging of initial merchandise costs and store occupancy costs, although the decline was offset by a reduction in merchandise markdowns. Urban Outfitters expects gross margin performance to improve in Q4 due to the markdown challenges it faced in Q4/2012.
Operating profit margins were 14.2 percent.
Net income was $.42 per diluted share.
Inventories increased by 7 percent, primarily to stock new and noncomparable stores and growth in the company's Direct-to-Consumer segment. Comp store inventories declined by 5 percent.
The transcript of the earnings conference call can be found on Seeking Alpha at the following link:
http://seekingalpha.com/article/818521-urban-outfitters-management-discusses-q2-2013-results-earnings-call-transcript?part=single
Copyright 2012 Jaygo's Earnings Conference Call Summaries
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