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Urban Outfitters Delivers Record Q1 Sales that Fall Short of Forecast

Urban Outfitters, Inc. (URBN), owner of the Urban Outfitters, Anthropologie and Free People brands, announced first-quarter 2015 financial results late Monday that missed Wall Street expectations, sending its stock down almost 6 percent in after-hours trading.

Total company net sales for the first quarter of fiscal 2016 increased by 7.6% over the same quarter last year to a record $739 million, missing analyst forecasts of $760 million.

Sales at the Anthropologie Group, which comprises the largest share of company sales at 42 percent of the total, increased by 3.7% to $311 million, while the Urban Outfitters brand (40 percent of total sales) increased by 6.5%. Sales of Free People, which accounts for 18 percent of the business, increased 21.4% to $132 million.

Comparable retail segment net sales, which include the direct-to-consumer channel, increased 4 percent, driven by comp increases of 17 percent at Free People, 5 percent at Urban Outfitters and 1 percent at Anthropologie. Though the comp performance fell short of the 5.3% increase analysts expected, it marks the second quarter in a row that all brands posted positive comp sales growth.

Anthropologie was negatively impacted by merchandise misses in dresses and accessories and an unexpectedly sluggish home market. Urban Outfitters performed satisfactorily in all major categories except men’s, according to the company. Free People continued to outperform the company average, delivering double-digit sales gains. The brand will launch its activewear collection called Free People Movement, in-store this summer.

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Within the retail segment comp, the direct-to-consumer channel, which includes e-commerce and catalog sales, continued to outperform stores. Store comps were hit by decreased transactions and units per transactions, partially offset by higher average unit selling prices. Wholesale segment net sales rose 18 percent.

Gross margin declined by 141 basis points compared to the prior year period due primarily to lower initial margins at Urban Outfitters and higher delivery and fulfillment expense across the entire company. The deleverage in delivery and fulfillment expenses was partially due to the increase in direct-to-consumer penetration and the beginning of the South Carolina fulfillment center transition to Gap, Pennsylvania.

SG&A expense increased by 13 basis points from the prior year period, largely due to increased marketing and technology expenses that were used to drive higher direct-to-consumer traffic.

First-quarter net income dropped to $32.8 million, or $0.25 per diluted share, from $37.5 million, or $0.26 per share in the prior year first period, missing analyst consensus estimates of $0.30 per share.

During the quarter the company opened a total of seven new stores including four Free People stores, two Anthropologie stores and one Urban Outfitters store. The company closed one Urban Outfitters store, giving it a total of 238 Urban Outfitters stores in the United States, Canada, and Europe, 208 Anthropologie stores in the United States, Canada and Europe, and 106 Free People stores in the United States and Canada, as well as e-commerce sites and catalogs. Free People wholesale sells its product to approximately 1,600 specialty stores and select department stores worldwide.

The company plans to open 31 new stores during the year, including four new Urban Outfitters stores in North American, 13 new Anthropologie stores globally, including one in Europe, and 13 new Free People stores in North America.