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Urban Outfitters Inc. Posts Record Q2 Sales, Declining Store Comps

Urban Outfitters Inc., parent company of the Urban Outfitters, Anthropologie and Free People brands, reported second-quarter financial results Monday that were in line with Wall Street expectations.

Sales rose 7 percent to $811 million, a second-quarter record. Net income was $68 million, or $0.49 per share, compared with $76 million, or $0.51 per share, for the year-earlier period. Analysts had expected the retail company to report a profit of about $0.48 per share on revenue of $805 million.

Gross margin contracted 190 basis points to 37.4%, reflecting reduced merchandise margins at the Urban Outfitters brand, and remain under pressure in the third quarter. The decline in profit reflected increased operating expenses. SG&A expense rose 11 percent to $198 million due to higher marketing and technology costs.

Net sales fell 2.4% to $329 million at the namesake Urban Outfitters brand, but jumped 8.9% to $348 million at Anthropologie, and surged 32 percent to $128.3 million at Free People. Retail sales increased by 5.2% to $752 million, while wholesale sales jumped 36 percent to $59 million.

Comparable sales in the retail segment were flat overall, depressed by a 10 percent decline in comps at Urban Outfitters. Comps rose 21 percent and 6 percent at Free People and Anthropologie, respectively. Within the retail segment, direct-to-consumer, the company’s e-commerce venture, enjoyed positive comps while brick-and-mortar stores collectively saw sales at established units drop. In the quarterly earnings conference call, CFO Frank Conforti reported that the decline in store comps was a result of decreased transaction counts and units per transactions that were only partially offset by higher AUR, or average unit retail selling price.

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The wholesale segment was driven by tremendous success of the Free People business in stores like Nordstrom, Lord & Taylor and Macy’s. There are currently 13 department store shop-in-shops and plans to open a few more this year. The brand is expanding its product offerings to footwear and other categories, and management is encouraged by early success of its FP Movement line of yoga and other athleisure products.

During the first half of this fiscal year, the company opened 14 new stores, including three Urban Outfitters stores, seven Free People stores and four Anthropologie Group stores, bringing the total number of stores for each brand to 233 for Urban Outfitters, 193 for Anthropologie and 97 for Free People.

Approximately 35 to 40 new stores will be opened during the remainder of the year, including 11 new Urban Outfitters stores globally, which includes three new European stores, 15 new Anthropologie stores globally, including three new European stores, and 12 new Free People stores in North America.