Urban Outfitters is investing in e-commerce, as brick-and-mortar and wholesale revenue and profits prove challenging.
In a Nutshell: Urban Outfitters Inc. reported declines in profits for the fourth quarter and year, brought down by high markdowns and increased expenses from deeper penetration in e-commerce.
In the quarter, selling, general and administrative (SG&A) expenses increased 8.9 percent, or $23 million, compared to the prior year’s comparable period and were up 3 percent, or $28.6 million, primarily driven by increased marketing expenses supporting digital sales growth and new business initiatives.
During the year ended Jan. 31, the company opened 26 new retail locations, including 10 Free People stores, nine Anthropologie Group stores and seven Urban Outfitters units, and closed 12 retail locations, including five Anthropologie Group locations, one Free People store, four Urban Outfitters units and two food and beverage restaurants.
Sales: Net sales for the fourth quarter ended Jan. 31 increased 3.6 percent over the same period last year to a record $1.17 billion. Comparable retail segment net sales increased 4 percent, driven by growth in the digital channel, partially offset by negative retail store sales.
By brand, comparable retail segment net sales increased 9 percent at Free People, rose 6 percent at the Anthropologie Group and were flat at Urban Outfitters. Total retail segment net sales increased 4 percent. Wholesale segment net sales decreased 10 percent due to a 12 percent decline at Free People.
For the year, net sales increased 0.8 percent to $4 billion over the prior year. Comparable retail segment net sales rose 1 percent, driven by growth in the digital channel, partially offset by negative retail store sales.
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Total retail segment net sales increased 1 percent, while wholesale segment net sales decreased 6 percent due to an 8 percent falloff at Free People.
Earnings: Net income for the three months fell to $19.54 million compared to net income of $86.41 million in the year-ago period. For the year, net income declined 43.6 percent to $168.1 million from $298 million the prior year.
In the fourth quarter, the gross profit rate decreased by 446 basis points and the adjusted gross profit rate decreased by 351 basis points versus the prior year’s comparable period. The decrease in adjusted gross profit rate was driven by higher retail segment markdowns, deleverage in delivery and logistics expenses and lower wholesale segment margins. The higher retail segment markdowns were largely driven by underperforming product at the Urban Outfitters and Anthropologie brands.
For the year, the gross profit rate decreased by 297 basis points versus the prior year’s comparable period. The decrease was driven by higher retail segment markdowns and deleverage in delivery and logistics expenses, primarily due to the increase in penetration of the digital channel.
CEO’s Take: Richard A. Hayne, CEO of Urban Outfitters, said: “I am pleased to announce record fourth quarter sales driven by a 4 percent retail segment comp. Positive customer reaction to our early spring assortments bode well for continued comp growth in the first quarter.”