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Free People Sales Slipped in Q1 But Urban Outfitters Keeps Opening More Stores

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Free PeopleUrban Outfitters Inc. delivered a better-than-expected first quarter recently, posting a 1 percent increase in sales at stores open for at least one year when analysts had expected a 0.5% decline.

But while the Philadelphia-based operator of Urban Outfitters, Anthropologie and Free People reported sales of $762.5 million, up 3 percent from the $739 million in the year-ago period, comps only increased—and by 2 percent—at its namesake brand.

Same-store sales were flat at Anthropologie, while the bohemian Free People saw comps decrease 2 percent.

At the same time, the company’s increase in gross profit rate—primarily driven by lower markdowns at Urban Outfitters compared to the prior year—was partially offset by deep discounting at Free People.

The first quarter also saw the company open three new Free People stores to end April with 117 locations in the U.S. and Canada. Two more are slated to open this month: one at Disney Springs at Walk Disney Resort in Orlando, Florida, on June 17; the other on June 24 in Huntington Beach, California.

But let’s go back to the three months ended April 30: net sales at Free People rose from $131.96 million to $144.5 million. Considering the fact that comps decreased 2 percent during the quarter, that would mean the sales growth came mainly from e-commerce. This begs the question: why open more brick-and-mortar stores when that’s not where the brand’s customers are spending their money?

“I can see why a retailer would be reluctant to close physical stores, even though the U.S. is decidedly over-stored; doing so can actually hurt sales in the short term. But at least curtailing plans to build new stores is something retail chains lacking sales growth can easily do—if only they could kick their new-store habit,” Shelly Gadfly, a Bloomberg Gadfly columnist, recently wrote. “Maybe Urban should pay more attention to the numbers that show its stores aren’t really paying off, rather than trying to interpret the looks on its customers’ faces.”

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