This summary is based on the third quarter fiscal 2008 earnings call conducted by Urban Outfitters Inc. (URBN: chart) on November 8, 2007.
Chairman of the Board, President: Richard A. Hayne
Chief Executive Officer, Director: Glen T. Senk
President of Urban Brand, Worldwide: Tedford G. Marlow
Chief Financial Officer: John E. Kyees
President, Free People Brand: Meg Hayne
Key Investors Issues
- Earnings per share increased to 27 cents from 21 cents in the prior year.
- Quarterly revenue rose 23% over prior year to $379.3 million.
- Fiscal year to date, earnings totaled $106.6 million or 63 cents per share.
Third Quarter Fiscal 2008 Financial Highlights
The net sales jumped by 23% to $379.3 million.
Total company comparable store sales grew by 8%, driven by increases of 17% and 16% at Anthropologie and Free People stores, respectively. Urban Outfitters comparable store sales increased slightly during the quarter. Direct-to-consumer sales increased 30% and Free People Wholesale sales rose 34% for the quarter. The company’s new and non-comparable store sales generated $34.8 million in sales.
- For the second quarter in a row, all merchandise divisions were double-digit comp positive at the Anthropologie retail business, with women’s and intimate apparel leading the trend.
- In the Free People retail business, the core of the business, women’s apparel, was also double-digit comp positive.
- At the Urban Outfitters retail business, the biggest opportunity remains with the women’s apparel and accessory divisions, both of which were slightly negative.
Geographic sales variances were minimal throughout the company, with the exception of Urban Outfitters, where the regional variance was modestly pronounced with the south and northeast regions performing the best, followed by the Midwest and west.
Comparable store average unit retail prices for the company remain relatively flat, with Anthropologie up 3%, Free People up 4%, and Urban Outfitters down 5%.
Units per transaction were up 1% in total, with minor variances by brand.
During the quarter, the firm continued to expand its store base.
Selling square footage increased 14% compared to the same period last year. The firm opened four new Anthropologie stores, bringing the total to 100; two new Free People stores, bringing the total to 13; and six new Urban Outfitters stores, bringing the total to 117. New store performance is ahead of plan for all three brands, pointing to the firm’s improved real estate selection process.
Total direct channel sales jumped 30% against the same quarter last year to $46.8 million, relative to a circulation increase of 4% or 11 million catalogs.
The channel achieved a 12.3% penetration to total company sales, an increase of 67 basis points. All brands contributed to this performance as the company experienced a 24% increase in web site visits and a 3% increase in average order value. The strong trend continued from the second quarter to third quarter for Free People wholesale, where total quarter sales increased 34% versus the same quarter last year to $26.8 million. Improvements were across the entire wholesale customer base, driven by a 26% increase in unit sales and a 7% increase in average selling price. Equally important, sell-through and margin data from the customers continues to be extremely positive. The firm ranks as one of the most productive and profitable vendors on the contemporary floor.
The gross profit margins increased by 128 basis points to 39.5% versus the prior year period.
This performance is significantly better than the first two quarters of the year and it underscores the strength of the Anthropologie and Free People divisions. The company still has opportunity for improvement. The company’s markdowns were below last year but above plan and the firm’s historical average, driven largely by markdowns taken at the Urban Outfitters retail business to clear seasonal product.
In addition, store occupancy leveraged 72 basis points, driven by the Anthropologie retail business. The company achieved a 20% reduction in this year’s per square foot construction costs. The firm believes that it will continue to leverage occupancy expense provided it meets or exceeds its modest comp sales plans.
During the quarter, comparable store inventories rose by 6%.
Total company inventories grew by $33.1 million or 18% on a year-over-year basis. The acquisition of inventory to stock new retail stores was the primary factor for this increase.
