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Urban Outfitters Earnings Call, Third Quarter 2009
Author: Godwin Gwetu
Last Update: 1:17 AM ET November 19 2008


Third quarter total company sales advanced 26% to $478 million, the largest gain in the history of the company. Earnings increased 31% to a record $59 million, resulting in earnings per share of 35 cents during the quarter. The management reported that total company comparable sales grew by 10% with Anthropologie, Free People and Urban Outfitters achieving Q3 comp increases of 2%, 4% and 17% respectively.

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This summary is based on the third quarter fiscal 2009 earnings call conducted by Urban Outfitters Inc. (URBN) on November 12, 2008.


Chairman and President: Richard A. Hayne
CEO and Director: Glen T. Senk
CFO: John E. Kyees
President Urban Brand Worldwide: Tedford G. Marlow

Key Investor Issues:

- Q3 income from operations firmed 47% to a record $90 million.
- The quarterly wholesale sales increased by 26% versus the year ago period to $34 million.
- Direct sales for the quarter rose 41% to $66 million despite the 9% dip in circulation.

Third Quarter Financial Highlights:

Third quarter total company sales increased 26% to $478 million, the largest quarter in history.

- Total company comparable store sales grew by 10%.
- Anthropologie, Free People and Urban Outfitters achieved comp increases of 2%, 4% and 17% respectively.
- Direct-to-consumer sales jumped to an impressive 41% despite a strategic decrease of 9% in catalog circulation.
- Free People’s wholesale revenue increased by 21%, the 20th consecutive quarter of double digit sales growth.
- The company delivered improvements in every component of gross profit margin, initial markup, markdown rate and occupancy rate resulting in a 135 basis point gross margin gain to 40.9%.
- The organization managed the business with exceptional discipline resulting in SG&A leverage of 139 basis points and a comp inventory increase of just 2% at quarter’s end.
- Income from operations grew by 47% to a record $90 million or a operating margin of 18.9%.
- Quarterly earnings increased by 31% to a record $59 million resulting in earnings per diluted share of 35 cents.

New and non-comparable store sales for the quarter contributed $43 million accounting for 44% of the total revenue growth.

- The company opened 17 new stores, three Anthropologie stores, six Free People stores and eight Urban Outfitter stores bringing the total new stores open for the first nine months of the year to 41.
- The company produced positive comps every month in the quarter.
- On a month-to-month basis, August was the strongest month followed by October and finally September.
- All regions experienced healthy gains with the Northeast region leading the way across the brands.

The comp performance was driven largely by an 8% increase in the number of transactions.

- Gains of 5% and 9% in Anthropologie and Urban Outfitters respectively were recorded and a decrease of 1% at Free People.
- The company’s average unit selling price increased 6% in total down 3% at Anthropologie and up 2% and 14% at Free People and Urban Outfitters respectively.
- Units per transactions decreased by 4% in total, flat at Anthropologie, up 3% at Free People and down 6% at Urban Outfitters.
- At Anthropologie the change in average unit selling price was primarily driven by an increase in accessories penetration.
- At Urban Outfitters the metrics were driven by a higher average ticket in the women’s apparel division and an overall lower penetration of markdown sales.

Direct sales for the quarter increased 41% to approximately $66 million to override a circulation decrease of 9%.

- The penetration of direct-to-consumer sales to total company sales increased by 150 basis points to 13.8% from 12.3% during the comparable quarter last year.
- The results were driven by website visits which went up 43% to 17 million visits, a gain of more than 5 million visits over the prior year’s quarter.
- The strength in the direct-to-consumer business ran across all brands but especially at Free People where with just 11 comp stores the direct-to-consumer business revenue exceeded the comp store revenue.

The company’s quarterly wholesale sales increased by 26% versus the same period last year, to approximately $34 million.

- Free People wholesale sales increased by 21%, the 20th consecutive quarter of double digit sales growth.
- The increase was driven by a 10% increase in units and a 10% increase in average unit price with all channels of distribution growing relatively equally.
- The retail partners were reportedly pleased with the Free People performance in the third quarter.

Leifsdottir, Anthropologies new wholesale line, generated wholesale revenue of $1.4 million in the quarter.

- The reaction at the retail partners has far exceeded expectations.
- The management continues to be encouraged by the brands prospects.

Total company gross margin advanced 135 basis points for the quarter to 40.9%.

- The Urban Outfitters brand led the advance with the most significant improvement.
- Total company comparable inventory firmed 2% at quarter’s end.
- The company reduced its operating expense by 139 basis points to 22%.
- The decrease was principally due to the control and leverage of direct store expenses.
- The decrease was also enhanced by other fixed corporate expenses which more than offset results based bonus compensation and investments in our new startup businesses Terrain and Leifsdottir.
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Sources: Data collected by and from company press releases, filings and corporate websites.
Market data: BATS Exchange. Inc.

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