Urban Outfitters (URBN) Falls Despite Holiday Sales Increase

Shares of Urban Outfitters, Inc. URBN nosedived roughly 9.3% during the after-market trading session on Jan 9. The stock came under pressure in spite of the company reporting decent holiday sales number. We note that this Philadelphia-based company registered sales increase across all brands except its flagship Urban Outfitters and cautioned about weaker-than-expected fourth-quarter gross profit margin. These were enough to hurt investor sentiment.

This Zacks Rank #3 (Hold) stock has lost 0.3% in the past three months against the industry’s rise of 8.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Crunching the Holiday Numbers

Net sales for the two months ended on Dec 31, 2019 grew 2.9% from the year-ago period. Total Retail segment net sales increased 3%. Comparable Retail segment net sales rose 3% on account of growth in the digital channel. However, this was partly offset by fall in retail store sales. Notably, comparable Retail segment net sales rose 8% and 5% at Free People and Anthropologie Group, respectively, but declined 1% at Urban Outfitters.

Management highlighted that full-price sales was the reason behind Free People’s outstanding Retail segment performance. It also added that Anthropologie and Urban Outfitters businesses were driven in part by higher promotional activity in apparel, which is likely to hurt gross margin more, than originally envisioned. Wholesale segment net sales fell 9% owing to an 11% decline in Free People.

The company had earlier guided gross margin contraction of roughly 200 basis points in the final quarter due to increase markdown rates; higher logistics and labor expenses; lower margins in wholesale segment; and the launch of Nuuly, a monthly rental subscription service for women's apparel.

Wrapping Up

Being a multi-brand and multi-channel retailer, Urban Outfitters offers flexible merchandising strategy. The company also has a significant domestic and international presence with rapidly expanding e-commerce activities. The company remains committed to improve comparable-store sales performance, sustain investments in direct-to-consumer business, enhance productivity in existing channels, add new brands and optimize inventory level.

However, concerns related to gross margin contraction and increase in SG&A expenses due to elevated digital marketing investments to drive digital channel sales cannot be ignored.

3 More Retailers’ Holiday Sales Reports

Macy’s M comparable sales on an owned plus licensed basis decreased 0.6% during November and December period combined, while on an owned basis, comparable sales fell 0.7%.

L Brands LB witnessed comparable sales decline of 3% for the nine weeks ended Jan 4, 2020.

J. C. Penney JCP reported comparable store sales decline of 7.5% for the combined nine-week period ending Jan 4, 2020.

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