Anthropologie Sinks Urban Outfitters (URBN)
Shares of apparel retailer Urban Outfitters (URBN: Charts, News) slid this month after it posted poor earnings, exacerbated by declining same-store sales, weakening margins and plunging profits. The company, which includes the Anthropologie, Free People, Terrain, Leifsdottir and BHLDN brands, operates in the United States, Canada, Ireland, Denmark, Sweden, Germany, Belgium and the United Kingdom.
Its retail stores specialize in fashion apparel, accessories as well as home goods. Despite overall weakness, Urban Outfitters was able to report strong top-line growth, although higher commodity costs and poor pricing power took a bite out of earnings. For its third quarter, Urban Outfitters reported earnings of 33 cents per share, or $50.7 million, a 31% decline from the 43 cents per share, or $73.1 million, it posted a year earlier. Although weak, this still topped analysts' estimates of 32 cents per share. Revenue increased 6.3% year-on-year to $610 million, but still missed the consensus forecast. Daily Chart
A bloated inventory, the nightmare of retailers, cut deeply into the company's bottom line, rising by $78 million, or 27% over the previous year. Same-store sales fell an average of 7% due to its Anthropologie stores, which posted a 7% decline. Meanwhile, Urban Outfitters' teen-focused namesake posted flat same-store sales while the higher-end Free People increased same-store sales by 15%. At Anthropologie, its mid-upscale female apparel store, revenue dipped from $248 to $244 million - continuing its three-quarter long losing streak; Urban Outfitters posted an increased from $266 to $291 million; and Free People also positive positive growth, rising from $56 to $70 million over the previous year. CEO Glen T. Senk responded quickly to investor criticism of Anthropologie's relative weakness, which sunk the company's quarterly results. Anthropologie is focused on clothes, accessories and houseware for upscale female shoppers. The store is well-known for its $300 bohemian dresses, "quirky" accessories and unique home goods. A week before reporting earnings, Urban Outfitters created a new CEO position for the newly-created Anthropologie Group, for which they hired Under Armour president David W. McCreight. McCreight was the president of Land's End from 2005 to 2008 and Under Armour from 2008 to 2010. Senk lauded McCreight's "intimate knowledge of the women's apparel industry" and stated that his track record with growing brands make him the best choice for the job. Senk also reappointed several veterans of the company to help helm Anthropologies' new management team. Senk has remained adamant that Anthropologie's problems are cyclical, and not related to a poorly chosen target demographic. The mid-upscale female retail industry, in which Ann Taylor (ANN
) and Chico's FAS (CHS
) are competitors, has proven a difficult one to navigate in times of economic turmoil. Interestingly enough, Free People, which offers higher-end clothes for younger 20-somethings, performed much better, reinforcing the theory that in recessionary times, only the higher and lower end retailers can flourish. Gross margin declined from 41.1% to 35.4% due to increased markdowns in an attempt to sacrifice margins for sales volume. Direct-to-consumer same-store sales increased by 15% while wholesale net sales rose by 13%. Urban Outfitter's lackluster earnings mirror industry peer The Gap (GPS
), whose flagship stores and similarly tiered Old Navy and Banana Republic stores failed to escape dwindling consumer sentiment. In addition, Urban Outfitters is highly exposed to Europe, where it is likely to continue to be pressured by macro factors across the debt-ridden continent. Shares of Urban Outfitters currently trade with a forward P/E of 15.7 with a PEG ratio of 1.02, bullish indicators for value investors, but economic headwinds remain strong. However, if there is marked improvement in the macro environment and its Anthropologie stores, shares could bounce back quickly. Other News About URBN Citigroup Analysts Reiterate a "Buy" Rating on Urban Outfitters
Citigroup remains bullish on Urban Outfitters' growth prospects. With Anthropologie slow, Urban Outfitters's profits off
Anthropologie sinks Urban Outfitters' otherwise decent profits. Other Stocks in the News Vivendi Cuts Activision Blizzard Stake After EMI, TVN Deals
Activision shares slide after Vivendi sells shares to raise capital. GM Sees Industrywide November Auto Sales Accelerating to 14 Million Pace
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Published on Nov 29, 2011
By Leo Sun