Zacks_Analysts' Blog : Urban Outfitters Beats, Profit Falls - Analyst Blog

Urban Outfitters Inc. (URBN), the retailer of apparel, footwear, and accessories, recently posted better-than-expected results for the second quarter ended July 31, 2011. The quarterly earnings of 35 cents a share beat the Zacks Consensus Estimate of 32 cents, but dropped 16.7% from 42 cents earned in the prior-year quarter.

Despite registering a growth in top line, the company witnessed a drop in bottom line due to a 19.1% rise in the cost of sales and an increase of 11.9% in selling, general and administrative expenses.

Urban Outfitters, which competes with Gap Inc. (GPS) and Abercrombie & Fitch Co. (ANF), said that total net sales climbed 10.3% to $609.2 million, and came ahead of the Zacks Consensus Estimate of $605 million. Net sales increased 10.5% to $577.3 million at the retail segment and 6.6% to $31.9 million at the wholesale segment.

Net sales by brands are as follows - Sales grew 11.9% to $272.2 million at Urban Outfitters, 6.4% to $272.6 million at Anthropologie and 25.2% to $58.7 million at Free People.

The company hinted that comparable retail segment net sales inched up 1%, whereas comparable store net sales dropped 2% during the quarter. Comparable retail segment net sales by brands rose 18% at Free People and 1% at Urban Outfitters but remained flat at Anthropologie.

Urban Outfitters noted that gross profit for the quarter declined 1.6% to $231.1 million, whereas gross margin contracted 459 basis points to 37.9% due to higher merchandise markdowns to sell through slow-moving stock of women's clothing at both Anthropologie and Urban Outfitters.

Operating income plummeted 17.7% to $88 million, whereas operating margin shriveled 500 basis points to 14.4%.

During the quarter, Urban Outfitters opened 10 new stores –– 2 Urban Outfitters stores, 4 Anthropologie stores and 4 Free People stores. The company plans to open about 55–57 new stores over the year.

Urban Outfitters ended the quarter with cash and cash equivalents of $226.4 million and shareholders’ equity of $1,304.3 million. During the quarter, the company bought back 2.3 million shares, aggregating $67 million. The company still has 3.3 million shares available at its disposal under its current authorization.

Currently, Urban Outfitters holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.