Urban Outfitters Quarterly Profits Plunge Nearly $68M
Urban Outfitters Inc. continues to feel the effects of inflation as it manages rising costs along the supply chain and excess inventory.
The group — which counts Urban Outfitters, the Anthropologie Group, Free People, Terrain and Bhldn, among its brands, in addition to rental subscription service Nuuly and a food and beverage business under the greater company umbrella — revealed quarterly earnings results Tuesday afternoon, improving on top-line sales across all channels, but fell short on profits thanks to continued price hikes along the supply chain. The retailer's shares fell more than 3 percent in afterhours trading as a result.
The biggest headwinds came from increased transportation costs and pricey fuel charges in the three months ending July 31. Inventory also grew during the quarter by more than $214 million, or
44.4 percent, year-over-year. By segment, retail inventory rose 42 percent, while wholesale inventory surged 64 percent, year-over-year. The company said it planned earlier receipts to “protect against the volatility of the supply chain,” which also drove up costs.
In addition, SG&A expense was up for the quarter by 7.2 percent, or $19.3 million, driven by increased store payroll costs.
The company said the need for higher wages to retain workers, coupled with rising store traffic at some brands, caused payroll expenses to rise.
In the end, the company logged just $59.4 million in profits for the quarter, down from more than $127 million last year.
Urban Outfitters isn't the first retailer to be strapped with price increases along the supply chain and excess inventory. A number of retailers, including Target and Kohl's, have revealed similar quarterly results in recent weeks.
Still, Richard A. Hayne, chief executive officer of Urban Outfitters Inc., said in a statement that he was “pleased to announce record second-quarter sales fueled by strong ‘comps' at the Anthropologie and Free People brands.”
Top line, the retailer's numbers were more encouraging. Total revenues for the three-month period ending July 31, rose
2.2 percent to more than $1.18 billion, up from $1.15 billion during last year's second quarter. Total sales, as well as comparable sales, in the retail segment increased 1 percent during the quarter, year-over-year. In the retail segment, net sales were $1.09 billion, up from $1.08 billion last year. Gains were driven by a low- single- digit increase in the digital channel, while sales in the retail store channel were flat for the quarter.
Total revenues in the wholesale business also grew one percent during the quarter to $59.4 million, up from $58.7 million last year, driven by a 4 percent increase in Free People's wholesale revenues. The gains helped offset declines in the Urban Outfitters brand wholesale channel.
Price hikes, excess inventory and increased payroll expenses cut into profits.
Meanwhile, the Free People and Anthropologie brands continue to be growth drivers, with sales for the quarter up 8 percent and 7 percent, respectively. Revenues at the nameplate Urban brand fell 9 percent during the quarter to approximately $396 million, down from nearly $442 million last year. Net sales at rental brand Nuuly grew by $ 18.8 million to $ 28.7 million, up from $ 9.9 million last year, thanks to an increase in new subscribers. The company said the rental subscription service is nearly 100,000 customers.
“Customer shopping at our brands has bifurcated,” Hayne told analysts on Tuesday afternoon's conference call, explaining that Anthropologie and Free People shoppers — who are often more affluent — have continued to spend despite price increases and inflation. “For the
Urban brand customer, who is younger and less affluent, the current inflation is economically crippling," he said.
If inflation and market volatility continue through the back half of the year, the CEO said he expects the Urban brand to comp negatively for the year.
The retailer opened 16 new locations in the last three months, ending the quarter with about 683 brickand- mortar stores in North America and Europe, along with the related web sites. By brand that's 261 Urban Outfitters, 239 Anthropologie and 183 Free People stores. The firm also ended the quarter with $ 91.6 million in cash and cash equivalents.
Shares of Urban Outfitters, which closed down 0.82 percent Tuesday to $21.84 apiece, are down 36.7 percent, year- over-year.