URBN Q2: Record Sales, Record Profits

Rhea-AI Summary

Urban Outfitters (NASDAQ:URBN) reported a record net income of $127 million and earnings per diluted share of $1.28 for Q2 2021, marking a significant 110% increase in earnings compared to fiscal 2020. Total net sales for the quarter reached $1.16 billion, a 20.3% increase from Q2 2019. The Retail segment saw a 24% increase in sales, bolstered by strong digital growth. However, the Wholesale segment declined by 30% due to reduced sales to promotional wholesale customers. The increase in gross profit rate was primarily due to low merchandise markdown rates.

Positive

• Record net income of $127 million and earnings per diluted share at $1.28 for Q2 2021.
• Total net sales increased to $1.16 billion, representing a 20.3% growth from Q2 2019.
• Retail segment net sales surged 24%, with strong digital channel performance.
• Gross profit increased by $119.4 million, reflecting effective markdown strategies.

Negative

• Wholesale segment net sales fell by 30%, mainly from reduced promotional sales.
• Retail store sales faced low single-digit declines due to decreased store traffic.

PHILADELPHIA, Aug. 24, 2021 (GLOBE NEWSWIRE) -- Urban Outfitters, Inc. (NASDAQ:URBN), a leading lifestyle products and services company which operates a portfolio of global consumer brands comprised of the Anthropologie, BHLDN, Free People, FP Movement, Terrain, Urban Outfitters, Nuuly and Menus & Venues brands, today announced net income of $127 million and earnings per diluted share of $1.28 for the three months ended July 31, 2021. For the six months ended July 31, 2021, net income was $181 million and earnings per diluted share were $1.82.

Due to the material impact of COVID-19 on our business operations in fiscal 2021, including mandated store closures, this release includes a comparison of fiscal 2022 results to fiscal 2020. Management views the comparison of fiscal 2022 results to fiscal 2020 as the more meaningful measurement of the Company’s business performance.

Total Company net sales for the three months ended July 31, 2021, were a record $1.16 billion. Net sales increased 20.3% compared to the three months ended July 31, 2019. Comparable Retail segment net sales increased 22%, driven by strong double-digit growth in digital channel sales, partially offset by low single-digit negative retail store sales due to reduced store traffic. By brand, comparable Retail segment net sales increased 53% at the Free People Group, 20% at Urban Outfitters and 14% at the Anthropologie Group. Total Retail segment net sales increased 24%. Wholesale segment net sales decreased 30% primarily from reducing the Free People Group’s sales to promotional wholesale customers.

For the six months ended July 31, 2021, total Company net sales increased 14.1% compared to the six months ended July 31, 2019. Comparable Retail segment net sales increased 17%, driven by strong double-digit growth in digital channel sales, partially offset by double-digit negative retail store sales due to reduced store traffic resulting from temporary store closures and occupancy restrictions in Europe and Canada. Wholesale segment net sales decreased 27% primarily from reducing the Free People Group’s sales to promotional wholesale customers.

“We’re pleased to report record second quarter sales and earnings driven by extraordinary performance at all three brands,” said Richard A. Hayne, Chief Executive Officer. “Congratulations to all Brand, Creative and Shared teams for the exceptional execution that led to a 110% increase in earnings per share over fiscal 2020,” finished Mr. Hayne.

Net sales by brand and segment for the three and six-month periods were as follows:

	Three Months Ended
	July 31,
	2021				2020				2019
Net sales by brand
Urban Outfitters	$	441,616			$	323,889			$	355,045
Anthropologie Group		450,593				295,126				394,280
Free People Group		249,708				178,019				205,940
Menus & Venues		5,869				1,560				7,064
Nuuly (1)		9,939				4,672				—
Total Company	$	1,157,725			$	803,266			$	962,329

	Three Months Ended
	July 31,
	2021				2020				2019
Net sales by segment
Retail Segment	$	1,089,022			$	757,471			$	878,693
Wholesale Segment		58,764				41,123				83,636
Subscription Segment (1)		9,939				4,672				—
Total Company	$	1,157,725			$	803,266			$	962,329

	Six Months Ended
	July 31,
	2021				2020				2019
Net sales by brand
Urban Outfitters	$	791,297			$	561,209			$	671,851
Anthropologie Group		804,160				529,201				749,268
Free People Group		462,459				285,683				392,131
Menus & Venues		9,465				4,714				13,492
Nuuly (1)		17,759				10,942				—
Total Company	$	2,085,140			$	1,391,749			$	1,826,742

	Six Months Ended
	July 31,
	2021				2020				2019
Net sales by segment
Retail Segment	$	1,946,508			$	1,318,703			$	1,661,256
Wholesale Segment		120,873				62,104				165,486
Subscription Segment (1)		17,759				10,942				—
Total Company	$	2,085,140			$	1,391,749			$	1,826,742

        (1)   The Subscription segment (which is comprised of the Nuuly brand) began operations on July 30, 2019.

For the three months ended July 31, 2021, the gross profit rate increased by 478 basis points compared to the three months ended July 31, 2019. Gross profit dollars increased by $119.4 million to $435.3 million from $315.9 million in the three months ended July 31, 2019. The increase in gross profit rate was primarily due to record low second quarter merchandise markdown rates in the Retail segment and a leverage in store occupancy expense primarily due to the increased penetration of the digital channel in Retail segment net sales. All three brands recorded lower merchandise markdown rates with the Urban Outfitters and Anthropologie brands achieving record low second quarter merchandise markdown rates. This was partially offset by a deleverage in delivery and logistics expenses. Delivery and logistics expense deleverage was primarily driven by the increased penetration of the digital channel. Logistics expense also deleveraged due to increased wages at our distribution and fulfillment centers in order to attract and retain appropriate levels of employees.

For the six months ended July 31, 2021, the gross profit rate increased by 327 basis points compared to the six months ended July 31, 2019. Gross profit dollars increased by $151.0 million to $735.9 million from $584.9 million in the six months ended July 31, 2019. The increase in gross profit rate was primarily due to record low first half merchandise markdown rates in the Retail segment and a leverage in store occupancy expense due to the increased penetration of the digital channel in Retail segment net sales. All three brands recorded record low first half merchandise markdown rates. This was partially offset by a deleverage in delivery and logistics expenses. Delivery and logistics expense deleverage was primarily driven by the increased penetration of the digital channel. Logistics expense also deleveraged due to increased wages at our distribution and fulfillment centers in order to attract and retain appropriate levels of employees.

As of July 31, 2021, total inventory increased by $43.1 million, or 9.8%, compared to total inventory as of July 31, 2019. The increase in inventory was due to the increase in net sales.

For the three months ended July 31, 2021, selling, general and administrative expenses increased by $31.6 million, or 13.3%, compared to the three months ended July 31, 2019, and expressed as a percentage of net sales, decreased to 23.3% from 24.7% in the three months ended July 31, 2019. The leverage in selling, general and administrative expenses as a rate to sales was primarily related to disciplined store payroll management and overall expense control that was partially offset by a deleverage in digital marketing and creative expenses during the quarter to support the strong digital sales and customer growth. The increase in dollars was primarily driven by the increase in digital marketing and creative expenses partially offset by the reduction in direct selling expenses due to the lower retail store net sales.

For the six months ended July 31, 2021, selling, general, and administrative expense increased by $29.7 million, or 6.4%, compared to the prior year’s comparable period and expressed as a percentage of net sales, decreased to 23.8% from 25.5% in the six months ended July 31, 2019. The leverage in selling, general and administrative expenses as a rate to sales was primarily related to disciplined store payroll management and overall expense control that was partially offset by a deleverage in digital marketing and creative expenses during the period to support the strong digital sales and customer growth. The increase in dollars was primarily driven by the increase in digital marketing and creative expenses to support the overall growth of the Company partially offset by the reduction in direct selling expenses due to the lower retail store net sales.

The Company’s effective tax rate for the three months ended July 31, 2021, was 22.4% compared to 26.0% in the three months ended July 31, 2019. The Company’s effective tax rate for the six months ended July 31, 2021, was 23.8% compared to 25.2% in the six months ended July 31, 2019. The decrease in the effective tax rate for the three and six months ended July 31, 2021, was primarily due to the ratio of foreign taxable profits to global taxable profits.

Net income for the three months ended July 31, 2021, was $127 million and record second quarter earnings per diluted share were $1.28. Net income for the six months ended July 31, 2021, was $181 million and record first half earnings per diluted share were $1.82.

On August 22, 2017, the Company’s Board of Directors authorized the repurchase of 20 million common shares under a share repurchase program. On June 4, 2019, the Company’s Board of Directors authorized the repurchase of 20 million common shares under a new share repurchase program. During the six months ended July 31, 2021, the Company did not repurchase any shares. During the year ended January 31, 2021, the Company repurchased and subsequently retired 0.5 million common shares for approximately $7 million. These shares were repurchased prior to the known spread of the COVID-19 pandemic in the United States that forced the Company to close its stores for an extended period of time. As of July 31, 2021, 25.9 million common shares were remaining under the programs.

During the six months ended July 31, 2021, the Company opened a total of 28 new retail locations including: 15 Free People Group stores (including 7 FP Movement stores), 9 Urban Outfitters stores and 4 Anthropologie Group stores; and closed 6 retail locations including: 2 Free People Group stores, 2 Anthropologie Group stores, 1 Urban Outfitters store and 1 Menus & Venues restaurant. During the six months ended July 31, 2021, 1 Urban Outfitters franchisee-owned store and 1 Anthropologie Group franchisee-owned store were opened.

Urban Outfitters, Inc., offers lifestyle-oriented general merchandise and consumer products and services through a portfolio of global consumer brands comprised of 255 Urban Outfitters stores in the United States, Canada and Europe and websites; 239 Anthropologie Group stores in the United States, Canada and Europe, catalogs and websites; 162 Free People Group stores in the United States, Canada and Europe, catalogs and websites, 10 Menus & Venues restaurants, 2 Urban Outfitters franchisee-owned stores and 1 Anthropologie Group franchisee-owned store, as of July 31, 2021. Free People, FP Movement and Urban Outfitters wholesale sell their products through department and specialty stores worldwide, digital businesses and the Company’s Retail segment.

A conference call will be held today to discuss second quarter results and will be webcast at 5:30 pm. ET at: https://edge.media-server.com/mmc/p/di4txumm

This news release is being made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Certain matters contained in this release may contain forward-looking statements. When used in this release, the words “project,” “believe,” “plan,” “will,” “anticipate,” “expect” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Any one, or all, of the following factors could cause actual financial results to differ materially from those financial results mentioned in the forward-looking statements: the impacts of public health crises such as the coronavirus (COVID-19) pandemic, overall economic and market conditions and worldwide political events and the resultant impact on consumer spending patterns, the difficulty in predicting and responding to shifts in fashion trends, changes in the level of competitive pricing and promotional activity and other industry factors, the effects of the implementation of the United Kingdom's withdrawal from membership in the European Union (commonly referred to as “Brexit”), including currency fluctuations, economic conditions and legal or regulatory changes, any effects of war, terrorism and civil unrest, natural disasters, severe or unseasonable weather conditions (including as a result of climate change) or public health crises, increases in labor costs, increases in raw material costs, availability of suitable retail space for expansion, timing of store openings, risks associated with international expansion, seasonal fluctuations in gross sales, response to new concepts, our ability to integrate acquisitions, risks associated with digital sales, our ability to maintain and expand our digital sales channels, any material disruptions or security breaches with respect to our technology systems, the departure of one or more key senior executives, import risks (including any shortage of transportation capacities or delays at ports), changes to U.S. and foreign trade policies (including the enactment of tariffs, border adjustment taxes or increases in duties or quotas), the closing or disruption of, or any damage to, any of our distribution centers, our ability to protect our intellectual property rights, failure of our manufacturers and third-party vendors to comply with our social compliance program, risks related to environmental, social and governance activities, changes in our effective income tax rate, changes in accounting standards and subjective assumptions, regulatory changes and legal matters and other risks identified in our filings with the Securities and Exchange Commission. The Company disclaims any intent or obligation to update forward-looking statements even if experience or future changes make it clear that actual results may differ materially from any projected results expressed or implied therein.

(Tables follow)

URBAN OUTFITTERS, INC.
Condensed Consolidated Statements of Operations
(amounts in thousands, except share and per share data)
(unaudited)

	Three Months Ended
	July 31,
	2021				2020				2019
Net sales	$	1,157,725			$	803,266			$	962,329
Cost of sales		722,460				565,228				646,454
Gross profit		435,265				238,038				315,875
Selling, general and administrative expenses		269,412				168,619				237,814
Income from operations		165,853				69,419				78,061
Other (loss) income, net		(1,797	)			(533	)			3,498
Income before income taxes		164,056				68,886				81,559
Income tax expense		36,794				34,486				21,239
Net income	$	127,262			$	34,400			$	60,320
Net income per common share:
Basic	$	1.29			$	0.35			$	0.61
Diluted	$	1.28			$	0.35			$	0.61
Weighted-average common shares outstanding:
Basic		98,315,441				97,778,749				99,095,562
Diluted		99,601,292				98,104,918				99,602,465
AS A PERCENTAGE OF NET SALES
Net sales		100.0	%			100.0	%			100.0	%
Cost of sales		62.4	%			70.4	%			67.2	%
Gross profit		37.6	%			29.6	%			32.8	%
Selling, general and administrative expenses		23.3	%			21.0	%			24.7	%
Income from operations		14.3	%			8.6	%			8.1	%
Other (loss) income, net		(0.1	%)			(0.0	%)			0.4	%
Income before income taxes		14.2	%			8.6	%			8.5	%
Income tax expense		3.2	%			4.3	%			2.2	%
Net income		11.0	%			4.3	%			6.3	%

URBAN OUTFITTERS, INC.
Condensed Consolidated Statements of Operations
(amounts in thousands, except share and per share data)
(unaudited)

	Six Months Ended
	July 31,
	2021				2020				2019
Net sales	$	2,085,140			$	1,391,749			$	1,826,742
Cost of sales (excluding store impairment)		1,349,224				1,127,340				1,241,811
Store impairment		—				14,528				—
Gross profit		735,916				249,881				584,931
Selling, general and administrative expenses		496,560				379,197				466,850
Income (loss) from operations		239,356				(129,316	)			118,081
Other (loss) income, net		(1,952	)			(371	)			6,178
Income (loss) before income taxes		237,404				(129,687	)			124,259
Income tax expense (benefit)		56,595				(25,645	)			31,354
Net income (loss)	$	180,809			$	(104,042	)		$	92,905
Net income (loss) per common share:
Basic	$	1.84			$	(1.06	)		$	0.91
Diluted	$	1.82			$	(1.06	)		$	0.91
Weighted-average common shares outstanding:
Basic		98,213,555				97,843,796				101,722,244
Diluted		99,463,468				97,843,796				102,427,040
AS A PERCENTAGE OF NET SALES
Net sales		100.0	%			100.0	%			100.0	%
Cost of sales (excluding store impairment)		64.7	%			81.0	%			68.0	%
Store impairment		—				1.0	%			—
Gross profit		35.3	%			18.0	%			32.0	%
Selling, general and administrative expenses		23.8	%			27.3	%			25.5	%
Income (loss) from operations		11.5	%			(9.3	%)			6.5	%
Other (loss) income, net		(0.1	%)			(0.0	%)			0.3	%
Income (loss) before income taxes		11.4	%			(9.3	%)			6.8	%
Income tax expense (benefit)		2.7	%			(1.8	%)			1.7	%
Net income (loss)		8.7	%			(7.5	%)			5.1	%

URBAN OUTFITTERS, INC.
Condensed Consolidated Balance Sheets
(amounts in thousands, except share data)
(unaudited)

	July 31,				January 31,				July 31,				July 31,
	2021				2021				2020				2019
ASSETS
Current assets:
Cash and cash equivalents	$	464,811			$	395,635			$	662,860			$	162,018
Marketable securities		156,982				174,695				501				171,398
Accounts receivable, net of allowance for doubtful accounts of $1,302, $4,028, $4,123 and $939, respectively		94,402				89,952				60,441				95,131
Inventory		483,148				389,618				351,771				440,087
Prepaid expenses and other current assets		196,070				173,432				195,393				131,763
Total current assets		1,395,413				1,223,332				1,270,966				1,000,397
Property and equipment, net		1,047,751				967,422				889,126				867,434
Operating lease right-of-use assets		1,068,919				1,114,762				1,134,678				1,085,543
Marketable securities		113,249				123,662				9,216				78,857
Deferred income taxes and other assets		117,556				117,167				121,292				105,814
Total Assets	$	3,742,888			$	3,546,345			$	3,425,278			$	3,138,045
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	240,245			$	237,386			$	207,261			$	181,955
Current portion of operating lease liabilities		243,338				254,703				270,326				209,072
Accrued expenses, accrued compensation and other current liabilities		462,782				414,043				293,629				235,106
Total current liabilities		946,365				906,132				771,216				626,133
Non-current portion of operating lease liabilities		1,030,212				1,074,009				1,102,250				1,090,623
Long-term debt		—				—				120,000				—
Deferred rent and other liabilities		96,891				88,846				81,219				59,885
Total Liabilities		2,073,468				2,068,987				2,074,685				1,776,641
Shareholders’ equity:
Preferred shares; $.0001 par value, 10,000,000 shares authorized, none issued		—				—				—				—
Common shares; $.0001 par value, 200,000,000 shares authorized, 98,357,090, 97,815,985, 97,779,586 and 97,965,012 shares issued and outstanding, respectively	10				10				10				10
Additional paid-in-capital		26,581				19,360				9,956				—
Retained earnings		1,655,917				1,475,108				1,369,830				1,398,681
Accumulated other comprehensive loss		(13,088	)			(17,120	)			(29,203	)			(37,287	)
Total Shareholders’ Equity		1,669,420				1,477,358				1,350,593				1,361,404
Total Liabilities and Shareholders’ Equity	$	3,742,888			$	3,546,345			$	3,425,278			$	3,138,045

URBAN OUTFITTERS, INC.
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)

		Six Months Ended
		July 31,
		2021				2020				2019
Cash flows from operating activities:
Net income (loss)		$	180,809			$	(104,042	)		$	92,905
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			51,223				53,388				55,395
Non-cash lease expense			95,097				97,655				94,173
(Benefit) provision for deferred income taxes			(1,275	)			(17,074	)			1,107
Share-based compensation expense			11,968				11,257				11,461
Store impairment			—				14,528				—
Loss on disposition of property and equipment, net			121				679				593
Changes in assets and liabilities:
Receivables			(4,349	)			27,912				(15,032	)
Inventory			(93,049	)			58,002				(71,899	)
Prepaid expenses and other assets			4,272				(62,170	)			(23,121	)
Payables, accrued expenses and other liabilities			61,586				94,196				16,009
Operating lease liabilities			(111,210	)			(59,115	)			(100,338	)
Net cash provided by operating activities			195,193				115,216				61,253
Cash flows from investing activities:
Cash paid for property and equipment			(105,624	)			(72,103	)			(116,465	)
Cash paid for marketable securities			(165,927	)			(92,949	)			(235,094	)
Sales and maturities of marketable securities			148,582				383,056				320,411
Net cash (used in) provided by investing activities			(122,969	)			218,004				(31,148	)
Cash flows from financing activities:
Borrowings under debt			—				220,000				—
Repayments of debt			—				(100,000	)			—
Proceeds from the exercise of stock options			2,816				—				974
Share repurchases related to share repurchase program			—				(7,036	)			(217,421	)
Share repurchases related to taxes for share-based awards			(7,562	)			(3,742	)			(5,429	)
Net cash (used in) provided by financing activities			(4,746	)			109,222				(221,876	)
Effect of exchange rate changes on cash and cash equivalents			1,698				(1,421	)			(4,471	)
Increase (decrease) in cash and cash equivalents			69,176				441,021				(196,242	)
Cash and cash equivalents at beginning of period			395,635				221,839				358,260
Cash and cash equivalents at end of period		$	464,811			$	662,860			$	162,018

 

	Contact:	Oona McCullough
		Executive Director of Investor Relations
		(215) 454-4806

FAQ

What were Urban Outfitters' earnings for Q2 2021?

Urban Outfitters reported earnings of $127 million and earnings per diluted share of $1.28 for Q2 2021.

How did Urban Outfitters' net sales perform in Q2 2021?

Total net sales reached $1.16 billion, a 20.3% increase compared to Q2 2019.

What challenges did Urban Outfitters face in their Wholesale segment?

The Wholesale segment saw a 30% decline in sales primarily due to reduced promotional sales.

What drove Urban Outfitters' increase in gross profit in Q2 2021?

The increase in gross profit was driven by record low merchandise markdown rates in the Retail segment.

What impact did COVID-19 have on Urban Outfitters' sales?

COVID-19 resulted in reduced store traffic, affecting retail store sales negatively.