(By Mani) Urban Outfitters Inc. (NASDAQ:URBN) is uniquely positioned to benefit from its differentiated shopping experience, mix of own-label and third-party branded assortments, and flexibility to manipulate mix by category and classification.
Urban Outfitters is a specialty retailer of niche lifestyle merchandise through Urban Outfitters, Anthropologie and Free People stores, catalogs and websites and a wholesaler of the Free People brand. It also engages in wholesale business under the Free People brand, and competes with Abercrombie & Fitch Co. (NYSE:ANF) and Gap, Inc. (NYSE:GPS).
The recent comparable store sales (comps) trend of Urban Outfitters shows that merchandising and inventory controls are continuing to gain momentum. Comps are trending in the low single digit positive range compared to low single digit negative in last year's update and 1 percent for the full quarter.
The current second quarter consensus comps estimate are 1.1 percent. Though, compares become progressively more difficult, product/inventory management is improving.
Inventory levels expected to re-balance as year progresses. Inventories were up 13 percent at the end of the first quarter of 2012 and they are expected to be closer to comps as the year progresses.
"We view these results favorably and believe that the Urban division continues to significantly outpace Anthropologie (we estimate 5% Urban vs. slightly negative/flattish Anthropologie), although both are improving," Oppenheimer analyst Pamela Quintiliano wrote in a note to clients.
Meanwhile, Street expectations for margin recovery in the second half appears to be conservative. Urban Outfitters has guided 2012 gross margins up 200-250 basis points. Quintiliano expects 200 basis points of margin improvement in fiscal 2012, above consensus of a roughly 150 basis points improvement.
In addition, large and short open-to-buy positioning and ability to apply early learnings to be the first to respond to the fashion shift bodes well for the retailer, which is plans to open 55-60 new stores in fiscal 2013.
Meanwhile, ongoing direct-to-consumer expansion, IT initiatives, international expansion and improvements in Europe, especially Germany should benefit quarterly results.
Recent results as well as commentary regarding margin improvements bolster market v iew that fundamentals are gradually improving.
For the first quarter ended April 30, 2012, the Philadelphia, Pennsylvania-based retailer earned $34.0 million, compared to $38.6 million for the year-ago quarter. Earnings per share for the quarter remained flat with last year at 23 cents a share on lower number of outstanding shares. Analysts expected earnings of 20 cents a share.
Net sales for the first quarter rose 9 percent to $568.93 million, while analysts had a consensus revenue estimate of $579.33 million for the first quarter. The company's comparable retail segment net sales, which include the direct-to-consumer channels, rose 2 percent, while comparable store net sales fell 1 percent. Comparable retail segment net sales improved 6 percent at Urban Outfitters and 2 percent at Free People, but declined 2 percent at Anthropologie.
"With new management in place, recent product appears to be resonating. We expect momentum to build throughout the year. URBN remains a top 2H pick," Quintiliano added.