ANF Abercrombie and Fitch Co

Urban Outfitters Inc. (URBN), the retailer of apparel, footwear, and accessories, recently posted lower-than-expected results for the first quarter ended April 30, 2011. The quarterly earnings of 23 cents a share missed the Zacks Consensus Estimate of 25 cents, and dropped 25.8% from 31 cents earned in the prior-year quarter.

Despite registering a high single-digit growth in the top line, the company witnessed a drop in the bottom line due to an 18.4% rise in the cost of sales and an increase of 13.5% 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 9.2% to $524 million, and remained in line with the Zacks Consensus Estimate. Net sales increased 8.5% to $493.5 million at the retail segment and 21.5% to $30.6 million at the wholesale segment.

The company also portrayed total net sales by brands. Sales grew 11.8% to $235.3 million at Urban Outfitters, 1.7% to $228.5 million at Anthropologie and 27.6% to $51.8 million at Free People.

The company hinted that comparable retail segment net sales inched down 1%, whereas comparable store net sales dropped 5% during the quarter. Comparable retail segment net sales by brands rose 30% at Free People and 1% at Urban Outfitters but slipped 6% at Anthropologie.

Urban Outfitters notified that gross profit for the quarter declined 3.7% to $193.4 million, whereas gross margin contracted 493 basis points to 36.9% due to higher markdowns to sell through slow-moving stock of women's clothing at both Anthropologie and Urban Outfitters, and a loss experienced in connection with the sale of Leifsdottir wholesale inventories.

Operating income plummeted 28.4% to $58.8 million, whereas operating margin shriveled 590 basis points to 11.2%.

During the quarter, Urban Outfitters opened 10 new stores –– 2 Urban Outfitters stores, 3 Anthropologie stores and 5 Free People stores. The company plans to open about 50–55 new stores over the year.

Urban Outfitters ended the quarter with cash and cash equivalents of $242.1 million and shareholders’ equity of $1,312.5 million. During the quarter, the company bought back 4.8 million shares, aggregating $149 million. These repurchases include shares remaining under the 2006 share repurchase authorization and shares under its 10 million share repurchase program announced on November 16, 2010. The company still has 5.7 million shares available at its disposal under its current authorization.

Currently, Urban Outfitters holds a Zacks #5 Rank, which translates into a short-term ‘Strong Sell’ rating.

 
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