Teen apparel retailer Urban Outfitters (NASDAQ:URBN) is scheduled to announce its Q1 2012 earnings on May 21.  While there weren’t many business updates from the company this quarter, the Q1 comparable sales were up by low single digit in the initial two months of the quarter. We expect the same trend to have stretched in April as well, and we expect the company to post positive growth in both Q1 comps and net sales. Additionally, we also expect Urban to show a gradual improvement in margins on a quarterly basis. Urban Outfitters competes with other specialty retailers such as Ann (NYSE:ANN), Aeropostale (NYSE:ARO) as well as Gap (NYSE:GPS) and Abercrombie & Fitch (NYSE:ANF).
Expect a positive increase in comps and net sales
We expect Urban Outfitters to post robust net sales and comparable store sales growth on Monday. During the Spring season, the company seemed to have worked diligently in improving its offerings in the women’s apparel segment, which was the major problem for the past three quarters. Urban’s spring merchandise has received positive reviews from both critics and customers, which reflected through an increase in comparable sales for both February and March. We expect the trend to have stretched through April as well; however, a slightly cooler April and an early Easter might have slowed down the growth witnessed during the initial two months.
Urban’s gross margins should improve on a q-o-q basis
In addition to growth in net sales, we also expect Urban to show a gradual improvement in margins on a quarterly basis.
While the company did manage to increase its revenues by 9% during Q4 2011, this growth came primarily on the massive promotional stance by Urban during the holidays. Thus Urban’s Q4 margins took a hit, which declined by a substantial 9.6% compared to the same period last year.
We don’t see the same scenario this quarter, which should reflect as an increase in its average unit retail (AUR) prices, and hence an improvement in margins. The gradually improving U.S. macro-economic conditions have resulted in a decline in promotional scales in the U.S. teen apparel market. A lighter promotional scale for the Spring season should result in higher full-priced merchandise sales and hence better margins for Urban for the quarter.Notes: