Urban Outfitters Is Winning Online, But Losing At Brick-And-Mortar

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URBN: Urban Outfitters logo
URBN
Urban Outfitters

Urban Outfitters (NASDAQ:URBN) is the latest retail company to post dismal results in the first quarter. The company reported its earnings on May 16, delivering a bad miss on EPS. Heavy discounting at Anthropologie and its eponymous Urban Outfitters brand, as well as a greater focus on the direct to consumer (DTC) segment pressured the margins, resulting in a 60% fall in the earnings per share over the corresponding quarter of last year. Relatively flat revenues were also noted, despite double-digit growth in e-commerce revenues. Tough times for the American retail industry were underscored in the disappointing earnings, wherein problems in the brick-and-mortar stores overshadowed the impressive growth in the DTC and wholesale channel.

URBN Q1 2018 Earnings- 1

Focus On Direct To Consumer

The progress of Urban Outfitters in its digital channel was evidenced by double-digit direct sales gains, and the DTC penetration increased to north of 35% for Urban Outfitters and Anthropologie, and over 50% for Free People. Keeping the strong growth in mind, the company rolled out a new platform for the Urban Outfitters brand globally, including the launch of its iOS and Android apps in Europe. The brands now share a common platform, which boasts of better user speed and improved navigation. Increased traffic to the website is being driven partly by social media, with the company’s Instagram following noting a 43% increase over the same time last year.

URBN Sales By Brand & Segment

Given this strong showing, this segment remains Urban’s biggest opportunity and primary focus, and the company intends to add followers and expand its social media presence, as well as build its content and add more products, categories, and brands. The company expects its digital sales to double within the next five years.

Store Growth To Come From International Regions

International sales currently account for less than 10% of the company’s revenue. Given the strong performance of the brand in Europe, URBN believes it has substantial room to grow and increase its international sales penetration. In this regard, the company has identified and negotiated half a dozen store locations for Europe, as well as franchise arrangements for Middle Eastern and other countries. URBN intends to open three new stores in Europe this year, and ramp up its pace in the next several years. The company will also focus its international expansion in the digital and wholesale realm as well.

The company believes its store count for Urban Outfitters and Anthropologie to be at a satisfactory number, while that of Free People, currently at 130 stores, to be nearing the North American desired total. As the existing leases come up for renewal in the US, the company will review each location, and continue to close existing stores that do not meet its criteria. Hence, all the store count growth in the future will come from international locations, where the company is under-penetrated currently. In Europe, Urban has less than 100 stores across all its brands currently.

URBN Q1 2018 Earnings- 3

See our complete analysis for Urban Outfitters

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Notes:

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2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Urban Outfitters
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