Key Takeaways From Urban Outfitters’ Fiscal 2018

by Trefis Team
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Urban Outfitters
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Urban Outfitters (NASDAQ: URBN) delivered a strong financial performance in fiscal 2018. The apparel retailer’s revenue surged by 9.3% year-over-year to reach approximately $4 billion, with record sales across brands. The company also recorded its highest annual net income of $300 million since the economic downturn. The retailer’s fourth quarter comparable sales rose by 4%, marking the sixth straight quarter of each of the brands’ positive retail segment comp growth. Digital channel sales continued to lead the way, posting a double-digit sales increase in Q4 2018. However, the store channel recorded negative comp sales for the first time in the year in Q4.

The company’s gross margin improved by approximately 150 basis points due to maintained margins, lower markdown rates and improved initial mark-ups. Operating income also surged primarily due to a reduction in store impairment expenses, which was partially offset by increased bonus expense, as each brand achieved its bonus target in the current year. For Q1 2019, the company expects its retail segment comp sales to be flat to slightly negative. We currently have a price estimate of $37 per share for URBN, which is ahead of the current market price. We have summarized our full year expectations for URBN, based on the company’s guidance and our own estimates, on our interactive dashboard URBN’s 2019 Financial Outlook. You can modify any of our key drivers to gauge the impact changes would have on its valuation, and see all Trefis Consumer Discretionary Services company data here.

 

Key Takeaways from Urban Outfitters’ Fourth Quarter Financial Performance Are Summarized Below:

Digital Sales Channel Continue To Thrive  

The digital channel continued to lead the way for Urban Outfitters, posting double-digit sales growth across brands in Q4, primarily driven by increased sessions and conversion rate. The digital channel drove much of the increase in retail sales in Q4, with digital penetration of total retail segment sales running well above 40% for the quarter. Urban Outfitters’ loyalty program, UO Rewards, accounted for more than 70% of the total brand sales in Q4 2018. Although average order value and units per transaction declined in Q4 2018, going forward we expect the company to make significant marketing investments to support the digital channel sales growth, as the digital channel will drive the overall revenue growth of the organization.

Macroeconomic Uncertainty And International Expansion

The company delivered a solid performance in the international market in 2018. While the company’s operations achieved positive growth in China and North America, total EU comps for its Urban Outfitter brand were negative for the first time in 12 quarters in Q4 2018. The company expects the demand in European countries to be low until the uncertainty surrounding Brexit is cleared. Over the next few years, the company plans to ramp up its European operations, which should provide a solid long-term growth opportunity once Brexit-related uncertainty subsides.

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