Urban Outfitters Holiday Comps Up, Lower Traffic A Worry

Urban Outfitters, Inc. URBN disclosed its holiday sales numbers, wherein comparable retail segment net sales, including the comparable direct-to-consumer channel, gained 1.5%. Despite reporting year-over-year increase in holiday sales its shares declined 1.9%, primarily due to lower-than-expected retail store comparable net sales which compelled the management to increase the promotional expenses.

For the month of November and December comparable retail segment net sales rose 3.6% at Urban Outfitters, 2.9% at Free People but decreased 1% at the Anthropologie Group. Gain in comparable retail sales were driven by double-digit growth in the direct-to-consumer channel.

Furthermore, net sales for the November and December jumped 3% year over year. However, wholesale segment net sales declined 4%. For the eleven months ended Dec 31, 2016, total net sales gained 3%, while comparable Retail segment net sales inched up 1.3% and Wholesale segment net sales rose 12%.

During the eleven-month period ended Dec 31, 2016, the company opened 27 new outlets – 13 Free People stores, 10 Anthropologie Group stores and four Urban Outfitters stores. The company shuttered three stores – one Free People store, one Anthropologie Group store and one Urban Outfitters store – in the same time frame. During the period, it also opened two new restaurants and acquired six Vetri Family restaurants which are included in the Food and Beverage division.

Urban Outfitters expects gross margin to be affected by two major factors. Firstly, due to decrease in store traffic, resulting in lower store sales which compelled the management to increase promotional activity. Secondly, due to increase in demand for lower margin items.

Urban Outfitters (up 23.1%) has outperformed the Zacks categorized Retail-Apparel/Shoe industry (down 12.1%) in the past one year. We expect the company to drive growth on the back of new store openings, increase in direct penetration, growing wholesale operations, technology advancements and merchandising improvements. We also believe that better product execution and effective inventory management will help augment performance.

Apart from Urban Outfitters, Macy's, Inc. M, The Gap, Inc. GPS and Kohl's Corporation KSS came out with their holiday sales numbers. Macy’s comps, on an owned plus licensed basis, decreased 2.1% during the combined period of November and December; while on an owned basis, comparable sales fell 2.7%. We noted that Kohl’s comps declined 2.1%, whereas The Gap Inc’s comps rose 2% during the holiday season.

Urban Outfitters currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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