Urban Outfitters reports disappointing profits despite record sales

Following its reports of burgeoning fourth quarter sales in February, Philadelphia-based lifestyle company Urban Outfitters, Inc. (URBN) released its full Q4 and fiscal year 2018 results on Tuesday, with income suffering from a sharp peak in tax rates and deleverage in logistics expenses.
 

URBN's Free People brand saw the highest net sales growth in Q4 2018 - Free People

Fourth quarter net income totalled $1 million, down from $64 million in the prior year period, while full year net income was $108 million, falling from $218 million in the previous twelve-month period.
 
The largest negative impact on URBN’s income came in the form of a staggering 98.6% tax rate in Q4, up from 34.9% in the previous year. This soaring rate was related to a one-time charge on the company’s foreign earnings and profits, along with a write down of net deferred tax assets, due to changes enacted by the Tax Cuts and Jobs Act, amounting to around $64.7 million.
 
The company’s gross profit rate also saw drops of 176 basis points and 259 basis points in the fourth quarter and full year ended January 31, 2018, respectively, compared to equivalent prior year periods. The falling profit rates were related to deleverage in delivery and logistics expenses, as the company pushed its digital penetration, a factor which took a particularly heavy toll in Q4 as expedited shipments were multiplied over the holiday period in order to fulfill guaranteed delivery dates.
 
As previously reported, URBN’s comparable retail segment sales rose 4% in Q4, with strong double-digit growth in the company’s digital channel partially offset by negative retail store sales.
 
The company’s bohemian women’s apparel brand Free People saw the highest growth in net sales (+8%), followed by Anthropologie Group (+5%) and flagship brand Urban Outfitters (+2%). Q4 net sales in the wholesale segment saw a 6.3% increase compared to the same period in the previous year.

For the 12-month period ended January 31, 2018, the company’s total net sales increased 2% compared to the prior year, reaching $3.6 billion. By segment, retail net sales remained flat, while wholesale rose 9.5% during the period.
 
“I am pleased to announce that URBN produced record Q4 sales primarily driven by positive ‘comps’ at all three brands,” said CEO Richard A. Hayne in a release. “We are particularly pleased with how well the brands transitioned in January. Positive customer reaction to the new spring fashion offerings at all our brands has been strong and makes us optimistic regarding the first half of the year.”

URBN opened 18 new locations in 2017, including 8 Free People stores, 5 Urban Outfitter locations, 4 Anthropologie Group stores and 1 Food and Beverage restaurant. The company also closed 3 Free People, 2 Urban Outfitters and 3 Anthropologie Group stores, as well as 3 Food and Beverage restaurants, for a total of 11 closures.
 
As of January 31, 2018 the company therefore operates 245 Urban Outfitters stores and 226 Anthropologie Group locations in the US, Canada and Europe, 132 Free People stores in the US and Canada, and 10 Food and Beverage restaurants, along with associated websites and catalogs.

Following the opening of the first Urban Outfitters store in France at the end of February, Global Head of URBN International Stefan Laban spoke to FashionNetwork.com about the company’s ambitious plans for expansion in Europe, the Middle East and Asia, including the opening of a first franchised location in Tel Aviv at the end of March.
 
Free People and Anthropologie Group products are also sold through some 2,100 department and specialty stores globally, as well as third-party websites.

Anthropologie recently announced a partnership with Nordstrom that will see a selection of more than 200 of its homeware products on offer at 15 of the department store chain’s locations across 10 US states.

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