It has been a couple of month for the reason that final earnings report for City Outfitters (URBN). Shares have added about 0% in that time-frame, underperforming the S&P 500.
Will the current constructive development proceed main as much as its subsequent earnings launch, or is City Outfitters due for a pullback? Earlier than we dive into how traders and analysts have reacted as of late, let’s take a fast take a look at the newest earnings report with the intention to get a greater deal with on the essential drivers.
City Outfitters Q2 Earnings High Estimates, Retail Gross sales Up Y/Y
City Outfitters reported spectacular outcomes for second-quarter fiscal 2025, whereby the underside and prime strains surpassed the Zacks Consensus Estimate. Additionally, each metrics improved from the prior-year quarter.
URBN’s Q2 Efficiency
This life-style specialty retailer delivered earnings per share of $1.24, surpassing the Zacks Consensus Estimate of 98 cents. Additionally, the underside line elevated 12.7% from the comparable quarter of the prior fiscal yr.
Whole web gross sales elevated 6.3% yr over yr to $1,351.9 million, surpassing the consensus estimate of $1,338 million.
Whole web gross sales within the Retail section rose 3.1%, with comparable web gross sales on this section rising 2%. This progress was primarily fueled by low single-digit constructive positive factors in each digital channel gross sales and gross sales from retail shops. Particularly, comparable Retail web gross sales rose 7.1% at Free Folks and 6.7% at Anthropologie however fell 9.3% at City Outfitters.
Within the Wholesale section, web gross sales grew 15.1% yr over yr, primarily resulting from a 17.5% rise in Free Folks’s wholesale gross sales, which was attributed to elevated gross sales to shops and specialty clients. This was, nonetheless, considerably offset by a decline in City Outfitters’ wholesale gross sales.
The Nuuly section noticed a big 62.6% enhance in web gross sales primarily resulting from a 55% rise in common lively subscribers from the prior-year quarter.
Margin Insights of URBN
Gross revenue rose 8.3% from the prior-year quarter to $493.3 million. Additionally, the gross margin expanded 68 foundation factors (bps) to 36.5%, primarily owing to larger preliminary merchandise markups throughout all manufacturers primarily because of the firm’s cross-functional initiatives. This enhance was considerably mitigated by larger Retail section merchandise markdowns, notably on the City Outfitters model.
Promoting, common and administrative (SG&A) bills have been up 7.6% yr over yr to $348.2 million. The rise was primarily resulting from larger advertising bills aimed toward boosting buyer visitors and gross sales within the Retail and Nuuly segments, in addition to elevated payroll prices to assist the expansion in comparable gross sales at Retail section shops. As a proportion of web gross sales, SG&A deleveraged 32 bps to 25.6%, primarily because of the City Outfitters model’s incapability to cut back bills on the similar tempo as its web gross sales.
URBN recorded an working earnings of $145.1 million, up 9.9% from $132.1 million in second-quarter fiscal 2025. As a charge of gross sales, the working margin elevated 36 bps yr over yr to 10.7%.
URBN Retailer Particulars
Within the fiscal second quarter, the corporate opened 11 retail places, which included one City Outfitters retailer, three Anthropologie shops and 7 Free Folks shops (together with six FP Motion shops). Moreover, it closed 5 retail places, which included two City Outfitters shops, two Anthropologie shops and one Free Folks retailer.
As of Jul 31, 2024, URBN operated 263 City Outfitters shops in the US, Canada and Europe and web sites; 239 Anthropologie Group shops in the US, Canada and Europe, catalogs and web sites; 205 Free Folks shops (together with 45 FP Motion shops) in the US, Canada and Europe, catalogs and web sites; 9 Menus & Venues eating places; seven City Outfitters franchisee-owned shops; and two Anthropologie Group franchisee-owned shops.
Monetary Particulars of URBN
City Outfitters ended the quarter with money and money equivalents of $209.1 million and a complete shareholders’ fairness of $2.24 billion. As of July 31, 2024, the full stock was up 3.1% yr over yr. Whole Retail section stock elevated 3.1%, with the Retail section’s comparable stock declining 1.3%. The Wholesale section’s stock elevated 3.5%.
URBN supplied web money of $163.8 million from working actions as of July 31, 2024. Through the six months ended July 31, 2024, the corporate repurchased and subsequently retired 1.2 million shares at a complete price of roughly $52 million. As of the identical date, 18 million widespread shares remained out there for repurchase underneath this system.
URBN’s Outlook
URBN expects whole firm gross sales progress within the mid-single digits for the third quarter, pushed by a mix of low-single-digit progress in its Retail section, low-teen progress within the Wholesale section and robust mid-double-digit progress in its Nuuly section.
Nevertheless, the corporate anticipates a 100 foundation level decline within the gross margin for the third quarter, primarily resulting from larger markdowns to clear stock, a results of current gross sales developments. Regardless of this, URBN is optimistic about gross margin enchancment within the fourth quarter, aiming for a full-year enchancment within the vary of 50-100 foundation factors from the earlier yr. This anticipated enchancment is essentially attributed to raised stock alignment and diminished markdowns, notably throughout the City Outfitters model.
When it comes to bodily shops, URBN is ready to open roughly 57 new shops and shut round 25 shops in fiscal 2025, with a concentrate on increasing the FP Motion, Free Folks and Anthropologie manufacturers. The corporate additionally plans to optimize its retail footprint, particularly for City Outfitters, by resizing shops and contemplating relocations or closures of underperforming places.
Capital expenditures for fiscal 2025 are deliberate at roughly $210 million.
How Have Estimates Been Shifting Since Then?
Previously month, traders have witnessed a downward development in recent estimates.
The consensus estimate has shifted -18.16% resulting from these adjustments.
VGM Scores
At the moment, City Outfitters has a robust Progress Rating of A, although it’s lagging rather a lot on the Momentum Rating entrance with a D. Nevertheless, the inventory was allotted a grade of A on the worth aspect, placing it within the prime 20% for this funding technique.
General, the inventory has an mixture VGM Rating of A. In case you aren’t centered on one technique, this rating is the one you ought to be taken with.
Outlook
Estimates have been broadly trending downward for the inventory, and the magnitude of those revisions signifies a downward shift. Notably, City Outfitters has a Zacks Rank #3 (Maintain). We count on an in-line return from the inventory within the subsequent few months.
Efficiency of an Trade Participant
City Outfitters is a part of the Zacks Retail – Attire and Footwear trade. Over the previous month, Tapestry (TPR), a inventory from the identical trade, has gained 6.6%. The corporate reported its outcomes for the quarter ended June 2024 greater than a month in the past.
Tapestry reported revenues of $1.59 billion within the final reported quarter, representing a year-over-year change of -1.8%. EPS of $0.92 for a similar interval compares with $0.95 a yr in the past.
For the present quarter, Tapestry is anticipated to put up earnings of $0.95 per share, indicating a change of +2.2% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the past 30 days.
The general route and magnitude of estimate revisions translate right into a Zacks Rank #3 (Maintain) for Tapestry. Additionally, the inventory has a VGM Rating of A.
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Urban Outfitters, Inc. (URBN) : Free Stock Analysis Report
Tapestry, Inc. (TPR) : Free Stock Analysis Report
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