Trendy apparel helps Urban Outfitters cut down discounts

Mon Aug 19, 2013 6:24pm EDT

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(Reuters) - Urban Outfitters Inc's (URBN.O) quarterly profit beat market estimates as its on-fashion teen apparel drew shoppers to its stores despite fewer discounts.

The company, whose shares were up 6.5 percent in extended trading on Monday, has been faring better than rivals Abercrombie & Fitch Co (ANF.N) and Aeropostale Inc (ARO.N) due to its attractive pricing and fresher styles.

"(Urban) have home goods, clothing, accessories, beauty so you don't necessarily walk into buy one thing... and that brings you into more of an experience than just to shop," Morningstar analyst Jaime Katz said.

The company's merchandising seems to have positioned it to succeed even in a weak consumer environment, she told Reuters.

Mall traffic in the United States has been erratic and unpredictable as many shoppers contend with payroll taxes, higher gas prices and a job market improving at a snail's pace.

Retailers including Wal-Mart Stores Inc (WMT.N) and Macy's Inc (M.N) last week reported lower quarterly comparable store sales.

Young shoppers are delaying purchase of back-to-school items because of lower teen employment this summer and weakness in the retail market.

Urban Outfitters, however, reported a 9 percent rise in second-quarter same-store sales, including e-commerce, beating analysts' average estimate of 8.1 percent, according to Thomson Reuters I/B/E/S.

"The improvements in product led to higher full-price sell-throughs and lower merchandise markdowns," Chief Executive Richard Hayne said in a post-earnings call with analysts.

ANTHROPOLOGIE SCORES

The company said on Monday that its gross margins expanded to 39.3 percent in the three months ended July from 37.6 percent a year earlier as it cut back on discounting, "driven by improvements at the Anthropologie brand." Initial merchandise margins also improved.

Net sales at the Anthropologie brand, which includes women's clothing, accessories and home decor, rose about 12 percent to $315.1 million. Comparable retail net sales at the brand increased 9 percent.

Urban Outfitters revamped the Anthropologie brand merchandise to appeal to teenage girls looking for feminine and bohemian apparel, after its earlier "peppy" styles failed to find takers.

Net sales at the Urban Outfitters brand rose 8 percent to $336.6 million.

Net income rose to $76.4 million, or 51 cents per share, from $61.3 million, or 42 cents per share, a year earlier. Revenue rose 12 percent to $758.5 million.

Analysts had expected earnings of 48 cents per share on revenue of $768.1 million.

The Philadelphia-based company's shares closed at $39.92 on the Nasdaq on Monday.

(Editing by Joyjeet Das)

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