May 19, 2014 / 8:56 PM / 4 years ago

UPDATE 2-Urban Outfitters' profit lags Street as costs rise

* 1st-qtr earnings/share $0.26 vs est $0.27

* Sales $686.3 mln vs est $680.2 mln

* Cost of sales up 9 pct to $447.8 mln

* Same-store sales at Urban Outfitters brand falls 12 pct

* Shares fall 4 pct after market (Adds details from conference call, outlook, details)

By Devika Krishna Kumar

May 19 (Reuters) - Teen apparel retailer Urban Outfitters Inc reported a lower-than-expected quarterly profit as costs jumped and tough competition forced the retailer to spend more on marketing.

Urban Outfitters shares fell 4 percent in extended trading on Monday.

Same-store sales at the company’s Urban Outfitters brand, - targeted at shoppers aged between 18 and 28 - plunged 12 percent in the first quarter ended April 30.

“While Anthropologie and Free People continue to deliver record levels in sales and profits, Urban Outfitters had a disappointing quarter and is working diligently to regain its fashion footing,” Chief Executive Richard Hayne said in a statement.

SunTrust Robinson Humphrey analyst Pamela Quintiliano said gross margin was “significantly below” expectations.

“It was over a 100 bits off (consensus) and clearly that was because of Urban Outfitters”, she said.

Its Urban Outfitters division, catering to the youngest and most cash-constrained customers, has been its most troubled business. Comparable sales have fallen at 230 Urban Outfitters stores in the United States, Canada and Europe.

Sales at the Urban Outfitters brand fell 5 percent to $292.8 million in the first quarter.

The company’s margins fell to 34.8 percent in the quarter from 36.8 percent a year earlier.

The retailer said expenses could rise at a low double-digit percent rate for the year, driven by increases related to direct and selling support expenses and continued investments in technology and marketing expenses to boost traffic.

Current-quarter promotions would likely be greater than in the same period last year, Hayne said in a post-earnings conference call on Monday.

The company estimated capital expenditures of $215 million-$235 million for the year ending January 2015.

Cost of sales jumped 9 percent to $447.8 million in the first quarter.

Strong growth in demand at Urban Outfitters’ Anthropologie and Free People stores helped the company post a better-than-expected 6 percent rise in sales.

The company, which hires “Display Artists” to create floor sets for its stores, said it remains “very confident” that the Urban brand will course correct and rejoin its sister brands in a strong position.

Net income fell to $37.5 million, or 26 cents per share, for the first quarter ended April 30 from $47.1 million, or 32 cents per share, a year earlier.

Analysts on average expected the retailer, which has been struggling to win back customers from cheaper and trendier “fast fashion” chains such as Forever 21, H&M and Inditex’s Zara, to earn 27 cents per share.

Urban Outfitters shares, which have fallen about 19 percent in the last year, closed at $36.17 on the New York Stock Exchange on Monday. (Reporting by Devika Krishna Kumar in Bangalore; Editing by Joyjeet Das)

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