By Xuanyan Ouyang
Shares of Urban Outfitters Inc. soared 16 percent Tuesday — even though the company’s earnings declined – as investors reacted to the specialty apparel retailer’s late-Monday release of fourth quarter results.
For the quarter ended January 31, the Philadelphia-based company’s net income dipped 9.2 percent to $72.9 million, or 61 cents a diluted share, from $80.3 million, or 60 cents a share in the year-ago quarter.
The company’s per-share earnings managed an increase, even though actual profits fell, because a big stock-repurchase program has reduced the number of Urban’s shares outstanding by 10.8 percent.
Despite the company’s weakened bottom line, net sales were flat at $1.01 billion in the fourth quarter.
Urban Outfitters’ per-share earnings topped by 5 cents the 56 cents analysts polled Yahoo Finance had been expecting.
“While apparel sales under performed during the fourth quarter, I am pleased with the merchandise margin improvement delivered by the brands,” said Richard A. Hayne, Chief Executive Officer of Urban.
Fashion retailers, including Urban Outfitters and competitors like American Apparel, American Eagle, and Abercrombie & Fitch have been struggling with headwinds for over a year. The softness in demand reflects stagnant consumer income, increased spending in other sectors such as education and housing, and competition from booming online shopping platforms. In addition, trending items such as electronics are increasingly luring young people to spend less on apparel.
Urban’s fourth-quarter performance cheered investors: in Nasdaq trading Tuesday, the company’s shares rose $4.53, or 16 percent, to close at $32.69.
The retailer’s stock skyrocketed, said Wedbush Securities Inc. analyst Morry Brown, mainly because the earnings were better than expected and “gross margin got better,” offering hope for stronger earnings going forward.
Furthermore, non-apparel categories helped Urban.
“In fact, the home business, with the recent launch, is comping last year’s book quite handsomely, very good response to that,” said David McCreight, President of Urban Outfitters Inc. “We’re seeing even the accessory business, beauty business, all track and move ahead, as well as intimates.”
Urban Outfitters is placing new emphasis on those non-apparel channels and planning to increase investments in opening new stores, relocating and expanding current shops. The company is also catering to the trend of online shopping by enhancing its direct-to-consumer channel investments. In the conference call, the management said Urban will continue to invest in marketing and technology.
“Top-line performance suffered from a lack of fashion trends and shifts to other categories,” said Morningstar analyst Bridget Weishaar in an online review of Urban’s earnings.
“We think returns on invested capital will be limited in the near term by investments.” Weishaar added. “However “We think these investments are wise as the firm focuses on expanding its retail footprint, raising brand awareness, and enhancing the store and the web experience.”
Urban’s full year net sales reached $3.45 billion, 3.7 percent up from $3.23 billion in the year-earlier period. Net income declined by 3.4 percent to $224 million, or $1.78 per share, from $232 million, or $1.68 a share in 2015.