Conference Call, 12/02/96: Urban Outfitters Q3

FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Urban Outfitters, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: URBN)") else Response.Write("(NASDAQ: URBN)") end if %>
1809 Walnut Street
Philadelphia, PA 19103
(215) 564-2313

UNION CITY, Ca., December 1, 1996/FOOLWIRE/ --- Urban Outfitters reported their third quarter results last week. Net sales for the quarter were $44.884 million versus $38.842 million last year, a 16% growth rate. For the nine month period net sales were $114.416 million versus $96.643 million last year, 18% growth. The company reported earnings per share of $0.26 versus $0.23 last year, 13% growth.

URBAN RETAIL. The sales in this division are $29.92 million versus $29.86 million last year, essentially flat. That is associated with the stores that had not opened as originally scheduled and the comps were down. So, basically Urban Retail was flat for the quarter. For the year, Urban Retail at $79.634 million versus $71.644 last year, an 11.2% increase.

ANTHROPOLOGIE. For the quarter they have $5.275 million in sales versus $2.289 million last year, a 130% increase. Again this relates to 4 new stores opened during the year but in the quarter comps were down. For the year, Anthropologie has $11.567 million versus $6.182 million last year, an 87% increase.

WHOLESALE. For the quarter, the wholesale division was at $9.689 million versus $6.692 million and that relates to the 44% increase mentioned in the press release which is the Fall and Holiday line and bookings that were significantly in excess of what they expected and also "in-stock" programs on certain items that go from season to season. For the first nine months of the year the wholesale division had $23.216 million in sales versus $18.816 million, a 23% growth.

GROSS MARGINS. Gross profit margin during the quarter related to the 44% growth discussed with Urban Wholesale, a significant growth. Anthropologie also grew while Urban Retail, the highest gross profit margin contributor was, in essence, flat. Gross profit margin was 50.1% versus 50.5% last year. The margin is still slightly ahead for the nine months and that relates to the comps. All margins were up in all divisions. The quirk is because Anthropologie and Urban Wholesale have lower gross margins on a percentage basis than Urban Retail, when the mix is combined, their margins on a percentage basis went down. But all divisions reported increases. Through the six months in Wholesale they were looking at a situation where they had a new product line that did not have as high a gross profit margin as those they have had and that product line was selling particularly well. As they went into the third quarter, that new product line was not as much of the total in sales and therefore the profit margins increased and the parts of Wholesale's gross profit margin as they went into the Fall and Holiday season actually improved. But, then putting all 3 quarters together, Wholesale still remains slightly behind last year.

OPERATING EXPENSES. Going to operating expenses for the quarter, they have outlined in the press release that they had, with the exception of Urban Retail and Anthropologie continuing to leverage against its growing revenue in wholesale, they had very little in terms of variable costs associated with its growth in sales and the result of that they were able to leverage extremely well. As they look at that, both the Wholesale and Anthropologie contributed nicely to the third quarter in it's leveraging. For the nine months, Urban Retail was essentially flat as a percent of sales and again Anthropologie and the Wholesale company are leveraging against increases in their sales throughout the quarter and throughout the nine months.

INVENTORY. The inventory showed an overall increase of approximately 24% to $18.7 million. Breaking that down into details, the Urban Retail inventory at October 31st versus the previous year at the same time was in fact down and they discussed that as part of the reasons for their comp issue in the third quarter. Anthropologie, likewise, with a little twist in the scenario in that the total inventory is up but if you take out that inventory for the big stores, it too when comparing the comp store inventories is down from the prior year. Wholesale is up with what the sales are they feel relatively confident they will exceed what they see coming in or have expectation of seeing coming in as well as the in stock program. The inventories at Urban Retail are still slightly below where they would like to have them. Sales are still running slightly below what their plans would be. They believe that the inventory should be just about where they want it to be by the end of November. The flow of new product into Urban Retail is much improved and a lot of that new product is performing fine.

OUTLOOK ON GROSS MARGINS AT URBAN RETAIL. As far as gross margins going forward, they plan markdowns and they are an important part of the gross margin equation. The initial margins are in excess of what they were last year. They plan markdowns to be in excess of what they had last year and they are confident they will be in excess of what they were last year. They think they will be slightly in excess of what they planned. When that is all put together on the Urban Retail side, they would plan that the margins may come down very slightly but not a lot.

UPDATE ON SCHEDULED OPENINGS. In the fourth quarter the Anthropologie store in Chicago is scheduled to open. The two Urban Retail stores are scheduled to open the first and the beginning of the second week in December. That puts all of them about 30 days behind what they anticipated. For 1997, they anticipate opening 3-4 stores in each concept. They think the Highland Park store will be opening at the end of Q1/beginning of Q2. The Urban Retail stores in San Diego and Miami should be Q2 and Q3. In Urban Retail, they have about 12-13 sites they are negotiating on in the US, Canada and the UK. There is a lot of fallout built into that and they don't think they will be opening more than 3-4 stores next year.

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