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Rise in sales and higher merchandise margins facilitated Urban Outfitters Inc. (URBN) to post better-than-expected second-quarter fiscal 2014 earnings. The quarterly earnings of 51 cents a share surpassed the Zacks Consensus Estimate of 48 cents and jumped 21.4% year over year.  

Sales Performance

Total net sales of Urban Outfitters climbed 12.2% to $758.5 million during the second quarter, reflecting robust performance of its Direct-to-Consumer business coupled with sturdy sales through new store openings and double-digit growth at its wholesale operations. Despite robust sales results, this Zacks Rank #4 (Sell) stock missed the Zacks Consensus Estimate of $767 million.

Urban Outfitters’ net sales increased 11.9% to $715 million at the Retail Segment and 16.9% to $43.5 million at the Wholesale Segment. Net sales by brands grew 8.3% to $336.6 million at Urban Outfitters, 11.8% to $315.1 million at Anthropologie and 31.8% to $97.2 million at Free People. Other revenue decreased 3.6% to $9.6 million.

Comparable retail segment net sales, including the comparable direct-to-consumer channel, escalated 9%, reflecting healthy sales across all brands.

Comparable retail segment net sales rose by 5% and 9% at Urban Outfitters and Anthropologie respectively, while it jumped 38% at Free People.

Margin Performance

Supported by strong sales, gross profit for the quarter soared 17.2% to $298.2 million, whereas gross margin expanded 169 basis points to 39.3%, reflecting lower merchandise markdowns.

Urban Outfitters is optimistic that fiscal 2014 will present considerable opportunity for gross-margin improvement. The company expects to enhance margins by at least 50 basis points for the second half of fiscal 2014 through improvements in brands and lower markdowns.

Operating income marked a significant improvement during the quarter and surged 24.4% to $119.3 million, while operating margin escalated approximately 150 basis points to 15.7%.  

Stores Update

During the first half of fiscal 2014, it opened 17 new stores, including 8 Urban Outfitters stores, 3 Anthropologie stores and 6 Free People stores. The company closed 1 Urban Outfitters store and 1 Anthropologie store.

For fiscal 2014, Urban Outfitters plans to open 35-40 new stores, including 16 Urban Outfitters stores, 14 Free People stores, 9 Anthropologie stores.

Other Financial Aspects

Urban Outfitters ended the quarter with cash and cash equivalents of $298.5 million, marketable securities of $232.3 million and shareholders’ equity of $1,519.1 million. Management expects capital expenditure in the range of $190 million – $210 million for fiscal 2014.

Other Stocks to Consider

Until any further upgrade in Urban Outfitters’ Zacks Rank, other well performing stocks in the non-food retail, wholesale sector include The Gap, Inc. (GPS), DSW Inc. (DSW) and L Brands, Inc. (LTD), all of which carry a Zacks Rank #2 (Buy). 

 
DSW INC CL-A (DSW): Free Stock Analysis Report
 
GAP INC (GPS): Free Stock Analysis Report
 
L BRANDS INC (LTD): Free Stock Analysis Report
 
URBAN OUTFITTER (URBN): Free Stock Analysis Report
 
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