MARKET WATCH: Urban Outfitters Quarter Ended Oct. 31
Jeff Harbaugh
- December 22 2008
- 458 views
- 30 comments
These days, you don’t come across many quarterly reports that make it look like consumers are still spending. Urban Outfitter’s comparables store sales were up 9.9% for the quarter, though they go on to note that they were flat for November. They say it’s possible “…comparable store net sales may further decelerate during the remainder of the holiday season.”
Here’s the REPORT LINK. The balance sheet is very strong and has grown consistent with the company’s growth since last year. Thanks to them for including the balance sheet for a year ago to facilitate the comparison. Wish more companies would do that.
The quarter’s sales were up about 26% to $478 million compared to the same quarter last year. For nine month, sales rose $27.4% to $1.33 billion. The quarter’s increase in comparable store sales were due to “increases in the number of transactions and the average unit retail prices per transaction which more than offset a decrease in the units per transaction.” The rest of the increase came from 68 stores that were not included in the comparable store number because they hadn’t been in operation long enough to be included.
Gross profit percentage for the quarter rose from 39.5% to 40.9%. For nine months, it went from 37.7 to 40.8%. “The increase was primarily due to leveraging of store occupancy costs, reductions in merchandise markdowns and improvements in initial merchandise cost.”
They managed to reduce selling and general and administrative expenses as a percentage of sales from 23.3 to 22.0% of sales for the quarter and from 23.8 to 22.9% over the nine months. “The decrease was primarily attributable to the control and leveraging of direct store controllable costs which were helped by the increase in comparable store sales.”
The result for the quarter was net income that grew 30.6% to $59.3 million.
Like they said, their next quarter may not be quite so sterling, but how are they doing this? Yeah, I know, they’re increasing sales and controlling costs. But why wasn’t everybody else able to do that in this quarter?
Here’s how Urban Outfitters describes itself.
“The Company is a national retailer of lifestyle-oriented general merchandise with two reporting segments—”Retail” and “Wholesale.” The Company’s Retail segment consists of the aggregation of its four brands operating through 286 stores under the retail names “Urban Outfitters,” “Anthropologie,” “Free People” and “Terrain” and includes their direct marketing campaigns, which consisted of three catalogs and four web sites as of October 31, 2008. The Company’s retail stores and their direct marketing campaigns are considered a single operating segment. Net sales from the Retail segment accounted for approximately 93% and 94% of total consolidated net sales.”
At October 31, they had 140 Urban Outfitter stores (116 in the US), 118 Anthrpologie stores, 27 Free People stores, and one Terrain store. They expect to open 47 stores in 2009. 12 to 15 will be Free People with the rest divided between Urban Outfitters and Anthropologie.
“Urban Outfitters targets young adults aged 18 to 30 through a unique merchandise mix and compelling store environment. Our product offering includes women’s and men’s fashion apparel, footwear and accessories, as well as an eclectic mix of apartment wares and gifts.”
“Anthropologie tailors its merchandise to sophisticated and contemporary women aged 30 to 45. Our product assortment includes women’s casual apparel and accessories, home furnishings and a diverse array of gifts and decorative items.”
“Free People primarily offers private label branded merchandise targeted to young contemporary women aged 25 to 30. Free People provides a unique merchandise mix of casual women’s apparel, accessories and gifts.”
It looks like they are targeting a broader range of consumers with a broader range of product then a lot of companies in our industry do. I perceive they are also doing a great job coordinating their stores, catalogs, and web sites to build the brand and attract consumers. Unlike other companies in our industry (if you think Urban Outfitters is in our industry- an interesting speculation) they don’t create their credibility based on their “roots” in an activity and work to convince their customers that what they do is cool. Urban Outfitters just tries to figure out what their customers think is cool.
That’s kind of what I said about Hot Topic, which you might want to read if you haven’t. I think I see a trend here.
Jeff Harbaugh is a consultant for the action sports industry and works with companies to identify and focus on critical business issues and opportunities fundamental to the bottom line. For more information, visit www.jeffharbaugh.com.
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December 22nd, 2008 at 10:56 am
Good Job! It’s nice too see someone is doing good. They must be doing something right.
December 22nd, 2008 at 11:58 am
Ya a place for kids who want look like they shop at salvation army but are too scared to be around so many poor people.
December 22nd, 2008 at 12:22 pm
Hmmm,
I don’t know if that’s accurate, but it’s an interesting way to describe their business model. I wonder how they’d react to your description in private? The thing is, not all their customers are kids. Look at how they describe their target customers. We’ll see how they look next quarter.
thanks,
J.
December 22nd, 2008 at 1:16 pm
I know I was just trying to be checky…but one thing this model has going for them is that it has the ablity to evolve and change whichever way the wind blows and they are able to provided orginal stuff thru it’s private labels. So ya it good place when you want pick up the latest geek schique, a scented candle and throw pillow. But this model would be hard pressed to transfer over to the Pac Suns of the world, if all your trying to say is that they might have painted themself into corner, I might have to agree with you. There isn’t enough diversity in this industry, when you limit to all things standing sideways and also you get branded a sell out if you try and diversify, look what happend when RVCA and Grenade did that MMA stuff, some people where for it others WTF. It unfortunate but this is industry has typecasted it self for better or worse, just because of what it is just hope it doesn’t end up being the Leonard Nimoy of sports only to be rolled out to dedicate a mall near you. In the end ASI is what it. It can’t be anything more then what it is. Trends rise and fall, the ASI was artifically inflated like every other industry and now it is correcting it self. It a dangerous road when you base your whole lively hood and stock prices in hands of fickle teenagers.
December 22nd, 2008 at 3:06 pm
In a time where surf industry manufacturers are heavily criticized for staying within the box and failing to establish a point of difference in their product, the Urban Outfitters model attempts to create a feeling of affordable uniqueness. Sure this really attracts every kid with epidermis-tight jeans and sideways black hair, but I think the consumer generally feels like they are purchasing something that has some exclusivity- no matter what age or demographic they are, which is a nice point of difference.
December 22nd, 2008 at 3:40 pm
We can talk ourselves into a corner when we talk about the industry and individual companies in the same way. An industry will go through cycles. Individual companies have the ability (which they may or may not choose to utilize) to make decisions about how they react to those cyclical changes. Some make good decisions, some bad. Companies can paint themselves into a corner- that can be a good or a bad business strategy. They can become irrelevant to some of their old consumers and evolve to new ones.
Most companies in this industry have tried to expand into the “fashion” business while maintaining their roots in surf or snow or skate. But the more they expand, the less relevant those roots become to the new customers they are trying to reach. That’s where companies like Urban Outfitter and Hot Topic may have an advantage.
thanks,
J.
December 22nd, 2008 at 3:43 pm
DS,
I agree with you. Expanded distribution means there’s no longer much sense of exclusivity in anything the large action sports brands sell.
Great comment.
J.
December 23rd, 2008 at 6:45 am
Exactly when one trend fades they just bit onto the next. ASI can’t do that because all about staying true to your roots…
December 23rd, 2008 at 6:47 am
“epidermis-tight jeans” - classic.
December 23rd, 2008 at 6:56 am
But all the major ASI brands have expanded their distribution outside of their normal channels? Now Quik, Volc & Hurley, have lost that “exclusivity” all the while clinging to the heritage. If you ask me the ASI is becoming a total paradox? You stay in the box your screwed you shares will never go up, get out of the box your sell out.
December 23rd, 2008 at 7:18 am
Depends on what you mean by “normal” channels I guess. Distribution has to change with growth, so what’s normal has to change too. Certainly growing past a certain point makes it harder to maintain your credibility the same way you did it before, or at least with the same group. Is it a paradox, or just the biggest strategic challenge any of these brands face?
J.
December 23rd, 2008 at 9:06 am
I think what you should be saying is broader distribution is the catalyst for change.
By abnormal, selling products outside the regular ASI channels and direct online to reach a wide customer base and in doing so alienating the people that got them to where they are in the first place. I just think a lot of this hyper expansion of brands into retail outlets, online etc. They are going to end up saturating the market and like you said will lose all it “exclusive-ness” It’s a short term gain for a long term loss in my opinion.
One exception to this rule is North Face. They can get away with this just for the simple reason they never made any claims about being core or affiliating with one sport or another, they are main stream and the focus has always been on their product and not any of the BS that surrounds them, this is why they will be the last man standing in my opinion, everybody rocks their stuff, from hommies, granolas, core riders, soccer moms and everything in between. I think if this industry is going to survive in anyway the focus has to go back to product instead of focusing so much effort on creating an image of what their product implies.
December 23rd, 2008 at 5:12 pm
Exclusivity is very important. When you look at Nike this is how they finally broke into skateboarding in that they only issued a certain amount of each product which made kids sleep at stores the night before in order to get the product. Our standard industry hegonomists (quik, billabong etc) have the same product and tons of it at every store so their is no scarcity (top compliance gaining tactic) which leads to kids not having a reason to buy it.
There are two ways around this. 1) improving supply chain in that you can create new products every 2-4 weeks so that you have differentiation and a compelling reason for consumers to visit the stores more often as they know there will be something new and more importantly purchase as it might not be there next week when they come back. (our companies stagnant ship dates but this never works). They need to take a look at what Zara and H AND M are doing or now American Apparel. AA has 20 new items every week at its retail stores (have you seen their same store sales lately?). Its all about having unique and new product when and where the customer wants it. 2) organic/incubator strategy to create new brands. You talk about Urban as if they are one brand. They wanted to stay exclusive to a degree so they created new brands with new products and new stories to create a smaller distribution. Same thing for Deckers and the UGG brand. They could have done business like crocs and infiltrated the distribution model like they were only going to be around for 1 year but they put a 10 percent stretch on every account and their stuff sells out long before christmas. Then they focus on additional growth through acquisition of new brands or creating new brands organically. With this corporate differentiation strategy they are able to create synergy and costs savings through economies of scale, scope and learning.
Jeff as always thanks for your breakdown of the earnings. It saves about 2 hours of productivity for me!!!!
Check the blog at rookery.ning.com
December 23rd, 2008 at 9:22 pm
Check a cool blog at
http://therookery.ning.com/
December 23rd, 2008 at 11:05 pm
Exclusivity? What? YOUTH AGAINST ESTABLISHMENT!!!!!!!!
This is GREAT:
http://shop.nordstrom.com/C/6013539/0~2376777~2374612~6013539?origin=mensBrands&pbo=6002234
December 24th, 2008 at 5:59 am
HAAHAHAHAHAHA
December 24th, 2008 at 6:00 am
Exactly what I was talking about.
December 24th, 2008 at 9:56 am
Did anybody think, even for a minute, that Volcom, as a public company looking for growth, wouldn’t end up in Nordstroms? What choice do they have if they are going to get sales increases that will move their earnings per share? If you run one of these companies, you spend a lot of time thinking about distribution. You always know who you can clearly sell to. You know, at a given moment, who you absolutely can’t sell to. You spend a whole lot of time trying to figure out when it’s okay to sell to all the possible customers between those two obvious extremes.
Look at Burton Snowboards. Whoops- my mistake. I mean Burton. They took the “snowboards” off their name as they manuevered to become part of the larger fashion/apparel market. They own, let’s say, 45% of the snowboard market. They aren’t likely to increase their market share, and the industry’s growth is, at best, slow. So if they want to grow, they need to expand their distribution. But can they take their credibility in snow and translate it to the broader market? We’ll see. As we’ve been talking about, the credibility in a specific activity that is the basis of the company’s initial success can be a a barrier to growth outside of of their base.
Okay, it’s Christmas eve day. We must all have something else to do. Not me actually. I’m in Seattle and we’re snowed in for the 6th straight day and it’s dumping even as I write this. But the family is all here, there’s enough food and drink (especially drink!), it’s beautiful outside and I might as well just sit back and enjoy it. Go do the same. Happy Holidays.
December 24th, 2008 at 10:05 am
MR-
Nike can stay exclusive because whatever they sell in skate isn’t going to move their earnings per share, but it brings them tremendous credibility with a market segment that buys their other stuff. Nike’s growth, in other words, can come from other product groups. Other companies in our industry don’t have the luxury of staying exclusive by constraining supply in the same way.
Urban isn’t one brand. They’ve got basically four brands (though one is brand new) Did you mean, for example, that even in an Urban Outfitter store there’s more than one brand? Maybe. I need to get in one. What I like is that they have overlapping, but distinct target customers for the different stores.
And yes, having new stuff often is key.
thanks,
J.
December 24th, 2008 at 10:30 am
They sell vans & nike SBs too…at least online.
December 24th, 2008 at 10:40 am
I’m stuck in the office till three
December 24th, 2008 at 3:21 pm
Aaahhhhh, Merry Christmas to ya Jeff,
Of course all those big brands and publicly traded brands must try to figure out how to grow and of course, it is mainly through “expanded distribution”. None of that is a secret anymore. None of it is really very “good” for the specialty market though if they are trying to push those overly distributed brands today the same way they did 10 - 15 years ago (when they really were fresh and not overly distributed).
The point is, it’s just really really REALLY funny to see brands that used to be the most “core”, looking so lame like the above link with Volcom at Nordstrom - Their clothes modeled by middle aged, ex track & field athletes is just SO CLASSIC! I literally was looking online for a present for my Mom. I thought; “hey, she likes anything from Nordstrom, right? I’ll check there…” then I see Volcom and Quik and it just cracked me up. I had to share it.
The surf shop buyers and even the specialty chain buyers really need to pull their heads out and realize that their world is going to close in on them if they keep carrying these oversold brands. They have GOT to start looking at different brand alternatives (Can’t we find anything fresh out there? C’mon!!) in order to keep their stores unique…. It’s scary to think that the surf shop down my street is literally a “bad” version of a Macy’s floorset. It’s almost exactly the same, except Macy’s & Nordstrom carry all the products much deeper, in more sizes and in more colors and the staff is nicer and better educated!!!!!! What the… Why go to the surf shop anymore? Is the mall the new surf shop?? Seems like it……
I remember being a grom in ‘92/’93, going into a surf shop in P.B. and asking if they had the new Quiksilver Gen X boardshorts (remember those anyone?). The shop guy was cool and said: “No, actually, we’re sold out but have you heard of a brand called Volcom?!!” He was SO PUMPED to tell me about this new company called Volcom and how unique they were etc….. I ended up buying Volcom trunks, they were weird but cool because they were weird. It made me feel like that shop was on it and WAY cooler than the mainstream (the malls and big box stores). I was one STOKED grom.
The shops need to find that new stoke again…. even today, there are some CRAZY new boardshort concepts out there from alternative/smaller brands, the shops need to just wake up and get on it.
December 24th, 2008 at 8:38 pm
Roundy—very poignant and accurate in my opinion. Specialty shops have to do something to differentiate themselves and create strategic separation. However it is tough for smaller brands to compete with the larger brands as they are paying big money for their market share in most of the top stores and paying big bucks for the build outs, free returns, etc etc,.
Jeff- you very well could be right about Nike and doing it because it doesn’t mean much to their top line growth or EPS growth-But I feel Nike can stay exclusive and grow EPS with their Action Sports Long Term Strategy as they create a multi-tiered distribution strategy through the creation of different brand concepts, SB, Nike 6.0, Hurley etc. As does Deckers with the UGG and Simple labels combined with the other brands in their stable.
Another way to be exclusive is to have different products for different distribution segments and Action Sports brands have taken note of Ralph Lauren and others and implemented this strategy. You won’t find the same Quik woven at Costco as you will find at Jacks. Dick Baker did this with OP and actually had a three tiered model that worked pretty well for a couple years until Warnaco bought them.
More importantly is they have to create more products that come to market quicker and have quicker replenishment so the retailers are fresh and on trend. This strategy of new product on the floor every week will resonate with consumers and drive buying behavior. This 4 season calendar with 6 month lead times is not going to work against the H and M’s, Zara’s and American Apparel’s of the world. Look to Europe and do a hybrid sourcing model were your staples are made in Asia for the cost leader strategy and then source monthly or bi-weekly items from the Cafta or Nafta countries for your differentiation strategy. H and M has this down to a science in Europe were they will look at weather trends to make sure they have the right product at the right time and at the right place. This drives consumer traffic and consumer buying.
http://therookery.ning.com/
http://saltnation.com
December 25th, 2008 at 10:37 am
the world will soon be divided into two kinds of people. those who resell other people’s products. And those who MAKE their own products for sale directly to the consumer. I personally like the margin in the latter group.
December 25th, 2008 at 9:09 pm
oundy—very poignant and accurate in my opinion. Specialty shops have to do something to differentiate themselves and create strategic separation. However it is tough for smaller brands to compete with the larger brands as they are paying big money for their market share in most of the top stores and paying big bucks for the build outs, free returns, etc etc,.
Jeff- you very well could be right about Nike and doing it because it doesn’t mean much to their top line growth or EPS growth-But I feel Nike can stay exclusive and grow EPS with their Action Sports Long Term Strategy as they create a multi-tiered distribution strategy through the creation of different brand concepts, SB, Nike 6.0, Hurley etc. As does Deckers with the UGG and Simple labels combined with the other brands in their stable.
Another way to be exclusive is to have different products for different distribution segments and Action Sports brands have taken note of Ralph Lauren and others and implemented this strategy. You won’t find the same Quik woven at Costco as you will find at Jacks. Dick Baker did this with OP and actually had a three tiered model that worked pretty well for a couple years until Warnaco bought them.
More importantly is they have to create more products that come to market quicker and have quicker replenishment so the retailers are fresh and on trend. This strategy of new product on the floor every week will resonate with consumers and drive buying behavior. This 4 season calendar with 6 month lead times is not going to work against the H and M’s, Zara’s and American Apparel’s of the world. Look to Europe and do a hybrid sourcing model were your staples are made in Asia for the cost leader strategy and then source monthly or bi-weekly items from the Cafta or Nafta countries for your differentiation strategy. H and M has this down to a science in Europe were they will look at weather trends to make sure they have the right product at the right time and at the right place. This drives consumer traffic and consumer buying.
December 26th, 2008 at 8:33 am
Roundy,
We really need to stop talking and thinking about what “the industry” will do or what “the buyers” will do. Managers in individual brands and shops will make decisions that they perceive to be in their own best interest. In some shops, brand X will continue to work well even though it’s also in Nordstroms. In others it won’t. It depends on the specifics of the particular shop. And the brand’s ability to be successful in both places, or either, will depend on how the brand has been positioned over the year. Shops change, brands evolve, consumers get older. Generally, I believe the best shops don’t clink to brands that get over distributed, but take chances on new brands when and where they can find them. The best shops give credibility to the brands they carry- not the other way around.
Definitely a good laugh to see that Volcom spread at Nordstroms. Not because it’s bad for them to be there necessarily but, as you say, just because of how things have chanaged.
thanks,
J.
December 26th, 2008 at 8:38 am
Aaron,
You may have said something important here, but I’m having a bit of a problem breaking it down.
“Those who resell other people’s products” include basically any retailer in any form and brands who don’t have factories. Who does’t fit in that group? Somebody who “make their own products for sale directly to the consumer” would be somebody who owns the factory and only sells on line or through retail outlets they own. Right? Is that the distinction you’re trying to make? Talk some more about what you mean.
thanks,
J.
December 26th, 2008 at 8:44 am
Mr,
Well, we don’t have much to argue about here. I am sure that Nike’s exclusivity on certain items will help them grow their overall action sports business (though I’m starting to wonder what “action sports business” means exactly). And having new product in stores more often and being able to react to new trends more quickly is the holy grail of competing in this industry lacking a substantive difference between products.
J.
December 26th, 2008 at 10:06 am
Online sales are vary speculative…you can’t call on the customer to collect, one big order is a lot easier to manange than a 1000 little ones. Brands would have to gamble a lot if they where to just sell direct on line.
December 26th, 2008 at 12:44 pm
This is the distinction with few a shades of gray. The “make their own products” are people like me. I have ownership in 3 shops in the US and 2 shops in south america. Plus I own a small mfg facilty in South America (12 machines with knit and woven capabitlites). So we make what we sell in our stores. (For the most part, ie the shades of gray are shoes, sunglasses etc catagories.) For a retailer to own his mfg gives you the biggest advtanage against bigger competitors. I can adapt my production to the latest styles very quickly and manufacturer at any desired level. Plus with stores in North and South American I can rotate products for the reverse seasons. Thus summer product has a full year to sell at near full retail. This year we are looking to expand the concept to a multple brand stradegy. Lets say 8 brands with ownership stake in the retail end but all of the brands are self owned manufacturers. If you don’t own your own sewing machines then your not welcomed.
wholesale then becomes an irrelevant term. Now we work with manufacturers cost. We can be competive with any big box retailer on price point and provide a unique product line with a diversity of brands.
I have been working on this concept for more than 10 years and i believe that small retailers need to make investments in self owned manufacturing in order to be competitive.