Dive Brief:
- Urban Outfitters Inc. Q3 net sales surged more than 12% year over year to a record $1.5 billion, with strength across channels and brands. With high single-digit growth online and in stores, retail net sales rose 9.6% and comps rose 8%. Wholesale grew 7.6%, driven by Free People.
- Comps rose 12.5% at Urban Outfitters, 7.6% at Anthropologie and 4.1% at Free People. Nuuly subscription net sales rose 48.7%, thanks to a 42% increase in average active subscribers. Executives said on a Tuesday call that double-digit Q4 revenue growth at Nuuly is possible.
- Gross margin expanded by 31 basis points from last year to 36.8%. Tariffs siphoned about 60 basis points from gross margin, and that’s expected to rise to 75 in Q4, executives said. Net income in Q3 soared more than 13% to $116.4 million, also a record.
Dive Insight:
Urban Outfitters’ brands successfully boosted their full-price selling in Q3, and co-founder and CEO Dick Hayne said the company anticipates a strong holiday.
But he said customers are now waiting in the wings for deeper discounts before they buy, judging by a “very rapid increase” in mid- to late-October in the number of people putting items in their carts and letting them sit there.
“They know that the promotions are coming,” Hayne told analysts.
“I don’t think there’s any particular magic to it,” he also said. “I don’t think it says much about the consumer other than they’re smart.”
The company “crushed expectations,” thanks in part to the progress in the turnaround work at its teen-focused namesake brand, plus overall topline strength, according to a Tuesday research note from Wells Fargo analysts led by Ike Boruchow. FP Movement, an activewear brand that began as an offshoot of Free People, is helping to stoke sales, they said.
The Urban Outfitters Inc. brands’ focus on private labels, marketing campaigns and store expansion are also fueling growth, positioning the company “for a strong holiday and further market share gains,” Jefferies analysts led by Corey Tarlowe said in a Wednesday client note.
The company’s topline success came from traffic bumps online and in stores, which is expected to continue into Q4, even as customers wait on those markdowns, Hayne said.
This year the company plans to close about 17 stores and open almost 70, including 25 FP Movement stores, 18 Free People stores and 16 Anthropologie stores.
“The drivers of the business across all the brands were the traffic, … and sales were almost exactly congruent with the increase in traffic,” he said, adding, “As we look into holiday, we think that the same thing is occurring. And we believe that the holiday season is likely to be very nice from a sales perspective. But we do expect it to be slightly more promotional than we saw last year.”
Hayne also echoed comments last week from Gap Inc. CEO Richard Dickson in pointing to the distinct brands in Urban Outfitters Inc.’s portfolio as its major strength.
“This powerful multifaceted approach to diversification gives us high confidence that with smart execution, we can continue to grow our market share regardless of the operating environment,” Hayne said.