Dive Brief:
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Urban Outfitters Inc. Q4 retail segment sales rose 6.3% year over year to $1.45 billion, with comps up 5%. Wholesale rose 26% to $69 million, thanks mostly to a 27% increase at Free People, which has boosted sales via specialty customers and department stores.
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The company’s Nuuly apparel rental site had its first profitable year, reaching $13 million in operating income, Chief Operating Officer Frank Conforti told analysts. Q4 adjusted sales there rose 56% to $113 million, mostly due to a 53% jump in average active subscribers.
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Lower markdowns at the Urban Outfitters brand helped drive a 203-basis point increase in gross margin to 32.3%. Net income soared, more than doubling from a year ago to $120.3 million.
Dive Insight:
In the holiday period, Urban Outfitters gained customers and market share across its retail portfolio, and demand has remained relatively strong, CEO Richard Hayne told analysts Wednesday.
“Last year, I described our customers’ mood as enthusiastic rather than exuberant. I believe this remains an accurate description today. Customer demand has remained remarkably consistent,” he said. “They’re hungry for the latest fashions and our designers and merchants continue to create products and assortments that please them.”
The namesake Urban Outfitters brand is in turnaround mode. While Q4 comps there dropped 3.5%, that was an improvement. The brand is likely to keep its store count relatively stable at least in the near term, but is exploring smaller locations, brand chief Shea Jensen told analysts. Average store size now is about 10,000 square feet, and the ideal should be closer to 6,000 to 8,000 square feet.
“Our real estate strategy right now is really about making sure that our locations position … close to customers,” Jensen said. “And over time, we had really seen some population shifts of young folks. And so we either are closing stores where we find ourselves not adjacent to customers and/or we are overspaced.”
Nuuly, a subscription rental and resale model, ended the year in the black. Robust sales have continued into the new year, and the company is eyeing $500 million in sales this year, which Nuuly President Dave Hayne called “an achievable goal.” Nuuly’s Q4 sales surged nearly 80%, topping $112 million, and full-year sales rose more than 60% to over $378 million.
“We are very excited about where the Nuuly business is headed,” he said. “We see a lot of opportunity.”
The improvement at the Urban Outfitters banner and stable growth at Nuuly, Anthropologie and Free People “keeps the story going,” Wells Fargo analysts led by Ike Boruchow said in a Wednesday research note.
The company’s “results continue to impress — highlighted by 1Q’s strong comp and [gross margin] outlook,” they said. “No holes to poke.”