Have You Been Riding This Turnaround Story?
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
2012 has been a turnaround year for clothing retailer Urban Outfitters (NASDAQ: URBN). After a drab 2011, the retailer has done really well this year and has exhibited solid growth. This fact hits home when you consider that Urban Outfitters’ 9-month revenue so far this year is 11% higher than the same period last year while its margins and earnings have also improved.
The chart below shows the improvement that Urban Outfitters has displayed in 2012 as against last year, with diluted earnings and gross margin being the most notable factors.
Urban Outfitters cemented its revival story by delivering solid growth in its third-quarter. The company’s revenue increased 14% from last year to $693 million, while gross margins improved an impressive 222 basis points. Although the results were mixed as far as analysts are concerned (the company missed on the bottom line), there is no doubt that Urban Outfitters has hit a purple patch and might get even better going forward.
Urban Outfitters’ brands are finding great traction, a fact clearly demonstrated by strong growth of its Free People, Urban Outfitters and Anthropologie brands which grew 24%, 7% and 6% respectively in the previous quarter. The coolness factor of the company’s clothes seems to be working well for it and the holiday season should push Urban’s top line higher.
The company’s direct-to-consumer channel has done very well so far, and grew 36% in the previous quarter. Its strategy of pushing growth through this channel is very impressive. Customers can place an order online or in any of the company’s stores, and Urban Outfitters will fulfill that order through its fulfillment center or any other store. In addition, new stores are also doing their bit in adding to Urban Outfitters’ top line and pushing its direct-to-consumer sales in the process.
Also, the company’s Free People brand is finding an impressive number of takers. Urban Outfitters collaborated with Nordstrom (NYSE: JWN) last quarter for building its lifestyle branded shop inside the fashion retailer’s flagship store in Seattle.
Urban Outfitters expects to expand this agreement into other Nordstrom stores and this should bode well for it. Nordstrom operates around 117 full-line stores in the U.S., and they have been attracting heavy traffic, a fact evidenced by 8.1% full-line same-store sale growth in the previous quarter. Hence, this partnership should provide the Free People brand with further avenues for growth in the future.
In addition, the company is pushing Free People into international markets and recently forayed into Mexico. It has also signed an agreement with World Co. for distributing its products in the Japanese market. Free People’s business is finding great traction globally, as total international orders increased 66%. The company is promoting the brand aggressively in Australia, the U.K., and other regions.
In addition, the company’s other brands, Anthropologie and Urban Outfitters are also exhibiting growth. A strong performance from all these brands led a record third quarter. But Urban Outfitters is expanding its business quite strategically, pushing growth through online sales and by providing benefits such as pick, pack and ship to customers.
The company is marketing its products aggressively and the efforts are bearing fruit. Also, it is opening new stores both in the U.S. and abroad, and complementing them through its websites. For example, Urban Outfitters has opened 3 stores in Germany this year and also launched a website which witnessed a whopping 90% increase in demand last quarter, driven by the success of its physical stores.
In the Right Direction
Urban Outfitters intends to take its store count somewhere between 200 and 250 stores in North America, and support it with its online presence. This combination of online and offline presence should help Urban Outfitters in competing against its rival Gap (NYSE: GPS), which is way ahead in terms of store count.
Moreover, Gap and Urban Outfitters have been growing their business on the same lines more or less. Gap is pushing its e-commerce forward, growing globally and is building more stores. Hence, Urban Outfitters needs to execute its strategies well if it wants to catch up with its arch-rival, and I believe that the company is on the right track.
Thus, Urban Outfitters is following a very methodical strategy of getting better in the long run. It is increasing its store count, managing inventories in a better manner, is intent on reducing markdowns, pushing its online sales and the holiday period should see it record better sales. If you are still not riding this growth story yet, it’s high time that you should think of jumping onto it now.
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