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E-commerce sales growth results in lower profits for Urban Outfitters

November 23, 2016 02:36 PM
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A gain in online sales put a damper on Urban Outfitters Inc.’s bottom line in the third quarter.

The multichannel retailer, No. 39 in the Internet Retailer 2016 Top 500 Guide, which operates Urban Outfitters, Anthropologie, Free People and the Vetri Family restaurant group, says its direct-to-consumer channel, which is largely online, posted “double-digit” sales growth in the third quarter ended Oct. 31. Those gains were driven by the retailer’s sites posting gains in sessions and conversion rates that more than offset the retailer’s sites’ declining average order value, CEO Richard Hayne said. 

However, those e-commerce gains resulted in lower profits because of “increased customer delivery and overall logistics expense rates,” he said. The retailer’s net income during the quarter fell 8.8% to $47.4 million from $52.0 million a year earlier and its gross profit rate declined by 1.5 percentage points to 34.8%.

That echoes a similar story at Nordstrom Inc. (No. 18), which has seen its profits shrink even as its e-commerce orders rise. “We recognize that the shift toward e-commerce is having an impact to our financial model,” Michael Koppel, Nordstrom’s chief financial officer told analysts on Nordstrom’s second quarter earnings call in August. “As we accelerate investments to support changes in customer expectations, our expenses, particularly in technology, supply chain and marketing, grew faster than sales.”

There was some good news in Urban Outfitter’s e-commerce growth. For instance, Free People’s July rollout of a “carefully curated assortment” of beauty and wellness products such as makeup and nutritional supplements is paying off, said Sheila Harrington, president of Free People, during Urban Outfitters Inc.’s conference call with analysts.

Movement in beauty collectively accounted for 20% of the growth in the direct-to-consumer channel during the third quarter,” she said.

The retailer also is finding success with its Apple Inc. iOS shopping app in China, which launched in September. More than 15,000 consumers have downloaded the app in China and, since its launch, the app accounts for 45% of the retailer’s China sales. “With our customers' growing affinity for our mobile devices, we believe these types of investments are critical to our future success,” Harrington said.

For the third quarter of fiscal 2017 ended Oct. 31, Urban Outfitters reported:

  • Net sales of $862.5 million, up 4.5% from $825.3 million last year.
  • Retail sales of $785.0 million, up 2.5% from $765.5 million
  • Wholesale sales of $77.5 million, up 29.8% from $59.7 million.
  • A comparable retail net sales gain of 1% including online.
  • Net income of $47.4 million, down 8.8% from $52.0 million.

For the first nine months of fiscal 2017, Urban Outfitters reported:

  • Net sales of $2.516 billion, up 3.5% from $2.432 billion last year.
  • Retail sales of $2.301 billion, up 2.4% from $2.246 billion.
  • Wholesale sales of $214.7 million, up 15.7% from $185.5 million.
  • Net income of $153.8 million, up 1.5% from $151.6 million.
 

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