After a tough 2006, it's good to see that Urban Outfitters (Nasdaq: URBN ) is headed in the right direction once again, judging by its first-quarter results. While the company hasn't quite returned to its heady growth of the past, at least things appear to be looking up for the retailer.
Urban Outfitters' first-quarter earnings increased 45% to $29.4 million, or $0.17 per share. That's back to the double-digit earnings growth that many investors are accustomed to seeing from this company.
Of course, let's put things in perspective a bit. A more lenient one-time tax rate helped matters, at 22.3% as opposed to 38.4%. Furthermore, in last year's first quarter, Urban Outfitters' earnings decreased by 26%, so it's an admittedly easy comparison.
Gross profit was also about flat at 35.8% compared to last year, which pales in comparison to gross margin of 42.2% the year before that. Total inventories increased at a faster rate than sales, although the company was quick to point out that most of that related to acquiring merchandise to stock new stores and that on a comparable-store basis, inventories only increased by 3%.
Free cash flow improved, too, on a year-over-year basis. Granted, its first-quarter increase is positive but negligible, but that's far more heartening than the fact that the company's free cash flow generation was $20 million in the red this time last year.
Urban Outfitters' head Richard Hayne said that things have been encouraging in May, and the company is "guardedly optimistic about achieving our modest financial plan in the second quarter."
As an Urban Outfitters shareholder, I'm glad to see that things seem to be moving in the right direction again (although some investors may have been dismayed that the quarter missed analysts' expectations when you factor in the beneficial tax rate). For an example of a longer setback (and what many of us interpret as subsequent brand damage that leaves a lot of work to do) as opposed to a temporary issue, an investor might look no further than Gap (NYSE: GPS ) . I've long thought Urban Outfitters' problems would prove to be less protracted, though, given its strong differentiated brands and the fact that its troubles did appear to relate to major changes in fashion that have been taking place during the last year. Long-term investors continue to watch how Urban Outfitters executes as it strives to move things back in the right direction in the coming year.
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Alyce Lomax owns shares of Urban Outfitters. The Fool has a disclosure policy that fits quite nicely, thank you.
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