Urban Outfitters (URBN 0.92%) recently reported a mixed quarter, which seems to be the usual story with this retailer in recent years. The Anthropologie and Free People (FP) brands reported healthy traffic trends through the latest quarter ending in January, but the Urban brand reported flat comparable-store sales. But even with the positive comps from Anthro and FP, all three brands suffered from too much inventory entering the quarter, which pressured profits.
During the earnings call, management outlined three growth initiatives in the short term that could see the business (and the stock) rebound in 2020.
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Urban sees plenty of opportunity
Free People reported comp sales of 9% in the quarter, driven by demand for the Movement activewear line. The retailer will open three stand-alone FP Movement stores this year. CEO Richard Hayne highlighted this new brand as a significant long-term growth driver. "Over the longer term, I believe Movement has the opportunity to rival the other URBN brands in terms of revenue size and profitability," Hayne said during the call.
Another opportunity is the Nuuly subscription rental and resale business. "Six months after launch, customer acquisition is ahead of plan and today stands above 27,000 active subscribers," Hayne said. While this service is not contributing to the company's profitability, CFO Frank Conforti said that Nuuly could "contribute a point of comp to the top line" this year.
Management also reported that they are seeing customers willing to spend, which bodes well for this consumer discretionary company. To capitalize on this, they are looking to improve gross margin by investing in internally designed product to limit the need for markdowns.
The stock has collapsed over fears of the COVID-19 outbreak, but at a forward P/E of 10, Urban stock might be worth a look.
