Apparel retailer Urban Outfitters (NASDAQ:URBN) reported its second-quarter results after the market close on Aug. 17, beating analyst estimates for earnings while falling short on revenue. The company reported quarterly revenue of $867 million, up 7% year over year but a bit short of the average analyst estimate of $881.2 million. EPS rose to $0.52, up from $0.49 during the second quarter of 2014 and two cents better than analysts were expecting.
Growth across all brands
Total comparable retail store sales rose 4% year over year during the second quarter, with each of the company's three brand segments posting growth. The namesake Urban Outfitters brand grew comparable sales by 4%, accounting for 39.4% of revenue. The Anthropologie group, which contains the Anthropologie, BHLDN, and Terrain brands, grew comparable sales by 2%, accounting for 42.7% of revenue.
The Free People brand, accounting for just 17.8% of revenue, was the fastest growing brand by far, with comparable-store sales rising by 14%. Wholesale revenue also grew quickly, rising 21.3% year over year, but retail sales accounted for nearly 92% of revenue during the second quarter.
CEO Richard Hayne praised the strong performance of all of the company's brands during the quarter: "We are pleased to announce record sales for the second quarter driven by positive retail segment comp growth at each brand. Without question, the brands' strong execution of our long-term strategy helped fuel that sales growth and laid the groundwork for future increases as well."
While Urban Outfitters reported an increase in per-share earnings, both operating income and net income declined year over year. Share buybacks over the past year have reduced the diluted share count by about 6.5%, allowing the company to beat analyst estimates for per-share earnings.
Gross margin declined to 36.7% during the second quarter, down from 37.4% during the same period last year. The company pointed to higher delivery and fulfillment-center expenses related to growth in direct-to-consumer sales, as well as costs associated with transitioning a fulfillment center.
Selling, general, and administrative costs increased by 8.2% year over year, growing a bit faster than revenue. SG&A expenses as a percentage of revenue were 24.7% during the second quarter, up from 24.4% during the second quarter of 2014. Increased marketing and technology expenses aimed at driving higher direct-to-consumer traffic were the primary source of this increase.
Urban Outfitters spent a total of $258.2 million through the first six months of fiscal 2015 on share buybacks, and the company is authorized to repurchase an additional 15.2 million shares as part of its most recent share-repurchase program. Net income declined by 1% year over year during the second quarter and by 5.1% during the first six months of fiscal 2015, with share buybacks allowing the company to report per-share earnings growth in both cases.
A mixed quarter
Urban Outfitters grew revenue slower than analysts were expecting, but it was able to beat estimates for EPS thanks to share buybacks. A decline in gross margin and an increase in SG&A costs as a percentage of revenue are both areas of concern, and investors should keep an eye on how these figures evolve in the coming quarters.
Urban Outfitters' gross and operating margins have been in decline since 2010, and the company's profitability is currently well below peak levels from that year. It seems that the second quarter marks a continuation of that that trend.
Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.