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Why Urban Outfitters Stock Soared 25% in March

By Timothy Green - Apr 6, 2016 at 10:43AM

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The retailer managed to beat estimates for earnings by successfully reducing markdown rates. Extensive share buybacks also didn't hurt.

Image source: Urban Outfitters.

What: Shares of apparel retailer Urban Outfitters (URBN 3.98%) rose 24.9% in March, according to data provided by S&P Global Market Intelligence. The company's fourth-quarter earnings report, which was mixed relative to analyst expectations, was the main reason for the stock's gains.

So what: Urban Outfitters pre-announced sales data for the fourth quarter back on Feb. 9, so there were no surprises on that front. Revenue was flat year over year at $1.01 billion, and comparable retail sales slumped 2%. Comparable sales rose 2% at Free People, declined 2% at Anthropologie Group, and declined 3% at Urban Outfitters stores. Wholesale revenue rose 29%, in part due to delayed orders carrying over into the fourth quarter.

On the earnings front, Urban Outfitters beat analyst estimates, with EPS of $0.61 besting expectations by $0.05. Compared to the prior-year period, EPS was up a penny. However, strong share buyback activity boosted per-share numbers, with net income slumping 9.2% year over year.

Urban Outfitters was able to beat analyst estimates for earnings by keeping its gross margin nearly flat, down just 12 basis points year over year. While the effects of lower retail sales, increased direct-to-consumer sales penetration, and currency worked against the company, a 200 basis point gross margin improvement driven by a lower markdown rate at Urban Outfitters stores mostly offset those negatives.

Now what: Urban Outfitters CEO Richard Hayne summed up the quarter: "While apparel sales underperformed during the fourth quarter, I am pleased with the merchandise margin improvement delivered by the brands. Additionally, our expansion categories performed above our expectations and continue to give us confidence in our future growth opportunities."

URBN Chart

URBN data by YCharts.

Shares of Urban Outfitters had been beaten down over the past year, going into earnings well below the 52-week high. A depressed stock price coupled with an earnings beat was enough to send the stock soaring in March.

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