"Disappointing" second quarter for Urban Outfitters

Urban Outfitters has reported a 2% drop in Q2 revenues, which it described as "disappointing", but said there were encouraging signs of top level growth in future quarters and that Europe had continued to perform well.

The US-based retailer, which also owns Anthropologie and Free People, said Q2 net sales reached $873m, a 2% drop on the same period last year, while comparable retail segment net sales, which include the comparable direct-to-consumer channel, decreased 4.9%.

On a brand basis Urban Outfitters comparable retail segment net sales were down 7.9% and down 4% at Anthropologie while Free People was up 2.9%. The business said the decline in comparable retail segment net sales was due to "negative retail store sales", which was partially offset by continued sales growth in its direct-to-consumer channel. Wholesale segment net sales increased 10%.

"While we are disappointed in our second quarter performance, we have a number of initiatives underway including: speed to customer, international growth, wholesale expansion and digital investments,” said CEO Richard A Hayne. “We believe these initiatives combined with encouraging fashion apparel trends could lead to improved topline performance in future quarters,” he added.

For the three months ended July 31, 2017, the gross profit rate decreased 369 basis points versus the prior year, which the company said was driven by higher markdowns due in part to "underperforming women’s apparel and accessories product at Anthropologie and Urban Outfitters". Hayne has said consumers had told the company that its apparel and accessories offer had been "off-pitch".

Urban Outfitters European division, however, posted a fourth consecutive quarter of record results. Global chief executive officer Trish Donnelly said: "One of the most exciting quarterly highlights was the results produced by our European group. They registered an impressive increase in comparable sales on top of a strong prior year comp. The DTC business in Europe delivered remarkable demand comps in the quarter, showing increased sessions and higher conversion. New customers increased almost 30% over last year and all international social channels saw year-over-year growth in followers and in engagement. On the retail front, we opened three new stores in July, Stockholm, Düsseldorf and Vienna, with Vienna seeing record sales on its opening day."

Donnelly said the European team, under its managing director Emma Wisden, had already employed the speed to customer initiative, which was yielding positive results for the division. "This very disciplined and nimble approach to buying and planning has enabled the team in Europe to make product decisions as quickly as four weeks before the in-store delivery and has helped to drive women’s own brand product successes and strong comparable sales," she said.

The group operates 245 Urban Outfitters and 225 Anthropologie stores in US, Canada, and Europe, and 130 Free People stores in the US and Canada. Free People is also wholesaled to 1,900 department stores and multibrand stores worldwide.

Despite the drop in sales shares rallied in after hours trading by as much as 20%.