Heading into Black Friday and the vacation buying season, retailers are primed and prepared for an enormous ultimate month of the yr.
But it surely was Black Wednesday for one retailer, City Outfitters (NASDAQ:URBN), as its inventory value soared 13% on Wednesday to close a 52-week excessive.
The catalyst was the clothes retailer’s third quarter earnings, which set data for income and earnings, and beat expectations.
- Web gross sales: $1.53 billion, up 12% year-over-year. This beat estimates of $1.48 billion.
- Web earnings: $116.4M, up 13% year-over-year.
- Earnings: $1.28 per share, up 16% year-over-year. This beat estimates of $1.19 per share.
City Outfitters noticed income in its retail phase bounce 10% to $1.3 billion with identical retailer gross sales rising 8%. The positive aspects in comp gross sales had been pushed by excessive single-digit constructive development in each digital channel gross sales and retail retailer gross sales.
Additionally, its subscription phase soared 44% to $145 million, whereas its wholesale enterprise rose 7% to $88 million.
Anthropologie, City outfitters and free folks
To higher perceive City Outfitters earnings, it helps to know its manufacturers and the place the income is coming from. It has three retail retailer chains — Anthropologie, City Outfitters, and Free Folks. It additionally has a subscription-based clothes rental enterprise, known as Nuuly. Lastly, it additionally owns a number of eating places and occasion areas, known as Menus and Venues. Right here’s how a lot income every generated in Q3.
- Anthropologie: $634.8M, up 8% year-over-year.
- Free Folks: $399.3M, up 9% year-over-year.
- City Outfitters: $339.8M, up 13% year-over-year.
- Nuuly: $144.6M, up 48% year-over-year.
- Menus and Venues: $10.8M, up 5% year-over-year.
“These outcomes underscore the power of our diversified enterprise mannequin, which allows us to proceed capturing market share, and drive constant long-term development,” Richard Hayne, CEO, stated.
Margin growth regardless of tariff headwinds
City Outfitters elevated its gross revenue margin within the quarter by 31 foundation factors year-over-year to 36.8%, regardless of tariff headwinds.
“We estimate that tariffs negatively impacted our third quarter gross margin fee by roughly 60 foundation factors, and we at present imagine they are going to have an effect of roughly 75 foundation factors within the fourth quarter,” Frank Conforti, co-president and COO, stated on the decision. “Regardless of these headwinds, we nonetheless imagine we will obtain roughly 100 foundation factors of gross margin enchancment for the total fiscal yr 2026.”
Conforti stated the corporate has been capable of mitigate the impact of tariffs by negotiating vendor phrases, modifying its nations of origin, adjusting transportation modes, and strategically managing pricing.
“I wish to emphasize that this plan displays our present data, and there’s nonetheless plenty of uncertainty in as we speak’s surroundings,” he added. “This uncertainty along with our ongoing mitigation efforts makes it difficult to foretell the impression of tariffs past the fourth quarter.”
Wall Avenue upgrades
Together with working margin growth, Conforti stated the corporate is poised for document gross sales and working income this yr.
On the decision, Hayne stated November visitors and gross sales had been strong with comp gross sales working forward of expectations.
The corporate bought a slew of value goal upgrades from Wall Avenue analysts after releasing earnings. Amongst them, JP Morgan boosted its goal to $86 per share whereas Morgan Stanley raised its goal to $91 per share.
City Clothing store inventory is up 39% YTD and 90% over the previous 12 months. It’s also low cost with a P/E ratio of 13 and a ahead P/E of 12. It has additionally been a unbelievable long-term performer with a 5-year common annualized return of 21% and a 10-year common return of 12%.
