Urban Outfitters Earnings Call Nuggets: eCommerce and Gross Margin

Urban Outfitters Inc. (NASDAQ:URBN) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.


Kimberly Greenberger – Morgan Stanley: Congratulations on some very, very nice acceleration in the business. Dick my question is on ecommerce, and you have shown some really nice acceleration, particularly in ecommerce sales throughout the year and a big sort of step function up here in the third quarter is it, possible to understand the drivers there. Is it improved execution on the product side or is it in fact this cross channel inventory management and just looking at longer term what are the keys, What are the sort of various legs of the stool that you think Urban Outfitters Inc. needs to get to that 50% revenue goal?

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Richard A. Hayne – Chairman, President and CEO: We have concentrated as you know over the last year and a half on direct the consumer channel and so it is one of main growth engines. Just the mere fact of concentrating on and paying attention to it and staffing it have contributed significantly to our growth. Besides that, we have done a number of things to enhance the marketing of the websites, and I would say that’s happened in all three brands and probably has happened the most at Free People brand and at Urban Outfitters. So, I think, going forward we see the items that are going to continue to drive the sales on web as one an increase in the product categories that we are offering and the increased number of SKUs that we are offering what we call WebEx products; and then secondly the increase in enhanced marketing. Those are the two main factors.

Gross Margin

Adrienne Tennant – Janney Capital Markets: I guess, my question is the business model was changing so much, I was looking at the total sales in the third quarter relative to the second quarter they were up call it 16.5 million and yet the gross margin was essentially similar to the second quarter and I think that has to do with the DTC mix. I am wondering if you can just help us understand is the gross margin in DTC lower than stores, but the operating margin is materially better so as we model out kind of 50-50 in the five year timeframe, should we be thinking that that 40% margin that were stores only should be a little bit lower than that go forward?

Richard A. Hayne – Chairman, President and CEO: I’m going to ask Frank to handle that. Well I’ll just say out front, I do not believe that that’s what’s driving the gross profit margin difference. Frank.

Frank J. Conforti – CFO: So, Adrienne, thank you for your question. Yes the DTC channel does have slightly favorable gross profit margins versus the stores, because it doesn’t have the store property expense as you know and it does have slightly higher SG&A expense due to the marketing that’s still put onto the direct-to-customer channel and overall, it is a favorable operating income profit rate versus the stores. As it relates to overall profit margin, our improvement this year is primarily related to markdowns. That’s across both channels. So our gross profit margin year-over-year on a quarterly basis is due to improved markdowns at all the brands and this primarily due to better product, more compelling product.

A Closer Look: Urban Outfitters Earnings Cheat Sheet>>