Urban Outfitters: Less store growth + more online sales = profits, shares up

Shares of Urban Outfitters Inc. jumped around 10% to $44 a share in trading today after the South Philadelphia-based women's retail group reported higher-than-expected profits of $76 million, on sales of $759 million, for the three months ended July 31. 

What's changed? Total sales rose 9%, but direct (online) sales orders rose 40%, analyst Adrienne Tenant told clients of Janney Capital Markets in a report this morning. Sales by Urban's Anthropologie line are "gaining momentum" as the chain has improved its clothing mix while also cutting back on price discounts, despite "choppy" sales at the company's Urban Outfitters-branded stores, she added.

Urban cut costs by opening fewer new Free People stores than expected, while, at the Terrain division, "landscape business declined," wrote analyst Laura Champine, in a report to clients of Canaccord Genuity. Total company sales were less than expected, but so were costs, as Urban opened fewer stores than usual. 

The company's goal is to boost total annual growth from last quarter's 9% toward its pre-recession target of 20% -- and to increase online business from about one-fifth, to about one-half, of total sales, Janney's Tennant added. The share-price jump is a sign investors will hold Urban boss Richard Hayne to that goal, or dump the stock.

Urban plans to spend more on technology and direct sales. Online expansion should boost employment at UO's warehouses in Nevada, South Carolina and Lancaster County (Pa.), though that will be bad news for retail landlords hoping to rent or sell more locations to the company's chains, if the company stops opening new locations at some future date.

That Urban can boost sales at all is kind of impressive, maybe. "Where is that consumer spending recovery we keep hearing about?" asked Janney's David Strasser, in a report last week on weaker-than-expected second-quarter sales at the nation's largest store chain, Wal-Mart, which also predicts flat third-quarter sales. While "home and apparel had stronger comps," but food and consumer electronics "disapointed," Strasser added. Wal-Mart is squeezing its vendors, and food prices are starting to fall, but overall U.S. and foreign mass-market consumption now looks like "a challenging environment" for all of retail, Strasser concluded.