Urban Outfitters’ first-quarter EPS of $0.26 met our and consensus expectations, as a weaker-than-expected gross margin was offset by curbed SG&A dollar growth versus guidance and greater-than-expected share repurchases in the quarter.
Consolidated same-store sales were flat against a 9% comparison, marking an improvement from a low-single-digit comp decline during the February/March time frame largely caused by the shift in Easter to April. Comps comprised a decrease in transactions and units per transaction, partly offset by higher average unit selling prices, and comps improved as the quarter progressed. Direct-to-consumer continued to outpace stores with positive gains, driven by increased order size as well as increases in Web and mobile visits.
By division, weaker-than-expected comp trends at Urban Outfitters were offset by better-than-expected trends at Free People, with the former down 12% (worse than our projection of -10% and consensus of -8%) and the latter up 25% (above our projection of 20% and consensus of 16%). At Anthropologie, comps rose 8% against an 8.4% comparison, in line with our estimate and slightly ahead of consensus of 7%.
Total companywide revenues rose 6%, to $686 million, roughly in line with our estimate of $685 million and above the consensus of $680 million, including a 27% increase in wholesale sales.
Gross margin contracted 200 basis points, to 34.8%, worse than the approximate 100- basis-point decline we and consensus projected, reflecting deleveraging on occupancy at the Urban Outfitters brand, preopening expenses, and lower merchandise margins at Urban Outfitters. Management indicated that a similar 200-basis-point year-over-year decline is possible in the second quarter on continued weakness at Urban Outfitters despite sale and profit momentum at Anthropologie and Free People, versus consensus expectations for an approximate 40-basis-point contraction.
Inventory on a comparable basis ended the quarter up 2% at cost and down 5% in units across all brands, with the delta primarily reflecting mix shift as the Urban brand moves toward higher-quality, more-differentiated product.
The impact of the gross margin degradation was mitigated by slower-than-expected growth in SG&A dollars of 8% (versus full-year guidance for a low-double-digit increase and our projection for an 11% to 12% increase in the quarter). As a result, SG&A expense rose 40 basis points, to 26.0%, versus the 140-basis-point increase we projected, limiting operating margin contraction to 260 basis points, to 8.7% (versus our estimate of 8.6%).
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