Urban Outfitters Inc. (URBN) reported fiscal third quarter results on Thursday. The company posted earnings of $62.4 million, a growth of 5.3% from $59.3 million recorded in the year-ago quarter. Earnings per share came in at 36 cents, which edged past the Zacks Consensus Estimate of 35 cents derived from 28 covering analysts.
 
The company reported a 5.8% increase in net sales to $505.9 million during the quarter, compared to $478 million in the year-ago period. The expansion was primarily driven by a 2% growth in same-store sales coupled with the addition of 25 new stores in the first nine months of this fiscal. In terms of divisions, same-store sales grew by 3% in Anthropologie stores, while it reduced by 13% in Free People stores and by 5% in Urban Outfitters stores.
 
Urban Outfitters’ gross profit rose by 7.5% year over year to $210.1 million, while gross margin increased by 60 basis points (bps) to 41.5%. The increase was primarily the result of higher initial margins, which more than offset the impact of increased merchandise markdowns to clear seasonal products.
 
Selling, general and administrative expenses rose 8.9% year over year to $114.3 million, while as a percentage of sales, it rose 60 bps to 22.6%. The increase was primarily the result of the deleveraging impact of fixed expenses on lower same-store sales in Free People and Urban Outfitters stores coupled with an increase in incentive-based bonus. Accordingly, Urban Outfitters recorded an operating income of $95.8 million during the quarter, compared to $90.4 million in the year-ago quarter, while operating margin remained flat at 18.9%.
 
The company ended the quarter with cash and cash equivalents of $202.3 million, compared to $71.7 million in the year-ago period. Urban Outfitters’ efforts to optimize merchandise levels in accordance with sales trends led a 7% year-over-year reduction in inventories to $234.5 million.
 
Looking ahead, the company expects to open 32 to 34 new stores during full fiscal 2010, while in the next year Urban Outfitters’ plans to open 15 to 20 stores each under its namesake, Anthropologie and Free People brands. Meanwhile, the Zacks Consensus Estimate on the company’s earnings for the year ending January 2010 is currently pegged at $1.18 per share, which has moved up a penny in just the past week as 8 of 27 covering analysts raised expectations. The most accurate estimate is slightly more bullish at $1.19 per share.
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