The revolt against skinny jeans is at its midpoint, Urban Outfitters says. But 'hints of a reversal' could emerge in years ahead.

By Bill Peters

CEO says shoppers are 'enthusiastic rather than exuberant,' as first-quarter results top expectations

Shares of Urban Outfitters Inc. gained hours on Tuesday, as the clothing retailer's first-quarter results topped expectations, marking another three months during which high-end women's clothing chains Anthropologie and Free People did the heavy lifting.

At its namesake Urban Outfitters stores, however, shoppers can expect more markdowns in some parts of stores, where sales continue to fall and management is reviewing "all areas" of the business.

Shares rose 6.5% after hours.

"Overall, I would classify the customer mood, this versus last year, as enthusiastic rather than exuberant," Chief Executive Richard Hayne said on Urban Outfitters' (URBN) earnings call. However, he said, "We believe this mood is healthier because it's more sustainable."

The quarterly numbers and forecast were released as Urban Outfitters, whose clothing has leaned toward hipster and bohemian, tries to figure out younger, more-online shoppers. Those consumers have been hit harder by higher prices and what executives said were "rapid" changes in fashion tastes.

Urban Outfitters has tried to reach those consumers via TikTok and other social-media platforms. But after shifting tastes dislodged skinny jeans' decade-plus reign over denim, Hayne suggested the trend that replaced it - smaller tops over looser-fitting bottoms - was getting closer to its peak as well.

"I would say we're about mid-point in adoption of that right now," he said on the company's earnings call on Tuesday. "I would say it's firmly established in not only our customer group but in the mass. And I think that you might start, in the next few years, seeing little hints of a reversal."

The company said it believed second-quarter sales growth could be in the mid-single digits. Wall Street analysts expected growth of around 5%.

Urban Outfitters - which owns its namesake stores, along with Anthropologie, Free People and the clothing-rental platform Nuuly - reported net income of $61.8 million, or 65 cents a share. That compares with net income of $52.8 million, or 56 cents a share, in the same quarter last year.

Adjusted for store-impairment and lease-abandonment charges, Urban Outfitters earned 69 cents a share. Revenue rose 7.8% to $1.2 billion.

Analysts polled by FactSet expected Urban Outfitters to report adjusted earnings per share of 53 cents, on revenue of $1.18 billion.

Same-store retail sales sales jumped 17.1% at Free People and were up 10.4% at Anthropologie during the first quarter. They fell 13.7% at Urban Outfitters.

At Anthropologie, casual-section apparel helped results. However, demand for furniture, which is often tied to the housing market, remained weak as shoppers went for smaller decorations to refresh their homes.

Executive said that new leadership at Urban Outfitters namesake chain spent much of the first quarter trying to gauge the overall health of that business. More markdowns are likely at those stores during the second quarter, management said, as they try to clear out unwanted clothing and make room for more relevant looks ahead of the back-to-school season.

-Bill Peters

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05-21-24 2020ET

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