Urban Outfitters (URBN): Digital turns out to be a silver lining on the COVID-19 cloud

Urban Outfitters (NASDAQ: URBN) took a hit to both its top and bottom line numbers in the first quarter of 2021 due to the impact from the coronavirus outbreak. After a brisk February, which brought in a retail segment comp growth of 11%, traffic and sales slumped in March forcing the company to close its stores.

The absence of store sales and the increasing number of order cancellations in the wholesale segment hit the company hard leading to a 32% drop in total sales and a net loss for the quarter. Urban Outfitters took several steps to reduce expenses and manage cash flow, which included furloughing employees, freezing hiring, reducing Capex by delaying or cancelling new projects and reducing investments in growth initiatives.

Store performance

While closing its stores in March, the company assumed that it would be able to reopen most of them in May and that traffic and sales would slowly pick up in the coming months. Currently, more than 40% of stores are open with 252 in North America and 27 in Europe. The company expects to open 100 more stores by the first week of June.

The retailer is seeing improvements in the traffic and sales levels at its stores but due to the slow ramp-up of sales and delayed store openings, total comp store sales are expected to be down over 60% in the second quarter.

“Initial customer traffic and sales levels in newly re-opened stores have been tepid but have improved each week. We believe a return to near pre-virus levels will take many quarters and a medical vaccine or cure.” – Richard A. Hayne, CEO 

Digital sales

There is no doubt that digital sales were a lifesaver for Urban Outfitters during the pandemic. Despite the store closures, the company’s digital business functioned throughout the quarter, recording healthy double-digit sales worldwide.

Europe witnessed strong momentum with a 30% growth in digital sales. Urban saw strong comps in April and the trend has improved in May with a growth of over 30% in North America and over 100% in Europe.

The company’s investments in digital capabilities paid off during the quarter with the retailer seeing a 63% jump in new online customers. Urban witnessed strong trends in demand, online traffic and conversion. While special occasion apparel saw weakness, casual wear and home wear have overperformed.

Urban expects the strong double-digit, online demand to continue throughout the second quarter and believes it will benefit from its strong digital sales penetration and capabilities.

In general, Urban Outfitters is focusing on driving revenue through store re-openings and strong digital growth. On its quarterly conference call, the company stated that the pandemic has brought about changes in consumer behavior that are not likely to change soon, or even at all.

The company believes people may prefer to stay and work at home while shopping online instead of visiting stores for many months to come. They are also likely to spend less on fashion apparel as social events are quite rare at present.

Urban stated that there is nothing but uncertainty in the near-term future right now and the situation is very fluid and likely to change going forward.

Click here to read the full transcript of Urban Outfitters Q1 2021 earnings conference call