Urban Outfitters is departing from its 'alternative sensibility' to turn around namesake stores

By Bill Peters

Same-store sales rise in Q2 at Free People and Anthropologie, but sink 9.3% at Urban Outfitters locations

Urban Outfitters Inc.'s namesake stores - where you can buy vintage-wear, vinyl and "brat"-themed birthday cards - have long tried to court a hipster-curious, hipster-adjacent or actually hipster consumer.

But after the clothing chain's executives on Wednesday became the latest to warn of a more skittish spending backdrop, sending its shares 8.4% lower after hours, those stores could look start to look and feel a little different in the months ahead as the company makes a play for the younger shoppers with whom it has fallen out of touch.

During Urban Outfitters' (URBN) earnings call on Wednesday, Shea Jensen, president of the Urban Outfitters brand in North America, said that dramatic changes occurred in the retail industry as millennials got older and many Gen Z'ers came of age during the pandemic - a trend the brand lost sight of.

She also said that Urban Outfitters typically targeted an "aspirational 22-year-old" living in a big city. But now, it will broaden its scope, with plans to target shoppers in the suburbs, and those that are pre-college and postgrad.

"We welcome and want to serve today's population of young customers across more prices and sizes, more categories and occasions, and across more aesthetics and sensibilities in both urban and suburban areas," she said.

"This includes pivoting from our traditionally alternative sensibility to offering a more upbeat and welcoming perspective across our assortment and our touch points," she said. "With this in mind, our goal is to welcome more people into our brand."

More athleisure, denim and lounge wear is likely to hit store shelves, she said. More marketing on social media is likely. However, she said, some stores could close, particularly in areas where "population shifts have occurred," while others could be relocated and resized.

The remarks were made as fashion trends only accelerate, thanks to fast-fashion and social-media influencers, complicating the traditionally-much-slower apparel industry's efforts to predict tastes and source new products. A shift toward looser fits is bad news for athleisure, some analysts say. More broadly, the industry has struggled as higher prices for high-priority items steer people away from more frequent clothing purchases.

Urban Outfitters said that it expected third-quarter sales growth could be in the "mid-single digits," after a sales slowdown that began at the end of last month. New product launches, they said, continued to resonate.

For its second quarter, Urban Outfitters reported same-store sales that missed expectations. Same-store sales at Urban Outfitters stores fell 9.3% year over year during the period. The company, in February, said it was reviewing "all areas" of its namesake stores.

The second quarter marked another period during which the company's Anthropologie and Free People - both of which are geared toward a higher-income female shopper - have done the heavy lifting, while Urban Outfitters stores struggle. Same-store sales were up 7.1% at Free People and up 6.7% at Anthropologie.

Overall, Urban Outfitters second-quarter net income of $117.5 million, or $1.24 a share, compared with $104.1 million, or $1.10 a share, in the same quarter last year. Revenue increased 6.3% year over year to $1.35 billion. Same-store sales were up 2% overall.

Analysts polled by FactSet expected Urban Outfitters to report GAAP earnings per share of 97 cents and adjusted earnings per share of $1, on $1.34 billion in revenue and a 3% same-store sales gain.

Shares of Urban Outfitters are still up 16.2% so far this year. But Chief Executive Richard Hayne, during the call, said that more timid spending trends could become a new normal, after the pandemic's warping of the economy.

"We believe this suggests a return to pre-COVID behavior, when our comp sales expectations were typically lower and customers were more selective," he said. "We expect this will become the new reality and ... will necessitate even stronger inventory and expense control."

-Bill Peters

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08-21-24 2047ET

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