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Urban Outfitters produces 17% operating profit

Aug '09
Urban Outfitters, Inc., a leading lifestyle specialty retail company operating under the Anthropologie, Free People, Terrain and Urban Outfitters brands announced earnings of $49 million and $80 million for the three and six months ended July 31, 2009, respectively. Earnings per diluted share were $0.29 for the quarter and $0.47 for the six months ended July 31, 2009.

As stated in the Company's previous sales release on August 6, 2009, for the second quarter of fiscal 2010, total Company net sales increased by 1% over the same quarter last year to $459 million. Comparable retail segment net sales, which include our direct-to-consumer channels, decreased 3%. Comparable store net sales decreased 6% with declines at Anthropologie, Free People and Urban Outfitters of 4%, 16%, and 8%, respectively. Direct-to-consumer net sales rose 17% and wholesale segment net sales declined 7%.

"The Company produced a 17% operating profit which we believe is admirable considering the current economic climate," said Glen T. Senk, Chief Executive Officer. "By deploying exceptional inventory and expense discipline, our team has adeptly driven profit in the face of challenging fundamentals. I am confident in the group's ability to continue to improve on this performance and exploit all current and emerging growth opportunities in our business," finished Mr. Senk.

For the three and six months ended July 31, 2009, gross profit margins decreased by 26 and 151 basis points, respectively, versus the prior year's comparable periods. These decreases were primarily due to merchandise markdowns to clear seasonal inventories and a higher rate of store occupancy expense driven by the decrease in comparable store sales. These decreases more than offset considerable improvements in initial merchandise margins.

As of July 31, 2009, inventories grew by $6 million or 3%, on a year-over-year basis, driven by the acquisition of inventory to stock new retail stores. Total comparable store inventories decreased by 7%.

For the three and six months ended July 31, 2009, selling, general and administrative expenses, expressed as a percentage of net sales, increased by 89 and 91 basis points, respectively, versus the comparable periods last year. These increases were primarily due to the deleveraging of fixed store costs related to the decline in comparable store sales and a one-time site development expense related to a prospective Terrain location.

During the three months ended July 31, 2009, the Company's quarterly tax rate rose to 38.3% from 33.2% in the prior year's comparable quarter. The increase was primarily due to tax rate hikes at certain state municipalities enacted during the second quarter and retroactively effective for the entire current fiscal year. Additionally, the Company produced a lower proportion of tax free interest income due to a strategic shift to a mix of lower risk securities versus the prioryear's holdings. The Company expects the current annual effective tax rate to remain consistent during the remainder of the year.

During the six months ended July 31, 2009, the Company has opened a total of 15 new stores including: 6 Urban Outfitters stores, 6 Anthropologie stores and 3 Free People stores. The Company expects to open 34 to 36 new stores during the full fiscal year.

Urban Outfitters Inc

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