Urban Outfitters Announces Entry Into Clothing Rental Market

The news of Urban Outfitters Inc. (NASDAQ:URBN) launching the women's rental service and its quarterly results better than the market expectations failed to boost investor sentiment. The share price of the American fashion apparel retailer hit a 18 month low on Wednesday.

In fact, the sale of Urban Outfitters Inc. has been improved since the early warning in early March, when the group predicted that the first quarter of fiscal year 2020 will decline by a single digit decline compared with the sales meeting, and the ideal situation can also be flat in the same period last year.

The quarterly report on Tuesday showed that, thanks to the double-digit growth of digital channels, retail sales increased by 1% compared to the same period last year, and seven consecutive quarters of growth, of which Free People and Anthropologie Group increased by 2% and 1% respectively, while the same brand Urban Outfitters remained unchanged.

But physical retailing is still a headache.

Management at the analysts' teleconference indicated that the trend of the decline of physical passenger flow continued until May, and the sales of retail outlets continued to regress.

On the other hand, a total of 77.7% brands of Anthropologie and Urban Outfitters, which accounted for the top two of the group's income, were in the wrong fashion and needed to be promoted. The gross profit margin in the first quarter fell by 169 basis points to 31.1%.

Urban Outfitters Inc. announced the launch of the "Nuuly" women's clothing rental business in the late summer, allowing nuuly.com registered users to choose six apparel items with a retail value of up to $800 each month from group self owned products, third party brands and unique medieval series with a monthly fee of $88, and can buy the favorite styles at a preferential price.

The Nuuly model is similar to the fashion leasing giant Rent the Runway Inc., which was founded in 2009 and its valuation has exceeded 1 billion US dollars in March.

Urban Outfitters Inc.'s rival American Eagle Outfitters Inc. (NYSE:AEO) also started testing clothes for rent at the beginning of the year. Their monthly fee is $49.95, which can rent three clothes.

Market research firm Allied Market Research estimates that the global scale of online apparel rental market can be expanded to $1 billion 885 million in 2023, while the millennial generation and Z generation will be the largest market in North America with strong environmental awareness.

Kyle Andrew, chief sales officer of American Eagle Outfitters Inc., has also pointed out that Z generation is paying more attention to reducing the impact on the environment while dressing up. On the other hand, clothing rental services also help the team to adjust product composition.

Nuuly is led by David Outfitters, the co founder of Urban Outfitters Inc. and son of CEO Richard Hayne. He is also the chief digital officer of the group.

During his visit to the Wall Street journal, he estimated that the first year of the new project would generate a revenue of $50 million.

In the first quarter, Urban Outfitters Inc. realized net profit of 32 million 585 thousand US dollars, a sharp decrease of 21% compared with 41 million 260 thousand US dollars in the same period last year, and EPS also dropped from 0.38 US dollars to 0.31 US dollars, but far outperformed the 0.25 US dollars expected by the market.

Net sales rose by 1% to $864 million 400 thousand a year, also higher than the market expectations of $854 million.

At the analysts' conference call, chief financial officer Frank Conforti revealed that the proportion of Chinese purchases will still reach 30% by the end of this year, and their target is to drop to 25%.

He also pointed out that the tariff of 10% of household and accessories products had little impact on the group. As for the possible categories of tariffs that might be raised in July, the group is adjusting its supply chain and its bargaining with suppliers. "Some products may pass some of the extra cost to consumption," Frank Conforti told analysts.

Urban Outfitters Inc. (NASDAQ:URBN) fell $10.9% to $24.06 on Wednesday, closing at $24.34 a day, narrowing to 9.9%, but expanding its 2019 decline to 26.7% so far.

Author: Lin Biying