Urban Outfitters Inc. (NASDAQ:URBN) is seeing its shares take a modest hit in premarket trading Wednesday after the retailer reported sharply lower year-end earnings that were dragged down by the effect of the new U.S. tax act.
The Philadelphia-based operator of Urban Outfitters and Anthropologie stores said its net income in the fiscal fourth quarter that ended Jan. 31, 2018, plunged to US$1.3mln, or 1 US cent a share, from US$64.3 million, or 55 US cents a share, in the year-earlier quarter. Revenue in the period increased nearly 6%, to US$1.09bn from US$1.03bn. However, the company's income tax expense nearly tripled, to US$89.8mln from US$34.5mln, as its effective tax rate shot up to 98.6% in the latest fourth quarter from 34.9% in the year-earlier period.
Urban Outfitters said the big increase in its tax liability mainly was due to a one-time charge on its foreign earnings as well as a write-down of deferred tax assets under the new U.S. tax legislation. Excluding the charges, Urban Outfitters put its adjusted net income in the latest fourth quarter at US$75mln, or 69 US cents a share.
For the full fiscal year, Urban Outfitters said its net income fell by 50%, to US$108.3mln, or 96 US cents a share, from US$218mln, or US$1.86 a share, the previous year. Revenue for the year edged up 2%, to US$3.62bn from US$3.55bn. But again, the company's income tax expenses rose considerably, to US$153.1mln in fiscal 2018 from US$120mln in fiscal 2017.
Favorable sales comps by brand
Urban Outfitters said sales in the latest fourth quarter were a record. The company said comparable retail segment net sales increased 4%, driven by what it called "strong, double-digit growth in the digital channel partially offset by negative retail store sales."
By brand, comparable Retail segment net sales increased 8% at Free People, 5% at the Anthropologie Group and 2% at Urban Outfitters. Wholesale segment net sales increased 6.3%.
Richard A. Hayne, Urban Outfitters' CEO, said the company was "particularly pleased with how well the brands transitioned in January."
"Positive customer reaction to the new spring fashion offerings at all our brands has been strong and makes us optimistic regarding the first half of the year," Hayne said.
Nonetheless, shares of Urban Outfitters were down 2.7% in premarket trading, to US$36 a share.
During the year ended Jan. 31, 2018, Urban Outfitters said it opened a total of 18 locations, including eight Free People stores, five Urban Outfitters stores, four Anthropologie Group stores and one Food and Beverage restaurant. It closed 11 locations, including three Free People stores, two Urban Outfitters stores, three Anthropologie Group stores and three Food and Beverage restaurants.