The apparel chain’s clothing rental service Nuuly has more than 27,000 subscribers to its $88-a-month program. Nuuly, however, is not yet profitable.

Urban Outfitters Inc. reported total retail sales increased 3.5% year over year to $1.17 billion for its fiscal 2020 fourth quarter ended Jan. 31, up from $1.13 billion in the year-ago period. For its fiscal 2020 year ended Jan. 31, total revenue reached $3.98 billion, up 0.8% year over year from $3.95 billion in its fiscal 2019.

Besides its namesake brand, Urban Outfitters owns brands Anthropologie, BHLDN, Free People, Terrain, Urban Outfitters and Nuuly.

Comparable store sales across all its brands increased 4% for the quarter and 1% for the year, both driven by digital sales, and partially offset by negative retail store sales, the retailer reported.

Urban Outfitters did not disclose exact ecommerce figures. Digital Commence 360 estimates that Urban Outfitters generated more than $1.90 billion in 2018 ecommerce sales, which was more than 40% of its overall 2018 retail sales, according to Top500Guide.com. Urban Outfitters is No. 45 in the 2019 Digital Commerce 360 Top 500.

For its fiscal 2020, Urban Outfitters pointed to increased ecommerce penetration as a reason for increases in delivery and logistics expenses. Retailers commonly report that shipping one product from a warehouse directly to a consumer is more expensive than shipping a large order to one of its retail stores. Urban Outfitters is no different. As online sales increase for the retail chain, and online penetration is expected to continue to increase, this puts pressure on the retailer’s logistics expenses, chief financial officer Frank Conforti said.

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Net income took a hit during Q4 and the year and decreased 77.4% to $19.5 million in its fiscal 2020 Q4 from $86.4 million in the year-ago period. For the year, Urban Outfitters reported net income of $168.1 million, a 77.3% year-over-year decrease from $298.0 million.

Urban Outfitters points to several factors for a dip in net income including gross margin erosion from increased markdowns and its new subscription service Nuuly. Urban Outfitters launched the rental apparel subscription service in May 2019. The $88 monthly service allows shoppers to select six garments to wear and then return from more than 1,000 SKUs from dozens of brands including Wrangler, Bronx and Banco, Daisy Street and all Urban Outfitters’ brands.

Nuuly now has more than 27,000 active subscribers and received “overwhelming positive feedback” from customers, CEO Dick Hayne told investors in an earnings call, according to a Seeking Alpha transcript.

“It is still early, and we have much to learn about this business model, but the reaction so far has excited us for the future,” Hayne said.

Sales from Nuuly reached $6.0 million in Q4, and $8.0 million for the year. However, Nuuly’s gross profit margin is negative, but the retailer will continue to invest in Nuuly as a long-term growth opportunity for its future, Conforti said.

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Urban Outfitters’ plans for 2020

  1. In its fiscal 2020 year, Urban Outfitters Inc. opened 26 stores and closed 12 stores. During its fiscal year 2021, it plans to open 39 new stores across all of its brands and will close nine. One of the benefits of opening a store in a new metro area is that it also drives additional digital sales, Hayne said.

Also when looking into 2020, Urban Outfitters is keeping a close eye on the coronavirus and how it will impact its supply chain and demand for its products. “The bottom line is COVID-19 creates supply chain uncertainty and could create demand uncertainty as well,” Hayne said.

In the last two years, Urban Outfitters has reduced its internally designed products to 15% sourced from China from more than 40%. “Getting accurate and reliable information from China is currently difficult. But we believe most Chinese factories and mills have reopened with output running at approximately 50% capacity,” Hayne said.

Urban Outfitters expects output to increase over the next two weeks as more workers are cleared to return to work.

Urban Outfitters does not have stores in Asia and its China office is small. Although it does have stores in Europe and North America, it does not know how to quantify how the virus could disrupt the brand yet.

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