By Richard Collings
Published: August 4, 2009

   Urban Outfitters, a listed lifestyle specialty retailer, views the current economic climate as ideal for making acquisitions, said Chief Financial Officer John Kyees.
   He said that the downturn has lowered valuations and increased the number of businesses available for sale, as the Philadelphia-based entity is regularly approached with opportunities.
   Urban Outfitters could be interested in making acquisitions, even though it has not tended to do so in the past, as it needs another three or four concepts in its retail pipeline to fuel future growth, Kyees explained.
   The retailer does not want to oversaturate the U.S. marketplace with Urban Outfitters or Anthropologie retail stores, he said, likely limiting each chain to about 250 locations.
   Criteria for acquisitions, Kyees said, are that the targets have revenues between $10 million to $30 million, have the potential to generate around $500 million in turnover, and not cannibalize Urban Outfitters’ current businesses.
   Acquisitions could either be retailers, or it could be wholesale businesses that a retail concept can be built around.
   In addition to Urban Outfitters and Anthropologie, the company also operates Terrain, a lifestyle home and garden concept, and Free People, a retailer of young, contemporary women’s casual apparel, accessories and gifts. Kyees singled out Free People as a wholesale business that was developed into a retail concept.
   For the quarterly period ending April 30, 2009, the company reported that it could make one or two acquisitions related to the expansion of its Terrain brand, and that it operated 143 Urban Outfitters stores, 123 Anthropologie locations, 32 Free People stores and one Terrain location.
   Kyees said Urban Outfitters plans to open a total of 35-plus retail locations during fiscal 2010, and the company reported that of those 35-to-38 new stores, six would be Free People, with the remainder divided equally between the Urban Outfitters and Anthropologie concepts.
   He said that despite the recession, the company has continued to open new locations, though at a bit slower rate than in the past, but during its next fiscal year, that of 2011, Urban Outfitters should return to a pace of 50 store openings.
   Even though the number of transactions has declined, the company believes that it is still generating store traffic, and revenues will return once the recession ends, Kyees also said, though emphasized that this was an unscientific observation. The company does not have traffic counters, so it can’t prove that, he said.
   Yet, revenues are holding up, only down about 2.5% year-over-year for the quarter ending April 30, 2009. For that period the company had net sales of approximately $384 million and net income of nearly $30 million compared to roughly $394 million in net sales and $42 million in net income for the same period a year earlier.
   Kyees said the company is bullish on the internet, boasting that Web and catalogue-based transactions, or direct-to-consumer sales, accounted for 15% of net sales, which is among the highest within Urban Outfitters’ peer group, and a figure the company hopes to eventually increase to 20%.
   He said that the retailer expects bricks-and-mortar to continue to be the basis for conducting most transactions, but that the internet will play an important role in growing the company’s revenues going forward. The company is pleased with the progress it has made with internet-based transactions, particularly as a retailer that did not originally grow out of a legacy Web-based operation. The company could be in a position to do up to $1 billion in direct-to-consumer business.
   In other news, Urban Outfitters continues to take advantage of troubles in the commercial real estate sector, renegotiating lease agreements for 30-to-40 stores, which were up for renewal, to lower the company’s costs. The company leverages the fact it is a generator of traffic, with high sales per square foot, and therefore, a reliable and desirable tenant. No stores will be closed due to the recession, Kyees added.
   The company in January of 2008 acquired J. Franklin Styer Nurseries, Inc., in the Philadelphia area, a ten acre property that was converted into the Terrain concept, it was previously reported.
   Urban Outfitters, as of April 30, 2009, had $224 million in cash and cash equivalents, and as of August 4, 2009, its stock traded at $24.43 a share, almost double its 52-week-low of $12.33, but off its 52-week-high of $38.40.

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