By  on March 10, 2006

NEW YORK — Urban Outfitters Inc. delivered strong fourth-quarter results Thursday, but warned it faces challenges this year as "a tectonic shift" in fashion trends late last year gripped its business.

Richard A. Hayne, chairman and president of the retailer, said on a conference call the "change was radical and affects every aspect of [the female shopper's] wardrobe. We expect overall business to improve slowly as the look becomes better defined and accepted."

For the fourth quarter ended Jan. 31, the company posted earnings of $35.6 million, or 21 cents a diluted share, up 31.5 percent from $27.1 million, or 16 cents, last year. The earnings matched Wall Street expectations.

Net sales jumped 27 percent, to $318.6 million from $251.6 million last year. Same-store sales rose 8 percent in aggregate for the company's three brands. Anthropologie's comps gained 2 percent, while Free People's jumped 21 percent and Urban Outfitters' increased 13 percent.

For the year, the group saw annual profits soar 45 percent to $130.8 million, or 77 cents, from $90.5 million, or 54 cents, last year. Total sales rose to $1.1 billion — the first time they surpassed $1 billion — up from $827.8 million last year.

"The final three months of the fiscal year continued our string of record-breaking quarters and capped off what was easily our finest year to date," Hayne said in a statement.

Pacific Growth Equities analyst Christine Chen wrote in a Thursday research report that she thinks fashion trends are indeed shifting. Fashion is now defined by less color — black, gray and neutrals — and tends to be "more minimalist and streamlined rather than embellished and distressed."

"We think that the change in shape, focusing on skinny legs, and straight-leg pants and jeans with longer tops to complement, while subtle, has been slow to gain acceptance by the average [Urban Outfitters Inc.] customer," Chen said. "We think the younger Urban customer is more trendy and has accepted this return to the Eighties silhouette faster than the Anthropologie customer, who is slightly older and may not believe the new shapes can be flattering to their different body types."So far, Urban Outfitters said, Anthropologie's and Urban Out­fitters' store businesses have been "soft" in the first quarter, with declines in same-store sales. But the direct businesses have been stronger, and Free People wholesale sales are robust.

"We are confident we can navigate through this fashion turbulence," said Hayne. "Our ability to produce strong financial results does not rest with any one fashion lover. It flows from our ability to build title brands that connect emotionally with our customers."

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