NEW YORK — Urban Outfitters Inc. on Thursday said first-quarter earnings fell 26 percent, but the decline was due in part to heavy markdowns of seasonal merchandise and same-store sales declines at its Anthropologie and Urban Outfitters’ nameplates.

For the three months ended April 30, net income was $20.3 million, or 12 cents a diluted share, compared with $27.4 million, or 16 cents, in the same year-ago quarter. Sales rose 16.7 percent, to $270 million from $231.3 million. The cost of sales, which included certain distribution and occupancy costs, increased 29.6 percent, to $173.2 million from $133.7 million. The company’s inventories grew by 24 percent on a year-over-year basis to stock new stores. So far, the retailer has opened five new Urban stores and three new Anthropologie sites. The company plans to open another 27 to 30 stores during the fiscal year.

Richard A. Hayne, chairman and president, said in a statement that the “recent seismic shift” in women’s fashions presented challenges and opportunities for the company. He explained that to “better capitalize on future opportunities, we appropriately applied heavy markdowns during the first quarter to turn slower-moving merchandise and rationalize our weeks of supply.”

By nameplate, Urban store sales gained 12.5 percent in the quarter, to $117.1 million from $104.1 million, but had a 4 percent decline in comps. Anthropologie store sales rose 14.5 percent, to $99.9 million from $87.3 million, while comps decreased by 2 percent. Free People same-store sales jumped 74.1 percent, to $19.5 million from $11.2 million, and comps increased 14 percent. Total company comps gained 3 percent in the quarter. Direct-to-consumer sales gained 16.6 percent, to $33.5 million from $28.7 million.

Hayne added, “We continue to be cautious as the customers’ response to our product offerings remains inconsistent.”

This story first appeared in the May 12, 2006 issue of WWD. Subscribe Today.