Urban Outfitters Inc. still has work to do.

This story first appeared in the May 22, 2012 issue of WWD. Subscribe Today.

On Monday the company reported earnings dropped 12.1 percent to $34 million, or 23 cents a diluted share, for the three months ended April 30, from $38.6 million in the corresponding period a year earlier.

Total net sales rose by 9 percent over the same quarter last year to $569 million. Comparable retail segment net sales, which include direct-to-consumer channels, rose 2 percent for the quarter, while comp-store net sales decreased 1 percent.

Comparable retail segment net sales at Free People and Urban Outfitters increased 2 and 6 percent, respectively, while comparable retail segment net sales at Anthropologie decreased 2 percent for the quarter. Direct-to-consumer comparable net sales rose 15 percent and wholesale segment net sales increased 2 percent for the quarter.

The sales gains helped drive Urban’s stock up 2.1 percent Monday to close at $26.16 on Nasdaq.

Chief executive officer Richard A. Hayne said the record first-quarter sales were driven in part by positive regular price comp sales. Retail analysts said the company appeared to improve its troubled women’s apparel segment. Gross profits for the recent first quarter were $202.5 million, compared with $193.4 million in the year-ago period.

“Sales during the first quarter exceeded our conservative plans,” said Frank J. Conforti, chief financial officer, warning that “the early, unusually warm weather in the first quarter may steal some sales in the second quarter.”

Urban Outfitters Inc. has been going through personnel changes and restructuring. David McCreight, former president of Under Armour Inc., in November was named ceo at Anthropologie Group. In January, ceo of Urban Outfitters Inc. Glen Senk resigned to join David Yurman. Ted Marlow, who had been president of the Urban Outfitters brand in the past, in February returned as ceo of the group.

For the first quarter, the gross profit rate declined by 131 basis points versus the prior year’s comparable period. The company said the rate decline was primarily due to occupancy deleverage related to an increased number of store openings versus the prior comparable quarter, as well as more new and noncomparable European stores. Slightly higher markdowns on a few women’s apparel brands also contributed to the rate decline.

“Our inventory is well positioned,” said McCreight. “We expect to take fewer markdowns than we did in the prior year.”

Anthropologie is working on a full overhaul of its direct-to-consumer business, said Freeman M. Zausner, chief operating officer. “It [the e-commerce site] got a little stale just as the catalogue wasn’t resonating with the customer. The last three or four catalogues are greatly improved in terms of aesthetics and product content.

“We’re regaining our sea legs for Anthropologie,” said McCreight. “We have new teams in design and merchandising.”

Marlow said Urban’s visuals can also be improved. “[The brand] is going to have a look that’s different from what you’ve known.”

Free People’s wholesale sales jumped 30 percent in the quarter when it opened its largest store, a 7,000-square-foot unit at Rockefeller Center in Manhattan. Intimately Free, its intimates line, will ship to more Free People stores and several wholesale accounts. In six months, Free People will launch its wholesale and direct divisions in the U.K., and in 18 months those businesses will bow in Asia.

The company’s Web site had a 35 percent increase in traffic to more than 42 million visitors. Urban is investing in mobile point-of-sale devices and iPad point-of-sale devices for all stores. The company plans to open 55 to 60 stores this year as part of a capital expenditure program that is expected to total $190 million to $210 million.

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