Shares of Urban Outfitters Inc. were hit hard, falling more than 9 percent to $35.41 in after-hours trading following a third-quarter earnings report that left Wall Street wanting more from both the top and bottom lines.
Urban’s net profits fell 8.9 percent to $47.4 million, or 40 cents a diluted share, from $52 million, or 42 cents, a year earlier. Earnings per share came in 4 cents shy of the 44 cents analysts had penciled in.
Sales for the three months ended Oct. 31 rose 4.5 percent to $862.5 million from $825.3 million as analysts were looking for sales of $869.1 million.
Comparable sales increased 5.2 percent at the company’s flagship chain but fell 1.5 percent at Free People and 2.7 percent at the Anthropologie Group.
The firm’s gross profit margin decreased to 34.8 percent of sales from 34.9 percent as the company spent more on its web business, which “increased customer delivery and overall logistics expense rates.”
Richard Hayne, chief executive officer, told analysts on a conference call that the digital migration continued, with store traffic down and digital gaining by double digits.
“The disparity in channel results demonstrates that the consumer affinity for digital shopping continues to grow,” Hayne said. “This is why we continue to make significant investments in personnel and technology that will expand our online assortments, enhance and personalize the digital experience, give us more insight into customer preferences, and permit us to deliver orders faster and more reliably.”
Hayne this year has been also pointing to another shift — the return of enthusiasm for fashion.
But so far, shoppers have been slower to turn to new styles than the ceo thought.
He noted that emerging style trends, which seem to have their roots in Europe, are not impacting all brands equally.
“Predictably younger, more fashion-forward customers are adopting these new looks more readily so in [the third quarter] the Urban and Free People brands benefited from the shift, while the Anthropologie brand did not,” he said. “In the fashion industry times of rapid change like we see when silhouettes shift offer the greatest opportunity’s but also pose the greatest risks.”
Not everyone is comfortable with the fashion risk.
Credit Suisse analyst Christian Buss noted: “Urban Outfitters continues to struggle with inconsistent execution across its concepts. The company failed to grow earnings in spite of continued strength in the Urban Outfitters concept, which was offset by weakness at both Anthropologie and Free People. We remain concerned that the demographic appeal of [the company’s] brands is not broad enough to successfully mitigate the high fashion risk inherent in the company’s merchandising approach.”