Urban Outfitters Lost in Fashion's Jungle

For its fourth quarter, Urban Outfitters earned $35.6 million, or 21 cents a share, compared with $27.1 million, or 16 cents a share, a year ago. Sales rose 26% from a year ago to $318.6 million. Analysts surveyed by Thomson First Call were expecting earnings of 21 cents a share and sales of $320 million in the most recent quarter.

The company recorded an overall same-store sales gain of 8% in the fourth quarter, reflecting a 2% rise at Anthropologie, a 21% gain at its Free People wholesale division and 13% growth at the flagship Urban Outfitters chain. The company's direct-to-consumer sales rose 28% in the fourth quarter over last year. Urban said gross profit margins decreased by 37 basis points from a year ago, mainly because of higher markdowns to clear seasonal goods.

Total company inventories rose by $41.4 million from Jan. 31, 2005, to Jan. 31 of this year, while comparable-store inventories increased 13.1%.

"The acquisition of inventory to stock new retail stores and the growth demands in both the direct-to-consumer and wholesale channels were the primary factor for this increase," the company said.

Despite its solid results, Urban Outfitters became the latest in a string of specialty apparel retailers facing inventory issues and uncertainty about the fashion winds and consumer spending trends in 2006. Other perennial favorites like Chico's (CHS Quote) and Pacific Sunwear of California (PSUN Quote) expressed similar first-quarter caution.

On the conference call, executives at Urban Outfitters refused to talked specifically about the changes taking place in the fashion cycle. Last year at this time, a host of retailers had expressed optimism about a trend toward premium denim products, like designer jeans. More recently, some analysts have voiced concerns that some companies may have gotten carried away with the denim fad, provoking a buying binge that may ultimately lead to a denim glut that could hurt profit margins.