Urban Outfitters Surges

Earnings are in line with estimates, and the retailer has a rosy outlook for the fourth quarter.
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Updated from 10:49 a.m. EST

Urban Outfitters'

(URBN) - Get Report

third-quarter earnings fell 7.1% from the year-ago period, hurt by lower margins and weaker same-store sales, but the results were in line with analysts' expectations.

The company's shares were up nearly 12%.

The Philadelphia-based specialty retailer earned $34.5 million, or 21 cents a share, in the quarter, compared with $37.2 million, or 22 cents a share, a year ago. The most recent results included a tax benefit of 3 cents a share.

Analysts polled by Thomson First Call projected earnings of 18 cents a share, before the tax benefit.

Third-quarter revenue rose 6.8% from a year ago to $308.4 million as against analysts' estimate of $313.3 million. The growth was primarily driven by 24% increase in the number of stores in operation, a 17% rise in direct-to-consumer sales and a 15% increase in wholesale sales at the Free People chain.

Total same-store sales, as the company

announced Tuesday, fell 10% in the quarter. Same-store sales fell 10% at both the Anthropologie and Urban Outfitters chains, while it rose 9% at Free People.

Third-quarter gross gross margin declined 340 basis points to 38.2%.

Shares of Urban Outfitters recently were up $2.28 to $21.28. The stock has suffered this year as the company struggles to find the right product mix in a tough fashion climate.

"I see significant opportunity for our brands in the coming quarters,'' said Richard Hayne, chairman and president, in a statement. "More customers are embracing the new fashion silhouette, we begin to anniversary weaker 'comp' store sales and we continue to make headway on improving our fashion offering.

"In addition, we enter the fourth quarter with appropriately conservative inventory levels, store related operating expenses are tightly controlled and our new store opening schedule is on-track for our two largest brands," he added.

The company plans to open 32 to 33 new stores by the end of this year. In the first nine months of 2006, it opened 22 new stores.

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