NEW YORK (TheStreet) - Urban Outfitters (URBN) shares plunged more than 4% following the specialty retailers disappointing third-quarter earnings results.

The company reported net income of $47 million, or 35 cents a share, for the Oct. 31-ending quarter, below consensus expectations of 41 cents a share.

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Net sales rose 5% to $814 million over last year's third quarter, however gross profit fell 295 basis points in the same time period. Comparable sales for the company as a whole decreased 1%. Within the company's flagship brand, comp sales dropped 7% for the quarter.

"While we are pleased with delivering record third quarter sales fueled by strong performances at our Anthropologie and Free People brands, I am disappointed by the results at the Urban Outfitters brand," CEO Richard Hayne said in the earnings statement. "There is much work to be done to improve the merchandise margins and store performance at the Urban brand, but I see positive signs as shown by strong results at the brand`s direct-to-consumer channel."

Shares were down 4.3% to $29.50 before market open. Here's what analysts had to say.

Anna Andreeva, Oppenheimer (Outperform, $35 PT)

Earnings estimates on URBN continue to come down ('14 est. down 30% since start of year), with $0.35 for 3Q14 the biggest quarterly miss in recent history (and below negative pre-announcement on 10/16). Anthro, while slower, remains resilient (two-year comp stack maintained, one of a few apparel retailers with margins up); UO recovery is taking longer (took four quarters to fix during '11 fashion miss), issues likely more structural than company anticipated. While turnarounds in retail usually take longer, UO is starting to lap significantly softer results (Jan comps down 20% LY, comps down DD 1H14), Anthro's stack eases. Our $0.53 for 4Q14E is predicated on comps flat to up LSD at UO (acceleration from current levels), which may be optimistic given environment.

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John Morris, BMO Capital Markets (Market Perform, $28 PT)

We expect the repositioning of the core Urban brand to take time and believe the strategy continues to pose execution risk, as the brand works to skew its assortment towards an older demographic. Meanwhile, Anthropologie appears to be settling into positive low-single digit comp range; near-term, we do not believe this will be enough to offset the ongoing pressure at core Urban. Trends at Free People, although still strong, are also beginning to experience a natural deceleration. We continue to see Urban's focus on e-commerce investments (particularly mobile) as prudent, but expect this spending to lead to ongoing SG&A pressure, particularly in the face of soft comp performance. Combined, these factors prevent us from becoming more constructive for the time being.

Eric Beder, Wunderlich Securities (Buy, $42 PT)

Near term URBN continues to struggle, emulating the first half results for the 4Q; however, the company is making the right investments in marketing and technology to target the core consumer for future bottom line growth. Currently, positive trends online is continuing to drive overall sales. Expansion in Asia and Europe will certainly drive growth internationally. As such, we are still on board with Urban Outfitters' story, but we realize that we must be a bit more patient to see better results.

Laura Champine, Canaccord Genuity (Buy, $39 PT)

We are lowering our Q4 EPS for URBN by $0.15 to $0.56, versus prior consensus of $0.62. Our reduced outlook is primarily the result of weaker margins. We had previously anticipated gross margin would turn positive in Q4, but deteriorating initial markups at the Urban Outfitters brand appear likely to remain a headwind in the final three months of FY15. We now forecast a 195bps yr./yr. decline in gross margin. Our SG&A expense rate estimate moves 90bps higher to reflect higher technology and marketing investments. Although the UO brand's recovery is taking longer than we had hoped, we believe it will start to regain sales momentum in FY16, with margins likely to follow in the back half of the year. We remain BUY rated with shares trading at 16x our C2015 EPS estimate and 7x C2015E EV/EBITDA based on the after-hours price of $29.

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TheStreet Ratings team rates URBAN OUTFITTERS INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate URBAN OUTFITTERS INC (URBN) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • URBN's revenue growth has slightly outpaced the industry average of 1.1%. Since the same quarter one year prior, revenues slightly increased by 7.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • URBN has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.88 is somewhat weak and could be cause for future problems.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Specialty Retail industry and the overall market on the basis of return on equity, URBAN OUTFITTERS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • 41.62% is the gross profit margin for URBAN OUTFITTERS INC which we consider to be strong. Regardless of URBN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, URBN's net profit margin of 8.32% compares favorably to the industry average.

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-Written by Laurie Kulikowski in New York.

Follow @LKulikowski

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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