Shares of Urban Outfitters (URBN) slid over 9% to $35.33 Wednesday after the retailer posted third-quarter results that were below analysts' forecasts amid higher markdowns and slumping sales at its Anthropologie brand.
The Philadelphia-based retailer said increased markdowns and slowing sales at Anthropologie will continue to pressure results in the holiday quarter.
The company is also responding to a shift in demand for a new fashion silhouette with roots in Europe. But the emerging trend is not impacting all brands equally. Younger and more fashion-forward customers are adopting these new looks more readily, so Urban Outfitters and Free People benefited from the shift during the third quarter, while the more conservative Anthropologie brand did not, CEO Richard Hayne noted on the earnings conference call.
For the third quarter, Urban Outfitters reported adjusted earnings of 40 cents per diluted share, lower than analysts' projections of 44 cents per share. Revenue rose 5% to $862.5 million from last year, but was below Wall Street's estimates of $869.2 million.
Comparable-store sales increased 5.2% at Urban Outfitters in the most recent quarter, but fell 2.7% at Anthropologie and decreased 1.5% at Free People. Comparable retail segment sales, which includes its direct-to-consumer channel, increased 1%, while analysts were looking for growth of 1.9%, according to FactSet.
Urban Outfitters expected to see more progress in Anthropologie's apparel category, but customer response to fall assortments was "lackluster," leading to higher markdowns compared to last year. The company believes it will see improvement in customer reaction to Anthropologie's apparel offerings in the spring and summer of 2017.
"While we are encouraged by the strength at Urban Outfitters and improvement at Free People, the comp and margin decline at Anthropologie is disappointing. With low visibility as to when trends will stabilize in apparel and ultimately improve, we remain on the sidelines," MKM Partners wrote in a note this morning. The firm added that the turnaround at Anthropologie is stalled and trends could remain sluggish well into 2017.
Credit Suisse believes Urban Outfitters continues to struggle with inconsistent execution across its brands. The company failed to grow earnings despite continued strength at its namesake brand, which was offset by weakness at Free People and Anthropologie, the firm noted."We remain concerned that the demographic appeal of URBN's brands is not broad enough to successfully mitigate the high fashion risk inherent in the company's merchandising approach. As a result, over the past five years, strength in one concept has been largely offset by product misses in the other concepts," the firm wrote in an analyst note.