Urban Outfitters Inc. (URBN – Analyst Report) posted third-quarter fiscal 2015 results, wherein earnings of 35 cents a share missed the Zacks Consensus Estimate of 42 cents and also plunged 25.5% from 47 cents delivered in the year-ago quarter. Increased operating expenses, higher markdowns and fall in sales at its namesake brand were responsible for the debacle that dragged this Zacks Rank #5 (Strong Sell) stock down roughly 4% in the aftermarket trading session yesterday. 

Urban Outfitters, Inc – Earnings Surprise | FindTheBest

Revenue Insight

Total net sales of Urban Outfitters climbed 5.2% to $814.5 million during the quarter, attributable to a $34 million jump in non-comparable store sales, new store openings and double-digit growth at its wholesale operations. However, the top line fell short of the Zacks Consensus Estimate of $818 million.

While Anthropologie and Free People brands contributed to the company’s performance, sales were affected to some extent due to sluggish performance by the Urban Outfitters brand on account of weak product execution. Management is making every effort to revive the namesake brand through store refurbishment and by bringing in more compelling assortments.

Net sales by brands fell 0.4% to $340.4 million at Urban Outfitters, but jumped 4.2% to $327.7 million at Anthropologie and 25% to $141.2 million at Free People. Other revenues surged 13.9% to $5.2 million. The company’s net sales increased 3.8% to $751.5 million at the Retail Segment and 26.1% to $63 million at the Wholesale Segment.

Comparable retail segment net sales, including the comparable direct-to-consumer channel, fell 1%. Comparable retail segment net sales rose 15% and 2% at Free People and Anthropologie, respectively, while it declined 7% at Urban Outfitters.

Margin Performance

Gross profit for the quarter slid 3% to $283.5 million, whereas gross margin contracted 295 basis points to 34.8%, reflecting deleverage in store occupancy expenses and higher markdowns. Management believes that gross margin may remain under pressure in the fourth quarter on account of reduced merchandise margins and store occupancy cost deleverage.