Apparel retailer Urban Outfitters (NASDAQ: URBN) plummeted almost 17% in trading on Tuesday, May 19 after the company posted disappointing first quarter earnings.
Prior to its Q1 results, investors were starting to gain hope in Urban Outfitters as its sales for the company’s name brand were beginning to pick up after three quarters of profit declines. In its Q4 results, the Urban Outfitters brand had a 4% growth in comparable sales in addition to an increase in sales at its sister brands; 6% at Anthropologie and 18% at Free People.
Urban Outfitters missed Q1 expectations all across the board. The retailer posted $0.25 earnings per share, missing Wall Street’s consensus of $0.30 by five cents. Revenue was about $20 million below Wall Street’s expectations, coming in at $739 million.
Urban Outfitters struggled to maintain name brand sales in the past because the company’s core customer base consists of shoppers ages 14 to 17, who cannot always afford premium pricing. The company has been diligently working to expand the age range of its core customers from 18-28 in an effort to improve sales. However, now it seems that premium pricing on all of Urban Outfitters clothing brands is driving its core customers between the ages of 18-28 away to its competitors like Forever 21 and H&M, which both have lower prices.
The company’s Anthropologie brand also had a surprising slowdown in sales in the month of April, with its comparable sales only increasing 1%. Comparable sales for the Urban Outfitters brand and Free People increased 5% and 17%, respectively. Urban Outfitters said it is unsure of what level of markdowns Anthropologie will receive in the second quarter.
In its Q1 conference call, Urban Outfitters CFO Francis Conforti addressed the company’s premium pricing and said they “insufficiently address[ed] [their] more casual customer.” Conforti said Urban Outfitters’ insufficiency is “certainly correctable, if not downright avoidable.” He added “In comparison to the styling misses in dresses, accessories has underperformed to the sizeable opportunity we have to participate in our customer’s purchasing of accessories. We have adjusted the team and the strategy and look for improvement in the back half of the year and continued expansion of accessories in the future.”
