Philadelphia—Urban Outfitters Inc. reported Monday that its third quarter income dropped 31% as sales slowed and markdowns grew especially at its Anthropologie stores.
For the quarter ended Oct. 31, Urban Outfitters posted a net income of $50.7 million, or 33 cents a share, down from $73.1 million, or 43 cents a share, a year earlier. Analysts’ average estimate expected 32 cents a share.
Total net sales increased 6.3% to $610 million, but comparable store sales fell 7%, hurt by a 7% drop in comparable store sales at Anthropologie. Comparable store sales increased 14% at Free People, and 15% at direct-to-consumer. Urban Outfitters’ comparable store sales were flat to last year. Wholesale net sales increased 13%.
High Inventories Affect Margins
Gross profit decreased 8% to $216 million, while gross profit margins decreased 571 basis points to 35.4% from 41.1% a year ago, hurt at merchandise markdowns that mounted at Anthropologie and Urban Outfitters. Even as the company increased markdowns, total inventory still was up 27% to $78 million.
“We have made progress in many categories during the quarter,” said Glen T. Senk, ceo. “We anticipate additional improvements through continued product focus, aggressive inventory management and the organization changes we announced last week.”
Senk was referring to a management reshuffled announced last week, which included adding David W. McCreight, former Under Armour president, as chief executive offer at Anthropologie. Senk was named chief operating officer for the division, and several veterans returned to Anthropologie.
After Eric Artz, chief financial officer, said during a conference call that due to higher inventory levels, gross margins could decline in fourth quarter, analysts asked for specifics about what was wrong with assortments.
“We have a tops problem. Quite frankly, the rest of the categories in the apparel business are doing just fine. The problem really is knits and sweaters,” Send said. “Those two categories are in excess of half of the women’s business, and when they’re off, there goes the women’s business.”
Urban Outfitters also reported that its board of directors approved a $10 million share repurchase plan.