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Urban Outfitters on Sluggish Q3: “We Came Up Short”

Despite robust sales performances by its brands Free People and Anthropologie, Urban Outfitters reported a disappointing third quarter, citing a slew of strategic mistakes.

Same-store sales for Free People spiked a hale 13 percent while Anthropologie registered an impressive 30 percent increase. Nevertheless, Urban Outfitters brand weathered a one percent decline in same-store sales, making the parent company’s overall same-store sales increase a net 7 percent.

Ted Marlow, Urban Outfitters CEO, explained what went wrong: “I attribute the shortfall in the North American market to missed fashion calls, off pitch marketing and poor creative execution.”

He also complained that an overemphasis on promotions, partly the result of an industry-wide push for discounts, was also to blame. “It’s not particularly good strategy, considering the markets we’re going after,” Marlow said. “Most of the customers we try to serve do not particularly like promotional activities.”

Francis Conforti, the company’s chief financial officer, concurred, “This promotional environment could negatively impact our gross profit margins for the fourth quarter.”

Urban Outfitters, like its competitor Abercrombie & Fitch,has struggled to maintain a consistent appeal to teen shoppers, who continue to shift to fast fashion retailers like H&M and Forever 21.

Even though Urban Outfitters underperformed, the strength of Free People and Anthropologie still lifted the overall company’s net income 18 percent to $70.3 million, or 47 cents per share, up from $59.5 million, or 40 cents per share last year. Revenue rose 12 percent to $744 million.

Some industry experts warned that the weakness of the Urban Outfitter brand and the hit gross margins are likely to take during the holiday shopping season bode ill for the future. Pamela Quintiliano, analyst at Suntrust Robinson Humphrey, said, “The primary concern heading into the quarter appeared to be the core Urban Outfitters division, and clearly that’s the one that ultimately proved a bit disappointing, relative to the others.”

Marlow was both pragmatic and candid about the disappointing third quarter earnings. ‘We placed a bet [on certain fashions] and we didn’t cover the volume that we wanted to cover on that. In a word, we came up short.”