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Urban Outfitters CEO calls second-quarter earnings not one of its 'finest' as profit slides 35%

Key Points
  • Urban Outfitters reported same-store sales and revenue for the second quarter that missed analyst expectations.
  • Free People stood out, as same-store sales grew 6% in the quarter.
  • The company's revenue also fell short of Wall Street's expectations.
Pedestrians pass in front of an Urban Outfitters store in New York.
Scott Mlyn | CNBC

Urban Outfitters second-quarter earnings report won't be remembered as one of its "finest," its CEO acknowledged Tuesday, after the edgy retailer said profit slid 35% on sales that were weaker than Wall Street expected.

The company's stock seesawed after the markets closed, initially swinging up by 4% before falling by about 2%.

Here's how the company did, compared with what Wall Street was expecting, according to analysts surveyed by Refinitiv:

  • Adjusted earnings per share: $0.61, vs. $0.58 estimated
  • Revenue: $962 million, vs. $980.6 million estimated

Net income fell 35% to $60.3 million, or 61 cents a share, compared with $92.8 million, or 84 cents a share a year earlier. Sales across all of Urban Outfitters product lines fell 3% during the three months ended July 31 to $962 million, down from $992.5 million a year ago and wider than the 2% decrease estimated by analysts surveyed by FactSet. It also missed analyst expectations of $980.6 million.

"This year's second quarter will not be remembered as one of Urban's finest. We produced sales and margins below our expectations. Customer acceptance was softer than planned," CEO Richard Hayne told analysts on a conference call. "This resulted in higher year-over-year markdowns and lower margins. Lower store traffic accentuated negative store comp performance and weighed on overall results."

Sales at stores open for at least a year fell 3% during the second quarter from the same period last year, worse than the 2% drop expected by Wall Street analysts surveyed by FactSet. Executives said the sales declines were driven by under-performance in women's apparel, with "product and execution misses."

Hayne was more upbeat about the company's up-coming fiscal third quarter, which started Aug. 1, citing promising same-store sales so far.

"I am pleased to report that customer reaction to our early fall apparel assortments have improved significantly from our second-quarter results," Hayne said in a statement announcing the earnings. Third-quarter same-store sales were positive for all three of Urban Outfitter's brands — its namesake Urban Outfitters clothing line, Free People and Anthropologie, he said.

Earlier this month, the company launched a rental service called Nuuly. It's an attempt to enter a rental industry that is expected to grow more than 20% a year and reach a value of $2.5 billion in 2023, according to data analytics firm GlobalData.

But Urban is also facing tough competition, as companies like Banana Republic and Bloomingdale's similary announced plans to launch their own rental services this month. It also still has to go up against rental service giants such as Rent the Runway and Le Tote.

The company's stock has fallen 37% since January, bringing the company to a market value of around $2 billion.

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Correction: This article was updated to correct that the company missed Wall Street estimates on same-store sales.