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Shares of Urban Outfitters take big hit

Urban Outfitters Inc. shares fell as much as 15 percent Friday after the apparel retailer warned investors that third-quarter earnings would be hurt by declining sales.

Exterior of the Urban Outfitters retail store in the 1600 block of Walnut Street. (Tom Gralish / Inquirer)
Exterior of the Urban Outfitters retail store in the 1600 block of Walnut Street. (Tom Gralish / Inquirer)Read more

Urban Outfitters Inc. shares fell as much as 15 percent Friday after the apparel retailer warned investors that third-quarter earnings would be hurt by declining sales.

The stock fell to its lowest since July 2012, closing down $4.94, or 14.29 percent, to $29.62.

The Philadelphia-based owner of Anthropologie, Free People, and Urban Outfitters stores said in early September that quarterly comparable sales had declined. The sales slump has continued, and the company said in an update Thursday after the market closed that because of lower than expected sales, "its gross profit margin may deleverage for the third quarter at a rate greater than during the first half of the year."

If that happens, third-quarter earnings will be affected, Urban Outfitters said Thursday.

After the announcement, Goldman Sachs Group Inc., Morgan Stanley, and Janney Montgomery Scott L.L.C. downgraded their ratings on the company.

Analysts also lowered their estimates for the target stock price. Canaccord Genuity Inc. set a price target of $47, down from $49, "as the negative sales trends reported in early September have persisted," analyst Laura Champine said.

"We believe the sales shortfall is due to lighter inventories rather than product misses," Champine said. "We are seeing better fashion in stores, and we continue to expect a stronger assortment for the holidays."

Paul Lejuez, analyst with Wells Fargo Securities, said in a note, "We still believe in long-term prospects of their brand portfolio. However, we can't ignore near-term business pressures."

"This has been a tough retail environment, where we are likely to see several other disappointments," Lejuez wrote. "Where Urban Outfitters is different from many others is they have three differentiated concepts that are under-penetrated in the U.S. and globally."

"We believe they are doing exactly what a good retailer should be doing (experimenting with new categories and store prototypes)," Lejuez said. "We believe this puts them in a position to be a long-term winner in the specialty world."