Urban Outfitters Inc. (NASDAQ: URBN) reported a 28% dip in earnings for the third quarter of 2020 due to higher costs and expenses. The results missed analysts’ expectations.
Net income plunged by 28% to $55.65 million or $0.56 per share. However, net sales increased by 1.4% to $987 million helped by strong comparable sales. Analysts had expected earnings of $0.57 per share on revenue of $1 billion for the third quarter.
Comparable Retail segment net sales increased 3%, driven by growth in the digital channel, partially offset by negative retail store sales. By brand, comparable Retail segment net sales grew 9% at Free People, 4% at the Anthropologie Group and were flat at Urban Outfitters. Wholesale segment net sales decreased by 7%.
For the third quarter, gross margin decreased by 217 basis points due to higher markdowns, deleverage in delivery and logistics expenses and lower Wholesale segment margins. The women’s apparel at the Urban Outfitters brand experienced underperformance and higher penetration of the digital channel as well as increased labor expenses due to the competitive market for employment in the US.
As of October 31, 2019, total inventory increased by $79.9 million, or 17.7%, on a year-over-year basis. Comparable Retail segment inventory increased 9% at cost. This was due in part to early receipts related to the ongoing tariff uncertainty as well as positive comparable Retail segment net sales plans for the fourth quarter. The remainder of the increase was primarily related to an increase in the Wholesale segment inventory.
During the nine months ended October 31, 2019, the company opened a total of 19 new retail locations including 9 Free People stores, 6 Anthropologie Group stores and 4 Urban Outfitters stores. It closed 5 retail locations including 2 Anthropologie Group stores, 1 Free People store and 2 Food and Beverage restaurants.