Caution at Urban Outfitters

The culprit of comp-store declines is what Hayne called a "seismic shift in women's fashion. As our merchants navigate through the turbulence caused by the recent macro-change in women's fashion, our Urban Outfitters and Anthropologie brands both delivered Q1 comp-store sales well below our original expectation," he said. "Customers' response to our product offerings remains inconsistent. Customers are ambivalent about fashion shifts and major silhouette changes."

Comp-store sales dropped 2% at Anthropologie units and 4% at Urban Outfitter locations. By contrast, comp Free People units posted a 14% increase for the year's opening quarter, and Free People wholesale sales spiked 65%. "Free People adjusted better to the fashion shift," Hayne said. Direct-to-consumer sales also performed well, rising 17% and adding a total of $33.5 million to overall revenue.

In response to declines in comp-store sales, the retailer "applied heavy markdowns" to "cleanse stores of slow-moving items," Hayne said. At times retail prices were reduced even before merchandise got to shore. He also said he expects markdowns to continue spill into second quarter, although "probably a little less aggressively." Comp-store sales "were better in March than in February and better in April than in March," he said. Looking toward second quarter, he added, "it will be a tough May."

Seven new stores opened during first quarter-–five Urban Outfitters and two Anthropologie units, including one at Rockefeller Center in Manhattan, where performance beat expectations, according to Hayne. Collectively, the new units contributed an additional $32.4 million to overall revenue.

Plans call for the addition of between 35 and 38 new stores this fiscal year. Among them will be three to five Free People units. The company will also launch a website in Europe for the Urban Outfitter brand.

First-quarter company-wide sales were just above $270 million, up from $231.3 million for the same quarter a year ago. While apparel and home goods sales rose across all brands, accessory sales were weak across all brands. Earnings for the three months quarter ended April 30 were $20.3 million.

"We're confident that what we offer in fall will do better than what we offered in spring," Hayne concluded. "Collectively, we believe the merchandise looks good. We'll see. I can't stress enough that we are cautious."