Markets

Here's What's Driving Urban Outfitters More Than 16% Lower Wednesday

What happened

Shares of Urban Outfitters (NASDAQ: URBN), an apparel and home-goods retailer with stores under multiple brands, dropped more than 16% Wednesday morning after a disappointing third quarter left financial results short of estimates on the top and bottom lines.

So what

Sales increased 1.4% to $987 million in the third quarter, compared to the prior year's $974 million result, which fell short of analysts' estimates that called for $1 billion. Earnings per share checked in at $0.56, which narrowly missed analysts' estimates by $0.01 per share. Another disappointing result was found in gross profit margin, which decreased by 217 basis points to 32.5%, compared to the prior year.

Another mixed result that could be sending warning signals to investors was that although there was a 3% increase in comparable retail sales, it was driven by the digital channel. That offset negative retail store comps, and brick-and-mortar sales continue to struggle across much of the industry. "Looking ahead to Q4, we're encouraged by positive sales-to-date but realize our highest volume days have yet to be written," said Richard A. Hayne, chief executive officer, in a press release.

Man shopping at an apparel retail store.

Image source: Getty Images.

Now what

Yet another likely driving force behind Urban's stock price decline Wednesday was that management noted higher-than-desired inventory could require additional markdowns and promotions during the fourth quarter, which would increase operating expenses and negatively impact gross margins. That's not what investors want to hear going into the important holiday season.

Management still remains somewhat confident, but few apparel retailers have been able to shake off current challenges that include a shorter holiday shopping calendar and trade and tariff uncertainty, among other things. These factors could negatively impact many companies' holiday season.

Urban Outfitters isn't the only retailer feeling pain: Kohl's recent profit guidance cut and stock price decline on the back of a highly competitive pricing environment were perhaps warning signs to retail investors.

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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