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By
Reuters
Published
Mar 8, 2011
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Urban Outfitters Q4 profit misses estimates; shares down

By
Reuters
Published
Mar 8, 2011

Mar 7 - Urban Outfitters Inc's quarterly earnings missed market estimates for the first time in two years as discounts and higher shipping costs snip margins, sending its shares down 9 percent.

Urban Outfitters
Urban Outfitters' ad for bags

The company's bohemian styles have been a steady favorite with shoppers, but analysts have been worried about how it balances sourcing and raw material costs to defend margins.

"The main thing with the sales and sizable gross margin miss is the continued call of a change in women's fashion .... They are simply not getting enough of the store correct in women's, causing many product hits and misses and ultimately, leading to increased markdowns to clear the misses," analyst Brian Sozzi at Wall Street Strategies said.

Gross margins fell by 208 basis points as it had to discount heavily to clear out off-season merchandise and paid higher shipping charges for its international orders.

Margaret Whitfield, senior research analyst for Sterne Agee, said the harsh winter could be a reason for the weak performance, especially given that the company has more outdoor stores.

"They were pretty much below the holiday business across the board ... they have more outdoors stores than other companies I cover and they have a big base of stores in the mid-Atlantic and the northeast that were challenged," the analyst said.

For the fourth quarter, which takes into account sales during the holiday season, the clothing and home goods retailer earned 45 cents a share, while analysts, on average, were expecting 52 cents a share, according to Thomson Reuters I/B/E/S.

Analyst Sozzi said that increased international sales, especially in Europe, could be exposing some inefficiencies in product delivery.

"Remember, Urban Outfitters is new to international retailing," he said.

Total sales at the company rose by 14 percent to $668 million, but still fell short of estimates of $674.9 million.

Shares of the Philadelphia-based company were down 9 percent at $34.39 in extended trade. They had closed at $37.99 on Monday on Nasdaq.

(Reporting by Nivedita Bhattacharjee; Editing by Maju Samuel)

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