Urban Outfitters loses its fashion groove

To understand Urban Outfitters' (URBN) stark admission that it has lost its fashion sense, you might as well start with the bear coat.

The much-maligned coat is oversized, fuzzy and has a fake bear's head on top of the hood. And it costs $200. Not quite your style? How about the $189 leather garter belt, $54 men's floral jogging pants or the $89 floor-length kimono jacket?

It might be apparent why one 30-year-old told Bloomberg that he finds the clothes embarrassing. "Today I'd just look comical if I shopped there," he said. "I'd be laughed at."

He said that in 2011. Three years later, it's clear Urban Outfitters still hasn't found its fashion groove.

"There is still much work to be done for Urban to regain its fashion footing," said CEO Richard Hayne in an earnings call Monday.

That wasn't good enough for investors, who fled the stock on Tuesday. Shares lost nearly 9 percent to close at $32.98. The stock has fallen some 25 percent in the last year.

Luckily for Urban Outfitters, the company has two other chains that cater to older customers with more money to spend, and those two units are doing well. Same-store sales at Anthropologie rose 8 percent, in sharp contrast to the 12 percent drop at namesake Urban Outfitters stores. The smaller Free People chain saw comparable sales jump 25 percent.

Anthropologie is now bigger than the Urban Outfitters segment, with $295.8 million in net sales compared with $277.7 million at Urban Outfitters.

Urban Outfitters can take comfort in the fact that it's not alone. Many clothing stores catering to the teen crowd are suffering as parents tighten the purse strings. Analysts are only expecting a break-even quarter from American Eagle Outfitters (AEO), which reports its earnings Wednesday. The teen retailer saw shares fall more than 5 percent Tuesday. Abercrombie & Fitch (ANF) shares have plunged 32 percent in the last year.

Teens lately have been flocking to H&M and Forever 21, which are generally cheaper and embrace the fast-fashion business model that refreshes the clothing selection more often, Fashionista reports. "The stuff you get there is very trendy, and I feel like if you go there and get something and only wear it a couple of times, you're not wasting much money," one 15-year-old told the website.

So what is Urban Outfitters to do? Analysts have no shortage of opinions, and most seem to revolve around the same idea: Dump teens, get more sophisticated and turn your attention to 20-somethings with more disposable income. The chain already has many locations near college campuses, The Wall Street Journal reports.

At least Urban Outfitters can admit to its flaws and that it needs to do its fashion homework. That's the optimistic view taken by Hedgeye analyst Brian McGough.

"Definitely a disappointing quarter for Urban Outfitters, and as everybody knows, it's all about weakness in the URBN concept," he wrote Tuesday. "One thing we give management all the credit in the world for is that it did not use weather as an excuse -- even though everyone else is."

Still, sales have slid for five straight quarters at Urban Outfitters, The Philadelphia Inquirer notes. At some point, even blaming its own flawed sense of fashion won't be enough. And other analyst saw one more bright side in all of this: The company will have to cut prices to clear the excess inventory this summer, wrote Ike Boruchow from Sterne Agee.

So teens may soon get some deals. Whether they want them is another story.

  • Kim Peterson

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