Urban Outfitters Inc. shares plunged the most in more than 2 1/2 years after the company said a sales slump has persisted in the third quarter, threatening to squeeze the retail chain’s profit.
Lower-than-expected sales may put more pressure on gross margin than in the first half of the year, the Philadelphia-based company said in a statement. If that happens, the third-quarter earnings will be affected, Urban Outfitters said.
“This is clearly a bad sign,” Jeffrey Toohig, a New York-based analyst at Investment Technology Group Inc., said in an interview. “There’s fair probability that this bodes poorly for the rest of the year, but that’s not definitive.”
The retailer reported a profit margin decline in August, citing weak results at its Urban Outfitters chain, where same-store sales declined 10 percent. The company has posted two straight quarters of shrinking earnings, though sales have continued to grow at its Anthropologie and Free People brands.
Urban Outfitters shares, already down 6.8 percent this year through yesterday, dropped 14 percent to $29.62 at the close in New York, the biggest decline since January 2012.
The company is contending with a broader spending slump as it heads into the holiday shopping season. U.S. retail sales dropped more than forecast in September, according to Commerce Department figures released this week. The 0.3 percent decrease followed a 0.6 percent gain in August.
Urban Outfitters also suffered a gaffe last month when a red-stained Kent State University sweatshirt was offered on its website. Kent State, the site of a shooting in 1970 that killed four students, criticized the retailer for selling an item with its college logo and what appeared to be splattered blood. Urban Outfitters apologized and took down the product listing.
Despite the challenges, Urban Outfitters seems to be improving, Toohig said.
“But not quite as quickly as expected,” he said.