Urban Outfitters Stock Takes a Dive After Retailer Says It Will Raise Prices Because of Tariffs

A sign is posted on the exterior of an Urban Outfitters store in Corte Madera, Calif. (Justin Sullivan/Getty Images)

Shares of fashion retailer Urban Outfitters took an abrupt downturn despite reporting earnings that beat analysts’ estimates. The company warned during its earnings call that tariffs would lower its margins and lead to price increases for customers.

Shares fell 10% in Thursday trading to $70.58. Through Wednesday’s close, they had risen 42% this year and 113% over the past 52 weeks.

The company reported net sales of $1.50 billion, up 11% from the same period last year. Earnings were $1.58 a share, up from $1.24 last year.

Urban Outfitters estimates that sales will grow in the high single digits for the current quarter ending in October, with the fastest growth in its $98 monthly clothing subscription service Nuuly. Its more established brands Anthropologie, Free People, and Urban Outfitters should have same-store sales growth in the mid-single digits. Gross margins are expected to be flat compared with last year.

Worries over the impact of tariffs on margins are likely to blame for the stock drop. Urban Outfitters imports most of its clothes from India, Vietnam, and Turkey, with less than 5% from China. The U.S. just imposed 50% tariffs on imports from India. When the company reported earnings last quarter, it estimated that tariffs would be around 10% globally and 30% for China.

Now tariff rates are much higher: In addition to the rate on India imports, goods from Vietnam are tariffed at 20%, while those from Turkey face 15% levies. The rate on goods from China is still 30%, for now.

“The landscape continues to change as tariff rates have increased for many countries. As of today and based on new assumptions, we believe the impact for the second half of the year could be approximately 75 basis points to gross margins,” Urban Outfitters co-President Frank Conforti said.

He added that the company is focused on “mitigation strategies” such as negotiating better with its vendors, shifting countries of origin, and shipping over the ocean instead of by air. In addition, Urban Outfitters will be “gently raising prices.”

Many other companies have signaled similar moves to shift supply chains and raise prices. Walmart said in May that “higher tariffs will result in higher prices,” while Target said on its earnings call last week that raising prices will be “a last resort.”

Write to Anita Hamilton at anita.hamilton@barrons.com