Dive Brief:

• Despite discounting and new in-store efforts, Urban Outfitters fell short of expectations in the third quarter, causing shares to slide 10% in after-hours trading on Tuesday, after being one of the best performers in the S&P index for months. 

• Q3 comparable sales increased just 1%, falling short of research firm Consensus Metrix's 1.9% estimate, Fortune reports. Net sales in the quarter rose 5% year over year to reach $862 million, with $5.8 million of that from restaurant operations, which were boosted by the opening of 12 new stores in the quarter and sales from the newly acquired Vetri Family Restaurants. 

• By brand, Q3 same-store net sales increased 5.2% at Urban Outfitters and decreased 1.5% at Free People as well as 2.7% at the Anthropologie Group. Q3 wholesale net sales increased 30%, which benefited from some $9 million of shipments moving out of the third quarter of fiscal 2016 into the fourth quarter of fiscal 2016, due to delays at its recently opened East Coast fulfillment center.

Dive Insight:

In the spring, Urban Outfitters founder-CEO Richard Hayne put his finger on a problem vexing many apparel retailers these days: there’s no real reason for women to fill their closets with new clothes. 

Hayne now says that a slimmer fashion silhouette is emerging. As a result, Urban’s brands are playing catch-up, and seeing good results overall, though not all three brands’ customers are responding equally. New trends present both opportunity and risk, Hayne told analysts on a conference call Tuesday.

“This emerging trend, which seems to have its roots in Europe, is not impacting all brands equally,” he noted. “Predictably, younger, more fashion-forward customers are adopting these new looks more readily. So in Q3, the Urban and Free People brands benefited from the shift while the Anthropologie brand did not.”

Free People in particular was a strong suit for the company. The brand has also benefited from a website revamp that has contributed to online retail sales, Free People president Sheila Harrington told analysts. “The site's load time is faster, we have streamlined our check out process and enhanced our search capabilities, to name a few of the benefits of which we believe have helped to improve our website conversion,” she said, according to a transcript.

That should also help mobile sales, which Hayne told analysts is a rapidly growing channel. “Mobile devices now account for almost two-thirds of total company digital sessions,” he said. 

Urban Outfitters, which especially with its flagship brand has often courted controversy, this week also announced a truce with the Navajo Nation, which had sued UO for appropriating the Navajo name. In addition to settling the lawsuit, the Navajo Nation and the retailer have entered into a supply and license agreement and plan to collaborate on authentic American Indian Jewelry in coming years, according to a press release.

Navajo Nation president Russell Begaye welcomed the collaboration and said that any company wishing to use the Navajo name or any of its designs or motifs, should ask permission first.

“We are a proud nation with talented artisans, scientists, lawyers and professionals who together represent the Navajo Nation,” Begaye said in a statement. “We believe in protecting our Nation, our artisans, designs, prayers and way of life. We applaud URBN for acknowledging the validity of the Navajo Nation trademark and are glad we have settled this matter.”