Dive Brief:

• Urban Outfitters — which runs Anthropologie, Bhldn, Free People, Terrain and Urban Outfitters — on Tuesday said that overall second quarter company net sales fell 2% to $873 million compared to the prior-year period. The figure topped analyst expectations from Thomson Reuters cited by CNBC for $861 million. Same-store sales, including e-commerce sales, fell 4.9%, handily beating Thomson Reuters analyst expectations cited by CNBC for a 6.9% slide. 

• By brand, same-store retail net sales rose 2.9% at Free People, but fell 4% at the Anthropologie Group and 7.9% at Urban Outfitters, due to negative retail store sales partially offset by sales growth in the direct-to-consumer channel. The company’s wholesale segment net sales in the quarter rose 10%.

• Store traffic for the quarter was flat, with declines in North America offsetting growth in Europe, executives told analysts Tuesday, according to a conference call transcript from Seeking Alpha. The company plans 18 new stores this year, including one new Urban Outfitters store and nine Free People stores in North America, executives said. The retailer is also closing nine stores during the current fiscal year, all of which are in North America and include two Urban Outfitters stores, two Anthropologie stores and four Free People stores.

Dive Insight:

Urban Outfitters earlier this year outlined a strategy to address its declines, and executives reiterated it on Tuesday, saying the problems reside squarely with the company.

"This is a difficult quarter for the Urban Outfitters brands," Urban Outfitters Group Global CEO Trish Donnelly told analysts, according to a transcript from Seeking Alpha. "It would be very easy to blame outside factors or disruptors, but frankly we made some mistakes and we own the results." Missteps included an over-correction to signs of softness in dress sales, a key category for the company, and separates that were "too one-dimensional," she said.

Wall Street cheered at signs that the company is already edging past expectations — shares rose 20% after the report — but GlobalData Retail analyst Anthony Riva called it "a lousy set of results." Those missteps, he said, have been costly.

"If the sales drops weren't bad enough, they were accompanied by a deterioration of 440 basis points in gross profit," he said in comments emailed to Retail Dive. "This was mostly thanks to far higher markdown activity, which was necessary to clear down inventory that would not sell at full price. The impact on the bottom line, which was also affected by higher logistics and delivery charges, was a 35.1% tumble in net income."

Furthermore, the progress hailed by Wall Street isn’t all that evident, Riva contends. "Not only are the numbers sequentially worse than a pretty dire first quarter, but they also show that many of the initiatives put into play remain a long way from delivering," he said. "The overall sales decline of 2% is poor, although the number would have been materially worse if it wasn't for a relatively strong wholesale performance where revenues increased by 10%. … [T]he rest of the group is in a tailspin."

Riva acknowledged the overall softness in apparel retail, but slammed the company’s merchandising. By missing on apparel, the company deters customers and hurts sales of higher-margin accessories and other goods, according to Riva.

"The blunt truth is that both Urban Outfitters and Anthropologie are firmly off pitch, especially when it comes to apparel," he said. "[T]heir collections are decidedly odd and all too frequently look like an art installation rather than saleable merchandise. … Admittedly there are some good pieces and lines within the jumbled assortment, but finding them is difficult and too much effort for all but the most committed consumers."