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Anthropologie's Bad Quarter Means Dresses On Sale

Anthropologie had a bad quarter, and analysts peppered executives with questions about what went wrong. The culprits: dresses and accessories.

Anthropologie, the chain known for its expensive but pretty clothing, whimsical stores and oddly desirable furniture knobs, took a beating among Wall Street analysts yesterday for weak sales growth. The culprits: dresses and accessories.

Stock in its parent company Urban Outfitters tumbled 18% today, and it's not the only thing available at a discount: the company's finance chief said the next few months could see some big Anthropologie markdowns (read: sales!) as the brand addresses "some product misses."

Apparently, Anthropologie's dress assortment in the first quarter was too expensive, without enough options for casual shoppers. A quick skim of its website for "Casual & Everyday" dresses shows $158 "tunics," a $315 silk frock and a $325 AG Denim Shirtdress — perhaps not entirely suitable for everyday wear. It also has a bunch of summer dresses listed online for under $100, and advertised that fact on its Facebook page today.

"Dress shortfalls came from missed opportunities in a few key silhouettes, fabrics, and price points, as well as insufficiently addressing our more casual customer,"
David McCreight, the head of Anthropologie, said on a conference call with analysts yesterday.

The mistakes were "certainly correctable, if not downright avoidable," he said. "In comparison to the styling misses in dresses, accessories has underperformed to the sizable opportunity we have to participate in our customer's purchasing."

"We do not feel that we've done a particularly good job on the casual side, notably in dresses," he added. It's unlikely the dress problems will be fixed until late June and early July, he said.

At least seven Wall Street analysts on yesterday's earnings call peppered executives with questions about Anthropologie's performance, nervous that the brand might be the next to slide just as the Urban Outfitters brand recovers from quarters of decline.

"How do we get comfortable that the 1% comp this quarter and the broader deceleration we've seen isn't something that could be a little bit more protracted and require a bit more of a turnaround effort as we just went through with Urban?" Lindsay Drucker Mann from Goldman Sachs asked.

Anthropologie reported a 1% increase in retail segment comparable sales yesterday, trailing the 5% growth at Urban Outfitters —the namesake brand — and 17% at Free People. Overall, the company brought in $739 million in sales, but said its gross profit rate dropped.

"Although sales picked up in May, the threat of Anthro losing steam as Urban inflected is now a concerning kink to this story," Randal Konik, an analyst at Jefferies, wrote in a note. "As was this case when Anthro was the stronger performing division relative to Urban, if the divisions remain out of sync, we view it as a negative for the stock."

Conforti, the company's CFO, said that based on Anthropologie's revenue slowdown at the end of April and an uptick so far this month, "it is not clear at this point what level of markdowns Anthropologie will incur during the second quarter."

In any case, might be worth keeping an eye on the sale section.


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