What happened

Shares of Urban Outfitters (NASDAQ:URBN) were down 5.1% as of 1:15 p.m. EST Friday after the lifestyle retailer announced underwhelming holiday-season results.

In a press release late yesterday, Urban Outfitters said its net sales in the two months ended Dec. 31, 2019, grew 2.9% year over year, as a slight decline in retail stores was more than offset by 3% growth from digital sources.

Woman riding escalator and carrying multiple colorful shopping bags in her hands

Image source: Getty Images.

So what

Perhaps more concerning, Urban Outfitters' performance was dragged down by a 1% comparable retail sales decline at its namesake locations. Meanwhile, comps grew 8% at Free People retail stores and 5% at the Anthropologie Group.

The company also revealed gross margin will be lower than expected in the fourth quarter because sales at both Urban Outfitters and Anthropologie were partly fueled by higher promotions during the crucial holiday season. In addition, delivery and logistics expenses were higher than planned as Urban Outfitters worked to "meet customer delivery expectations."

Now what

Based on the timing of its past releases, Urban Outfitters should be slated to formally announce its fourth-quarter results in early February. Prior to this holiday-season update, most analysts were modeling earnings of $0.70 per share on a 3.6% increase in revenue to $1.17 billion. Given Urban Outfitters' latest news, however, I suspect it will have a hard time clearing that bar -- and investors in this consumer discretionary stock are responding accordingly.

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