What happened

Shares of Urban Outfitters (NASDAQ:URBN) were sliding today after the apparel retailer posted a disappointing preliminary first-quarter earnings report Tuesday night. Sales fell sharply as the company was forced to close stores across the country due to the COVID-19 pandemic. As of 10:34 a.m. EDT on Wednesday, the stock was down 7.3%.

So what

Revenue in the quarter fell 31.9% to $588.5 million as comparable-store sales plunged at all three of its core brands. At Free People, Urban Outfitters, and Anthropologie, they were down 19%, 24%, and 33%, respectively. Overall comps declined 28%, and wholesale revenue, which normally makes up about 10% of the business, tumbled 74%.

Investors may have also been disappointed that online sales grew by just low double digits in the quarter, since they may have been hoping to see a surge with stores closed. That's not so surprising, however, as apparel sales have been weak across the board in retail with Americans focused on shopping for essentials and having little reason to purchase new clothes. 

The front of an Urban Outfitters store

Image source: Urban Outfitters.

The company took $58 million in impairment charges related to its stores and inventory, and finished the quarter with a net loss of $138 million, or $1.41 per share, which includes the impairments.   

Focusing on the brand's durability, CEO Richard Hayne said: "The actions we've taken during the quarter to strengthen our balance sheet and help preserve liquidity provides us with financial flexibility during this difficult period. I'm confident our proven ability to execute our multichannel, multibrand, and multicategory strategy will ensure our future success." 

Hayne was referring to a number of steps the company announced in March, including cutting capital expenditures, borrowing $220 million, and adjusting inventory to new demand levels. 

Now what

Like most retailers, Urban Outfitters did not offer guidance due to the uncertainty around COVID-19. But Hayne was optimistic about some elements of the business, saying on the earnings call that digital sales had continued to accelerate through the quarter and improved from April into May as the company has seen a 63% jump in new customers in the last six weeks. 

Nonetheless, Hayne was realistic, saying he expected the effects of social distancing and related behavior to last through the rest of the year, meaning that traffic and sales at stores will likely continue to be down.

With digital sales ramping up now and stores reopening, Urban Outfitters may have already hit bottom in the crisis, but the months ahead will certainly be challenging.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.