Urban Outfitters Inc. shares fell by 15 percent on Friday

Urban Outfitters Inc. shares fell by 15 percent on Friday after the apparel retailer issued a warning to investors stating that its third quarter earnings would be affected by falling sales.

The stock dropped by $4.94, or 14.29 percent, to $29.62 – the lowest price since July 2012.

The company, based in Philadelphia, owns and operates Anthropologie, Free People, and Urban Outfitters stores.

Last month Urban Outfitters Inc. posted that quarterly comparable sales had declined. In an update on Thursday, the retailer said that sales have continued to decline and “its gross profit margin may deleverage for the third quarter at a rate greater than during the first half of the year.”

Soon after the update, Goldman Sachs Group Inc., Morgan Stanley, and Janney Montgomery Scott L.L.C., downgraded their ratings on the company.

Paul Lejuez, analyst with Wells Fargo Securities, said in a note, “We still believe in long-term prospects of their brand portfolio. However, we can’t ignore near-term business pressures.”

“This has been a tough retail environment, where we are likely to see several other disappointments,” Lejuez wrote. “Where Urban Outfitters is different from many others is they have three differentiated concepts that are under-penetrated in the U.S. and globally.”

“We believe they are doing exactly what a good retailer should be doing (experimenting with new categories and store prototypes),” Lejuez said. “We believe this puts them in a position to be a long-term winner in the specialty world.”

Estimates for the target stock price have also been lowered, with Canaccord Genuity Inc. setting a price target of $47, down from $49.

Analyst Laura Champine said:

“We believe the sales shortfall is due to lighter inventories rather than product misses. We are seeing better fashion in stores, and we continue to expect a stronger assortment for the holidays.”

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