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  Urban Outfitters CEO Glen Senk and analyst Samantha Panella at the ICR XChange in January. Shop-eat-surf file photo.

I’m catching up on the Urban Outfitters earnings conference this week where there was a lot of talk about the fashion shift happening in contemporary apparel.

 

CEO Glen Senk said Urban Outfitters designers are still figuring out the new trends and have not hit the bull’s-eye yet. As a result, apparel sales were weak during Q4 and the company’s gross margins suffered – falling to 39.7% vs. 41.7% – as stores moved through inventory.

 

The best-performing categories at Urban Outfitters during the fourth quarter were footwear, accessories and home goods.

 

Senk theorized that fashion-forward young women are pulling back on spending on apparel as they also navigate the change.

 

“I’m not aware of anyone in contemporary apparel that is enjoying big business right now,” he said.

 

He wished the company had boosted inventories in non-apparel categories to capture more business in the areas where shoppers are spending.

 

Urban Outfitters customers are early adopters, Senk said, so when the chain does figure it out, he believes it will likely be ahead of many retailers.

 

Senk said it could take an additional three to six months for Urban to navigate the shift, as there are a lot of moving parts to consider – fabrics, silhouettes, prints, color, the relationship of tops to bottoms.

 

Senk does not think the fashion shift will be as difficult for customers to adopt as the big-over-little trend, and the new styles are more “friendly” to customers.

 

He wouldn’t go into detail about what the new trends area for competitive reasons. The Urban Outfitters website features some styles in the “new arrivals” section that show the waists of the models, with shirts tucked into pants and shorts in some cases, though it’s unclear if that is what the shift is.

 

Looking at the big picture, Urban Outfitters still had strong results in fiscal 2010. Net sales rose 17% to $2.3 billion. Net income increased 24% to $273 million. Gross margins improved to 41.2% vs. 40.6% and operating margin improved to 18.2%.

 

The Urban Outfitters and Anthropologie chains also each surpassed $1 billion in sales last year.