Shares of Urban Outfitters, Inc. (NASDAQ:URBN) plunged 16.4% in the after-market trading session yesterday following lower-than-expected first-quarter fiscal 2016 results due to subdued margins. The company’s earnings of 25 cents a share came a penny below the year-ago quarter figure and missed the Zacks Consensus Estimate of 30 cents.

Higher cost of sales and increased selling, general and administrative expenses negatively impacted the net income of this Zacks Rank #3 (Hold) stock. However, share repurchase activity provided some cushion to the bottom line. Management hinted that going forward, exposure to the Canadian and European markets could hurt fiscal 2016 earnings per share due to foreign currency headwinds.

An Insight into Revenues

Net sales of Urban Outfitters climbed 7.7% to $739 million during the reported quarter. The improvement is attributable to a $20 million jump in non-comparable store sales, new store openings, double-digit growth at its wholesale operations and increase in comparable retail segment net sales. However, currency headwinds hurt the rate of sales growth by roughly 140 basis points. The top line also fell short of the Zacks Consensus Estimate of $760 million.

The Urban Outfitters, Anthropologie and Free People brands contributed to the company’s performance. Management is making every effort to enhance the performance of its brands through store refurbishment and by bringing in more compelling assortments.

Net sales by brands increased 6.5% to $295.7 million at Urban Outfitters, 3.8% to $311.4 million at Anthropologie and 21.4% to $132 million at Free People. The company’s net sales rose 7% to $685 million at the Retail Segment and 17.7% to $54 million at the Wholesale Segment.

Comparable retail segment net sales, including the comparable direct-to-consumer channel, increased 4%. Comparable retail segment net sales rose 17% and 1% at Free People and Anthropologie, respectively, while the same climbed 5% at Urban Outfitters.

Margin Performance

Gross profit for the quarter grew 3.3% to $246.4 million, whereas gross margin contracted 141 basis points to 33.3% due to lower initial margins at the namesake brand, and increased delivery and fulfillment costs. Management expects gross margin to improve in the band of 25–50 basis points during fiscal 2016, despite an adverse impact of 50 basis points due to the relocation of the East Coast fulfillment center to Gap, PA from Trenton, SC. For the second quarter, management cautioned that gross margin may contract year over year at a rate similar to that in the quarter under review.

Operating income slid 11.3% to $53 million, while operating margin contracted approximately 150 basis points to 7.2%.

Stores Update

Management plans to open approximately 31 outlets in fiscal 2016, comprising 4 Urban Outfitters stores in North America, 13 Anthropologie Group stores worldwide (including 1 European store), and 14 Free People stores in North America.

Other Financial Aspects

Urban Outfitters ended the quarter with cash and cash equivalents of $176.9 million, marketable securities of $96.6 million and shareholders’ equity of $1,388.4 million. Management anticipates capital expenditures in the range of $150–$160 million for fiscal 2016.

During the quarter under review, the company bought back 0.4 million shares for approximately $17 million under the 10 million share buyback program announced on May 27, 2014. During fiscal 2015, the company repurchased 7.7 million shares for approximately $258 million under the above-mentioned authorization. This February, the company’s board of directors authorized the buyback of an additional 20 million shares. However, no repurchase activity has been done under this authorization.