Urban Outfitters (URBN) saw its stock price plummet 5.32% in pre-market trading on Thursday, despite reporting better-than-expected earnings. The sharp decline comes as the fashion retailer warned of potential margin pressures and price hikes due to increasing tariffs.

During its earnings call, Urban Outfitters revealed that the impact of tariffs on gross margins for the second half of the year could be approximately 75 basis points. The company imports most of its clothes from India, Vietnam, and Turkey, with less than 5% coming from China. However, recent tariff increases across these countries have raised concerns about future profitability.

Frank Conforti, Urban Outfitters' co-President, stated that the company is exploring "mitigation strategies" such as negotiating with vendors, shifting production origins, and optimizing shipping methods. Nevertheless, he admitted that the retailer would be "gently raising prices" to offset some of the tariff impacts. This announcement has sparked worries among investors about potential effects on consumer demand and overall sales growth.

Despite these challenges, Urban Outfitters reported strong financial results, with net sales reaching $1.50 billion, up 11% from the same period last year. Earnings per share also increased to $1.58, up from $1.24 last year. The company expects high single-digit sales growth for the current quarter, with its subscription service Nuuly leading the way. However, the positive earnings report was overshadowed by the tariff concerns, leading to the significant stock price drop.