For the Philadelphia-based clothing and accessories retailer, owners of the Urban Outfitters, Anthropologie and Free People brands, the year-long expansion that so far increased the company's retail space by 21% has been good for sales. In the third quarter, sales were up 6.8% to a record $308.4 million, due largely to new store openings and strong gains in the company's direct and wholesale business.

But quarterly earnings didn't quite measure up, dropping 7.1% to $34.5 million, or 21 cents a share, when compared with last year's $37.2 million, or 22 cents a share, third quarter results. Lower margins and weaker same-store sales were to blame, the company says. Increases in fixed-occupancy costs, store payroll and other expenses, including markdowns taken to clear seasonal merchandise, had a clear effect on operating margins, company officials note.Sales at stores open at least a year were also down, dropping by 10% at both Anthropologie and Urban Outfitters but rising by 9% at Free People stores, which experienced a 15% gain overall. Comparable-store sales grew 13% company-wide in last year's third quarter, rising 7%, 19% and 21% respectively.

"In this year's third quarter we delivered solid profitability across all areas of our business and respectable sales gains in several channels of distribution but fell short in the important metric of 'comp' store sales," said Richard Hayne, president and chairman of the board, in announcing the third-quarter results during a conference call with investors and analysts.