Urban Outfitters Stock Falls 5% Despite Q2 Earnings & Sales Beat

Urban Outfitters, Inc. URBN reported impressive results for second-quarter fiscal 2026, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Also, both metrics improved from the prior-year quarter’s reported figure.

However, the company highlighted that new tariff increases and higher SG&A from marketing and labor could weigh on gross margins in the coming quarters. As a result, shares of this Philadelphia, PA-based player declined 5.2% in the after-market trading session yesterday.

URBN’s Quarterly Performance: Key Metrics & Insights

This lifestyle specialty retailer delivered earnings per share of $1.58, surpassing the Zacks Consensus Estimate of $1.44. Also, the bottom line increased 27.4% from the prior-year quarter. 

Total net sales increased 11.3% year over year to $1,504.8 million, surpassing the consensus estimate of $1,476 million.

Total net sales in the Retail segment rose 7.8%, with comparable net sales in this segment increasing 5.6%. This growth was primarily fueled by mid-single-digit positive gains in both retail store sales and digital channel sales. Within the segment, comparable net sales rose 6.7% at Free People, 5.7% at Anthropologie and 4.2% at Urban Outfitters. We estimated the Retail segment’s sales to increase 5.8% year over year.

In the Wholesale segment, net sales grew 18.1% year over year, driven by a 19.5% rise in Free People's wholesale sales, which was attributed to increased sales to specialty customers. We estimated the Wholesale segment’s sales to rise 12.8% year over year.

Nuuly, a women’s apparel subscription rental service, saw a significant 53.2% increase in net sales, fueled by a 48.1% rise in average active subscribers from the prior-year quarter. We estimated the Nuuly segment’s sales to rise 49.7% year over year.

Margin & Cost Insights of Urban Outfitters

Gross profit rose 14.8% from the prior-year quarter to $566.2 million. Also, the gross margin expanded 113 basis points (bps) to 37.6%. The gross margin improvement was primarily driven by improved markdown performance in the Retail segment, especially at Urban Outfitters, along with leverage in store occupancy costs resulting from higher comparable Retail and Subscription segment net sales. The rise in gross profit was driven by both increased net sales and margin expansion. We estimated the gross margin to be 37.1%.

Selling, general and administrative (SG&A) expenses rose 12.5% year over year to $391.8 million. This increase was mainly due to higher marketing costs to support customer growth and increased sales in the Retail and Subscription segments, along with higher store payroll expenses to support net sales growth in the Retail segment. Our model estimated SG&A expenses to increase 9.3% year over year in the fiscal second quarter. As a percentage of net sales, SG&A deleveraged 28 bps to 26% in the quarter under review. This increase was primarily driven by higher marketing expenses to support customer growth and stronger sales in both the Retail and Subscription segments.

URBN recorded an operating income of $174.4 million, up 20.2% from $145.1 million in the prior-year quarter. As a rate of sales, the operating margin increased 90 bps year over year to 11.6%.

URBN’s Store Update

In the fiscal second quarter, this Zacks Rank #3 (Hold) company opened 14 retail locations, which included two Urban Outfitters stores, two Anthropologie stores and 10 Free People stores (including five FP Movement stores). Also, it closed two Free People stores.

As of July 31, 2025, URBN operated 257 Urban Outfitters stores across the United States, Canada and Europe, along with associated websites. The company also operated 243 Anthropologie Group stores in these regions, supported by catalogs and websites. Additionally, there were 247 Free People stores, including 73 FP Movement stores, in the United States, Canada and Europe, accompanied by catalogs and websites. URBN further operated nine Menus & Venues restaurants, seven Urban Outfitters franchisee-owned stores and two Anthropologie Group franchisee-owned stores.

Urban Outfitters’ Financial Health Snapshot

URBN ended the second quarter with cash and cash equivalents of $332.2 million and a total shareholders’ equity of $2.58 billion. As of July 31, 2025, total inventory increased 15.1% year over year. Total inventory in the Retail segment rose by 15% year over year, while comparable Retail segment inventory increased 11.3%. Inventory in the Wholesale segment grew 16.4% year over year. The increase in inventory across both segments was driven by higher sales and planned early receipts of merchandise.

Urban Outfitters generated net cash of $251 million from operating activities in the six months ended July 31, 2025. During this period, the company repurchased and subsequently retired 3.3 million shares for approximately $152 million. As of July 31, 2025, 14.7 million common shares were available for repurchase under the program.

URBN’s Q3 Outlook

Urban Outfitters expects total company sales to grow in the high single digits during the fiscal third quarter of 2026. Within the Retail segment, comparable sales are projected to increase in the mid-single-digit range, with similar mid-single-digit growth expected at Anthropologie, Free People and Urban Outfitters. The Nuuly subscription business is anticipated to deliver mid-double-digit revenue growth, supported by continued strength in subscriber additions. The Wholesale segment is projected to produce mid-single-digit revenue growth during the quarter.

On profitability, the company expects the gross profit margin in the third quarter to remain flat year over year. Lower initial product margins from increased tariffs are expected to offset the benefits of lower markdowns and occupancy leverage. SG&A expenses in the third quarter are projected to rise faster than sales, resulting in deleverage, primarily due to heavier marketing investments. These include brand campaigns at Nuuly and Anthropologie and a pre-holiday marketing push aimed at driving customer acquisition ahead of the holiday season.

URBN Stock Past Three-Month Performance

URBN’s Guidance for FY26

For the full fiscal year 2026, Urban Outfitters expects gross margins to improve by approximately 100 basis points versus the prior year. This includes an expected improvement of around 50 basis points across the second half of the year, even after absorbing about 75 basis points of gross margin pressure from tariffs. Within the second half, the company expects fourth-quarter margins to expand 75 to 100 basis points year over year.

SG&A expenses for fiscal 2026 are expected to grow approximately in line with sales, primarily due to higher marketing spend to support brand growth and customer acquisition, as well as increased store labor costs from new store openings. Marketing expenses are expected to deleverage in the third quarter but leverage in the fourth quarter.

Capital expenditures for fiscal 2026 are projected at approximately $270 million. Around 50% of this will be allocated to retail store expansion and support, 25% to technology and logistics investments, and the remaining 25% toward the expansion of home office facilities to accommodate business growth.

Urban Outfitters also plans to open approximately 69 new stores and close 17 in fiscal 2026. Most of the new openings will come from FP Movement, Free People and Anthropologie. Specifically, the company intends to open 25 FP Movement stores, 18 Free People stores and 16 Anthropologie stores.

Shares of this company have gained 7.6% in the past three months compared with the industry’s 1.5% growth.

Key Picks

Some better-ranked stocks are Ralph Lauren RL, Hanesbrands Inc. HBI and Revolve Group, Inc. RVLV.

Ralph Lauren, a designer and distributor of premium lifestyle products, including apparel, accessories and footwear, currently flaunts a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here. 

Ralph Lauren has a trailing four-quarter earnings surprise of 8.5%, on average. The Zacks Consensus Estimate for RL’s current sales and earnings indicates growth of 6% and 19.8%, respectively, from the year-ago period’s reported figures.
 
Hanesbrands engages in the design, manufacture, sourcing and sale of apparel essentials. It currently carries a Zacks Rank of 2 (Buy). HBI has a trailing four-quarter earnings surprise of 56.1%, on average.  

The consensus estimate for Hanesbrands’ current financial-year earnings indicates a surge of 65% from the year-ago reported figure.

Revolve Group is an e-commerce fashion company. It markets and sells men's and women's designer apparel, shoes and accessories. Revolve Group has a Zacks Rank of 2 at present. RVLV has a trailing four-quarter earnings surprise of 48.8%, on average.
 
The Zacks Consensus Estimate for RVLV’s current financial-year sales indicates growth of 6.8% from the year-ago reported figure.

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This article originally published on Zacks Investment Research (zacks.com).

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