URBN Q2 Deep Dive: Subscription and Owned Brands Drive Growth Amid Tariff Uncertainty

Clothing and accessories retailer Urban Outfitters (NASDAQ:URBN) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 11.3% year on year to $1.50 billion. Its GAAP profit of $1.58 per share was 7.8% above analysts’ consensus estimates.

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StockStory’s Take

Urban Outfitters’ second quarter saw growth above Wall Street’s expectations, with management highlighting strong performance across all brands and geographies. Executives pointed to double-digit sales increases at four out of five brands, a notable surge in the Nuuly rental subscription business, and the successful expansion of owned brands at Anthropologie and Free People. CEO Dick Hayne credited the turnaround of the Urban Outfitters brand in North America and Europe, stating, “The Urban Outfitters brand is now clearly trending up globally and regaining its mantle as a preferred destination for young adults.” Operational discipline, reduced markdowns, and increased traffic and transactions were key drivers of the quarter’s results.

Looking ahead, management’s guidance is shaped by continued investment in marketing, ongoing expansion of retail locations, and a focus on building subscription momentum through Nuuly. CFO Melanie Marein-Efron described a strategy that balances growth with careful expense control, noting that marketing spend will rise in the near term but is expected to normalize later in the year. The company is also closely monitoring tariff developments, with COO Frank Conforti emphasizing mitigation strategies such as supply chain diversification and targeted pricing adjustments. Management believes these efforts, combined with regular product innovation, will support high-single-digit sales growth and improvement in profit margins despite potential headwinds.

Key Insights from Management’s Remarks

Management attributed the quarter’s outperformance to strong execution in subscription growth, owned brand expansion, and disciplined inventory control, while signaling that tariff mitigation will be a focus going forward.

• Nuuly subscription strength: The Nuuly rental business posted 53% revenue growth, driven by a 48% increase in average active subscribers. Management emphasized that 66% of new subscribers had never used rental services before, suggesting further untapped demand. Investments in marketing and expanded logistics capacity in Kansas City are expected to sustain this momentum.

• Owned brand expansion: Anthropologie and Urban Outfitters continue to emphasize proprietary brands, with Anthropologie’s owned brands now representing 71% of its business. Recent launches like Maeve and Lyrebird, and the success of BDG Denim and Out From Under, have increased customer share and improved margin performance.

• Digital and store traffic gains: Both store and online channels experienced higher traffic and transaction volume. The company saw particularly strong back-to-school sales and double-digit new customer growth in target demographics, supporting broader comp gains.

• Inventory and markdown discipline: Strategic inventory management allowed for lower markdowns, especially at Urban Outfitters, and improved gross margin. Management credits better alignment of inventory with demand and selective pricing moves as key to protecting profitability.

• Tariff mitigation efforts: With tariffs rising across several sourcing countries, management is pursuing a multi-pronged mitigation approach—negotiating with vendors, diversifying supply chains, shifting from air to ocean shipping, and only implementing gentle price increases where justified by product value.

Drivers of Future Performance

Urban Outfitters expects ongoing sales growth, supported by marketing investments, new store openings, and expansion of subscription and owned brand offerings, but faces tariff-related margin pressure.

• Marketing and customer acquisition: Management plans increased marketing investment, particularly in the third quarter, to drive customer acquisition ahead of the holiday season. These efforts are focused on both Nuuly and the launch of standalone Maeve stores, reflecting a broader commitment to growing brand awareness and loyalty.

• Tariff and cost management: The company anticipates roughly 75 basis points of gross margin pressure from new tariffs in the second half, but is actively mitigating this impact through supply chain adaptation and selective pricing. Management cautions that the evolving tariff landscape could affect results into next year, depending on further policy changes.

• Subscription and store expansion: Nuuly’s recurring revenue model is expected to support continued double-digit growth, with logistics capacity being expanded to handle more subscribers. Additionally, Urban Outfitters is planning to open approximately 69 new stores this year, focusing on FP Movement, Free People, and Anthropologie, to further broaden its reach and diversify growth.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will closely monitor (1) the pace of Nuuly subscriber growth and the impact of expanded logistics capacity, (2) execution on new store openings and remodels, especially for FP Movement and the Maeve brand, and (3) the effectiveness of tariff mitigation strategies on gross margin. Additional focus will be placed on marketing ROI and the evolution of proprietary product performance across Anthropologie and Urban Outfitters.

Urban Outfitters currently trades at $73.53, down from $78.14 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).

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