It has been about a month since the last earnings report for Urban Outfitters URBN. Shares have added about 0% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Urban Outfitters due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Urban Outfitters Q2 Earnings Top Estimates, Retail Sales Up Y/Y

Urban Outfitters reported impressive results for second-quarter fiscal 2025, wherein the bottom and top lines surpassed the Zacks Consensus Estimate. Also, both metrics improved from the prior-year quarter.

URBN’s Q2 Performance

This lifestyle specialty retailer delivered earnings per share of $1.24, surpassing the Zacks Consensus Estimate of 98 cents. Also, the bottom line increased 12.7% from the comparable quarter of the prior fiscal year.

Total net sales increased 6.3% year over year to $1,351.9 million, surpassing the consensus estimate of $1,338 million.

Total net sales in the Retail segment rose 3.1%, with comparable net sales in this segment increasing 2%. This growth was primarily fueled by low single-digit positive gains in both digital channel sales and sales from retail stores. Specifically, comparable Retail net sales rose 7.1% at Free People and 6.7% at Anthropologie but fell 9.3% at Urban Outfitters.

In the Wholesale segment, net sales grew 15.1% year over year, primarily due to a 17.5% rise in Free People’s wholesale sales, which was attributed to increased sales to department stores and specialty customers. This was, however, somewhat offset by a decline in Urban Outfitters’ wholesale sales.

The Nuuly segment saw a significant 62.6% increase in net sales mainly due to a 55% rise in average active subscribers from the prior-year quarter.

Margin Insights of URBN

Gross profit rose 8.3% from the prior-year quarter to $493.3 million. Also, the gross margin expanded 68 basis points (bps) to 36.5%, mainly owing to higher initial merchandise markups across all brands primarily due to the company’s cross-functional initiatives. This increase was somewhat mitigated by higher Retail segment merchandise markdowns, particularly at the Urban Outfitters brand.

Selling, general and administrative (SG&A) expenses were up 7.6% year over year to $348.2 million. The increase was mainly due to higher marketing expenses aimed at boosting customer traffic and sales in the Retail and Nuuly segments, as well as increased payroll costs to support the growth in comparable sales at Retail segment stores. As a percentage of net sales, SG&A deleveraged 32 bps to 25.6%, mainly due to the Urban Outfitters brand’s inability to reduce expenses at the same pace as its net sales.

URBN recorded an operating income of $145.1 million, up 9.9% from $132.1 million in second-quarter fiscal 2025. As a rate of sales, the operating margin increased 36 bps year over year to 10.7%.

URBN Store Details

In the fiscal second quarter, the company opened 11 retail locations, which included one Urban Outfitters store, three Anthropologie stores and seven Free People stores (including six FP Movement stores). Additionally, it closed five retail locations, which included two Urban Outfitters stores, two Anthropologie stores and one Free People store.

As of Jul 31, 2024, URBN operated 263 Urban Outfitters stores in the United States, Canada and Europe and websites; 239 Anthropologie Group stores in the United States, Canada and Europe, catalogs and websites; 205 Free People stores (including 45 FP Movement stores) in the United States, Canada and Europe, catalogs and websites; nine Menus & Venues restaurants; seven Urban Outfitters franchisee-owned stores; and two Anthropologie Group franchisee-owned stores.

Financial Details of URBN

Urban Outfitters ended the quarter with cash and cash equivalents of $209.1 million and a total shareholders’ equity of $2.24 billion. As of July 31, 2024, the total inventory was up 3.1% year over year. Total Retail segment inventory increased 3.1%, with the Retail segment’s comparable inventory declining 1.3%. The Wholesale segment’s inventory increased 3.5%.

URBN provided net cash of $163.8 million from operating activities as of July 31, 2024. During the six months ended July 31, 2024, the company repurchased and subsequently retired 1.2 million shares at a total cost of approximately $52 million. As of the same date, 18 million common shares remained available for repurchase under the program.

URBN’s Outlook

URBN expects total company sales growth in the mid-single digits for the third quarter, driven by a combination of low-single-digit growth in its Retail segment, low-teen growth in the Wholesale segment and strong mid-double-digit growth in its Nuuly segment.

However, the company anticipates a 100 basis point decline in the gross margin for the third quarter, primarily due to higher markdowns to clear inventory, a result of recent sales trends. Despite this, URBN is optimistic about gross margin improvement in the fourth quarter, aiming for a full-year improvement in the range of 50-100 basis points from the previous year. This expected improvement is largely attributed to better inventory alignment and reduced markdowns, particularly within the Urban Outfitters brand.

In terms of physical stores, URBN is set to open approximately 57 new stores and close around 25 stores in fiscal 2025, with a focus on expanding the FP Movement, Free People and Anthropologie brands. The company also plans to optimize its retail footprint, especially for Urban Outfitters, by resizing stores and considering relocations or closures of underperforming locations.

Capital expenditures for fiscal 2025 are planned at approximately $210 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -18.16% due to these changes.

VGM Scores

At this time, Urban Outfitters has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Urban Outfitters has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Urban Outfitters is part of the Zacks Retail – Apparel and Shoes industry. Over the past month, Tapestry TPR, a stock from the same industry, has gained 6.6%. The company reported its results for the quarter ended June 2024 more than a month ago.

Tapestry reported revenues of $1.59 billion in the last reported quarter, representing a year-over-year change of -1.8%. EPS of $0.92 for the same period compares with $0.95 a year ago.

For the current quarter, Tapestry is expected to post earnings of $0.95 per share, indicating a change of +2.2% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Tapestry. Also, the stock has a VGM Score of A.

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