Urban Outfitters (URBN) delivered impressive results for the second quarter of fiscal 2025, surpassing both earnings and revenue expectations. The lifestyle specialty retailer reported earnings per share of $1.24, exceeding the Zacks Consensus Estimate of 98 cents, and marking a 12.7% increase from the same period last year. Total net sales rose 6.3% year-over-year to $1,351.9 million, beating the consensus estimate of $1,338 million.
The company’s Retail segment saw a 3.1% increase in total net sales, driven by a 2% rise in comparable net sales. This growth was primarily fueled by positive gains in both digital channel sales and sales from retail stores. Notable performance came from Free People and Anthropologie, with comparable net sales increasing by 7.1% and 6.7%, respectively. However, Urban Outfitters saw a 9.3% decline in comparable net sales. The Wholesale segment saw a significant 15.1% increase in net sales year-over-year, driven by strong performance from Free People, which attributed its growth to increased sales to department stores and specialty customers.
Looking at margins, URBN’s gross profit increased by 8.3% to $493.3 million, with the gross margin expanding 68 basis points to 36.5%. This was primarily due to higher initial merchandise markups across all brands, driven by the company’s cross-functional initiatives. However, this increase was partially offset by higher merchandise markdowns in the Retail segment, particularly at the Urban Outfitters brand. Selling, general and administrative (SG&A) expenses were up 7.6% year-over-year, driven by higher marketing expenses and increased payroll costs to support the growth in comparable sales at Retail segment stores.
Despite the strong performance in the second quarter, the company anticipates a 100 basis point decline in gross margin for the third quarter, primarily due to higher markdowns to clear inventory. However, URBN remains 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.
URBN’s strategic focus on expanding its retail footprint continues with plans to open approximately 57 new stores and close around 25 stores in fiscal 2025. The company is prioritizing expansion of the FP Movement, Free People, and Anthropologie brands, while simultaneously optimizing its retail footprint for Urban Outfitters by resizing stores and considering relocations or closures of underperforming locations. Capital expenditures for fiscal 2025 are projected at approximately $210 million.
Despite recent downward trends in estimates, Urban Outfitters remains a company with strong growth potential, with a Zacks Rank #3 (Hold). The company’s commitment to strategic initiatives, including inventory management, retail expansion, and brand optimization, suggests a positive outlook for the future.
