Urban Outfitters (URBN), a mid-cap firm in the consumer discretionary sector, significantly outperformed its sector in 2024 with a total return exceeding 16% before its recent earnings announcement. This stands in contrast to the S&P 500 Consumer Discretionary Select Sector Fund (XLY) which returned just under 5%. The company reported fiscal Q2 2025 earnings on August 21st. This analysis delves into the company’s operations, earnings report, conference call, and future outlook.
Urban Outfitters operates three reportable segments: Retail, Wholesale, and Nuuly. The retail segment encompasses physical stores and online platforms, selling directly to consumers. Notable retail brands include Anthropologie, Free People, and Urban Outfitters. Anthropologie targets sophisticated and contemporary women aged 28 to 45, contributing 43% of the company’s total revenues in 2023. Free People, aiming at contemporary women aged 25 to 30, accounts for 21% of total revenues. Urban Outfitters, targeting young adults aged 18 to 28, represents 26% of the company’s total revenues.
The wholesale segment sells Free People and Urban Outfitters clothing to department stores, contributing 4.6% of total revenues. The Nuuly segment, a distinct differentiator for Urban Outfitters, offers a subscription service for women’s clothing. Customers rent a variety of clothing items for a month and return them to receive new selections the following month. The items encompass the company’s own clothing as well as third-party and vintage products. Nuuly comprises 4.6% of total revenues.
Urban Outfitters surpassed analyst expectations in adjusted earnings per share (EPS) and revenue. Adjusted EPS reached $1.24, a 24% increase compared to analyst estimates and a 13% rise from the previous year. Net sales exceeded analyst expectations by $10 million, reaching $1.35 billion, representing a 6% increase. Comparable sales for the retail segment grew by 2%. Free People sales increased by 7.1%, Anthropologie sales rose by 6.7%, and Urban Outfitters sales decreased by 9.3%. Nuuly’s sales demonstrated remarkable growth, surging 63% from the previous year’s quarter, exceeding expectations.
Despite the positive aspects of the earnings release, certain factors contributed to a negative market reaction. Notably, comparable sales at Urban Outfitters stores fell short of analyst expectations. This trend has been observed recently, with comparable sales dropping 14% in fiscal Q1 2025 and fiscal Q4 2024, while Free People and Anthropologie exhibited strong growth.
During the company’s earnings call, executives expressed concerns about the Urban Outfitters brand using strong language. Shea Jensen, President of Urban Outfitters America, stated that the company has been reviewing the brand for six months. Her assessment was stark: “What we have learned is that while there is a great deal of opportunity for improvement, the brand is not fundamentally broken.” While acknowledging opportunities for improvement, the suggestion of the brand potentially being “fundamentally broken” raised concerns. Jensen attributed the decline to “rapid and seismic shifts” in the market as Gen-Z replaced Millennials as the dominant consumer group. She acknowledged that the company lost touch with younger buyers, resulting in a decline in their customer base. To address this, she outlined a five-pillar plan, emphasizing the importance of understanding the Gen-Z customer and acknowledging the perception of the brand as expensive.
The market’s primary concern is the revitalization of the Urban Outfitters brand, a process that will likely take time, especially considering the company is only beginning to understand the Gen-Z customer. The perception of high prices will also pose a challenge in the current economic climate. However, the company’s strength in other segments demonstrates its capability to effectively market to customers. With a strategic approach to reconnecting with its target demographic and addressing concerns about price perception, Urban Outfitters has the potential to restore its namesake brand to its former glory.
