The specialty retailer is up 32% YTD and has a low P/E ratio.
While many retail companies are struggling to increase profits in the face of new tariffs on imports, Urban Outfitters (NASDAQ:URBN) doesn’t appear to be one of them.
The clothing retailer just posted record results in the first quarter and saw its stock price soar 21% to an all-time high.
The specialty retailer, which also owns Anthropologie and Free People, generated record revenue of $1.33 billion in the quarter, a 10.7% year-over-year jump. That also topped revenue estimates of $1.29 billion.
Urban Outfitters also had record net income of $108.3 million, an increase of 75% from the same quarter a year ago. Earnings rose 78% to $1.16 per share, easily beating consensus estimates of 85 cents per share.
“Our success was driven by positive sales growth and improved profitability across all brands and segments,” Richard Hayne, CEO, said. “We believe these results demonstrate the strength of our brands and the effectiveness of our strategy, giving us confidence in URBN’s continued success.”
What drove Urban Outfitters’ success?
As Hayne mentioned, the company had success across the board with all of its brands.
Urban Outfitters has three primary revenue streams, led by its retail segment, which includes sales from its retail stores — Anthropologie, Urban Outfitters, and Free People. The retail segment generates the bulk of its revenue, about $1.13 billion of the $1.33 total. In Q1, this segment saw a 6.4% revenue increase. Comparable store sales, a key metric that compares same-store sales year-over-year, rose a robust 4.8% in the quarter, beating estimates of 3.6%.
Anthropologie, the largest of the chains, saw revenue climb 8% to about $570 million, with comparable sales at Anthropologie rising 6.9%. Free People, the second biggest brand, generated $353 million in revenue in the quarter, up 11%, with same store sales rising 3.1%. Urban Outfitters, its smallest retail clothing brand, only grew revenue by 1.2% to $273 million, but comparable store sales increased 2.1%.
The other revenue streams are subscription and wholesale. The subscription revenue comes entirely from Nuuly, a women’s apparel subscription rental service. Nuuly saw revenue spike 60% in the quarter to $124.3 million. Finally, the wholesale segment, wherein the company sells through other stores, saw revenue surge 24% to $76.4 million. Wholesale sales were lifted by an increase in Free People product sales in specialty and department stores.
Tariffs to have “minimal impact,” but some price hikes possible
In the conference call with analysts, COO Frank Conforti said the tariffs on imports “could have a minimal negative impact on gross margins in the second quarter” with a potential 20 basis points negative impact in the second half of the year.
“Although tariffs present a temporary headwind to our business, we are confident in our ability to manage through this environment and still achieve 50 to 100 basis points of gross margin improvement for Fiscal Year 2026,” Conforti said on the call. For clarity, this year is fiscal 2026 for Urban Outfitters.
Conforti noted that the company sources its goods from a diversified group of countries and dual sources most of its products.
“This means many of our products are made in two different origins, enabling us to shift production from one country to another if needed. We currently have no single country that accounts for more than 25% of our production,” he said. Most comes from India, Vietnam, and Turkey while China accounts for less than 5%.
He added that the company is working to minimize the impact on the consumer in several ways. The strategies include negotiating better deals, shifting countries of origin where possible; shifting the mode of transportation from air to boat; and “gently and sparingly raising some prices.” Conforti noted that any price increases “will be very strategic,” targeting specific areas where it wouldn’t affect the customer experience.
More room to run?
For Q2, Urban Outfitters projects net sales to grow in the high single-digits with retail segment comparable sales growing in the mid-single-digits, led by Anthropologie and Free People. Nuuly is expected to generate mid-double-digit revenue growth, while wholesale should see low double-digit growth.
Further, gross profit margins are targeted to improve by about 50 to 100 basis points year-over-year for both the second quarter and the full fiscal year. The assumptions are based on 10% global tariffs for most US imports and 30% tariffs on items from China.
With Thursday’s rally, Urban Outfitters stock is up 32% YTD, trading at an all-time high of more than $72 per share.
The great thing about this stock is its low valuation with a P/E of just 13. Its lower exposure to tariffs, robust growth, and reasonable valuation may be why it got several price target upgrades from analysts this week. It looks like Urban Outfitters stock has more room to run.
As always, do your own research and compare its prospects versus other potential options.
