EPS of $1.24 increased by 12.5% from previous year
Gross margin of 36.5%
Net income of 117.49M
"Total URBN sales grew by 6% to a Q2 record of $1.4 billion and four of our five brands continued to perform remarkably well." - Frank Conforti
Urban Outfitters Inc (URBN) Q2 FY2025 Earnings Analysis: Multi-brand momentum from Anthropologie and Free People; Urban Outfitters strategic reset under way; Nuuly profitability and Wholesale strength support a resilient URBN
Executive Summary
Urban Outfitters, Inc. delivered a solid Q2 FY2025 (three months ended July 31, 2024) with total URBN sales rising 6% to a record $1.352 billion. Four of five brands posted record quarterly sales and profits, led by Anthropologie and Free People, with Nuuly contributing meaningful subscriber-driven growth. Retail segment comps were positive overall at +2%, with Anthropologie and Free People delivering high-single-digit comps and Urban Outfitters posting a negative high-single-digit comp, offset by double-digit growth in Nuuly and a 15% year-over-year increase in Wholesale revenue driven by Free People. Gross profit rose 8% to $493.3 million and the gross margin expanded 68 basis points to 36.5%, driven by higher initial margins across segments, partially offset by UO markdowns to clear excess inventory. On the expense side, SG&A rose 8% year over year, deleveraging 32 bps as strong brand marketing investments supported traffic gains in Anthropologie, Free People and Nuuly. Total operating income increased 10% to $145.1 million (operating margin 10.7%). Net income grew 13% to $117.5 million ($1.24 diluted EPS). Management signaled continued strength in Nuuly (subscriber growth and profitability); Free People Wholesale and movement momentum; and a deliberate, measured reset for Urban Outfitters North America (UO NA) to regain growth through a five-pillar strategy focused on core customers, expanded price points, disciplined inventory and an omnichannel experience. Looking ahead, management flagged a modest near-term deceleration in Retail sales, guiding Q3 total company sales to mid-single digits, with Retail comps in the low-single digits and Nuuly posting mid-double-digit growth. They expect full-year gross margin improvement of roughly 50–100 basis points, albeit with a ~100bp Q3 margin headwind from higher markdown activity and planned receipts ordered before the recent demand slow-down. The company plans roughly $210 million in capital expenditures for FY25, with substantial store openings (about 57) and closures (about 25), and ongoing investments in logistics, IT, and omnichannel capabilities. The stock remains supported by a diversified brand portfolio, improving gross margins, robust cash generation, and an active store growth plan that leverages URBN’s omnichannel strengths, while the Urban Outfitters brand continues to undergo a strategic reset to recapture growth with a younger customer base.
Key Performance Indicators
Revenue
1.35B
QoQ: 12.59% | YoY:6.27%
Gross Profit
493.29M
36.49% margin
QoQ: 19.44% | YoY:8.28%
Operating Income
145.14M
QoQ: 83.19% | YoY:9.87%
Net Income
117.49M
QoQ: 90.21% | YoY:12.87%
EPS
1.26
QoQ: 90.91% | YoY:12.50%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $1.3519B, YoY +6.3%, QoQ +12.6% (YoY growth supported by Nuuly subscriber growth and Wholesale strength).
Gross profit: $493.3M, YoY +8.3%, Gross margin 36.5% (up 68 bps vs prior year, driven by higher initial margins across Retail, Wholesale and Nuuly; offset by higher UO markdowns).
Operating income: $145.1M, YoY +9.9%, Operating margin 10.7% (improvement aligns with gross margin expansion and controlled SG&A growth).
Net income: $117.5M, YoY +12.9%, Net margin 8.69%, EPS diluted $1.24 (vs $1.24 prior year diluted, $1.26 per basic/GAAP EPS indicator shown in material).
SG&A: $348.15M, up 8% YoY; marketing spend increased to support Anthropologie, Free People, FP Movement and Nuuly, contributing to higher traffic and digital/channel gains.
Financial Highlights
Consolidated performance highlights (Q2 FY25, three months ended July 31, 2024):
- Revenue: $1.3519B, YoY +6.3%, QoQ +12.6% (YoY growth supported by Nuuly subscriber growth and Wholesale strength).
- Gross profit: $493.3M, YoY +8.3%, Gross margin 36.5% (up 68 bps vs prior year, driven by higher initial margins across Retail, Wholesale and Nuuly; offset by higher UO markdowns).
- Operating income: $145.1M, YoY +9.9%, Operating margin 10.7% (improvement aligns with gross margin expansion and controlled SG&A growth).
- Net income: $117.5M, YoY +12.9%, Net margin 8.69%, EPS diluted $1.24 (vs $1.24 prior year diluted, $1.26 per basic/GAAP EPS indicator shown in material).
- SG&A: $348.15M, up 8% YoY; marketing spend increased to support Anthropologie, Free People, FP Movement and Nuuly, contributing to higher traffic and digital/channel gains.
- Cash flow: Net cash provided by operating activities $105.3M; free cash flow $47.5M; capital expenditures $57.8M; cash balance at period end $209.1M; net debt $0.894B; debt $1.103B; long-term debt $0.875B.
- Balance sheet and liquidity: Total assets $4.259B; total liabilities $2.017B; stockholders’ equity $2.241B; current ratio 1.46; inventory as of period end $604.7M; cash and short-term investments $561.5M; days inventory outstanding ~63.4; days receivable ~5.2; days payables ~31.4; CCC ~37.2 days.
- Valuation and margins: P/E ~9.1x, P/S ~3.17x, P/B ~1.91x; gross margin 36.5%, operating margin 10.7%, net margin 8.69%. Enterprise value multiple ~29.8x; cash flow multiples at ~40.7x FCF and ~40.7x CFO.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.35B
6.27%
12.59%
Gross Profit
493.29M
8.28%
19.44%
Operating Income
145.14M
9.87%
83.19%
Net Income
117.49M
12.87%
90.21%
EPS
1.26
12.50%
90.91%
Key Financial Ratios
currentRatio
1.46
grossProfitMargin
36.5%
operatingProfitMargin
10.7%
netProfitMargin
8.69%
returnOnAssets
2.76%
returnOnEquity
5.24%
debtEquityRatio
0.49
operatingCashFlowPerShare
$1.13
freeCashFlowPerShare
$0.51
priceToBookRatio
1.91
priceEarningsRatio
9.12
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management takeaways from URBN Q2 FY25 earnings call:
- Strategy and brand recovery for Urban Outfitters North America: Shea Jensen outlined a five-pillar plan to rebuild the customer base, expand total addressable product categories, and optimize inventory and omnichannel touchpoints to win with Gen Z and younger customers. Highlight: focus on target customer, unified marketing, broader price points, disciplined inventory, and Gen Z-oriented touchpoints. (Context: The brand has faced erosion in customer funnel; leadership changes implemented.)
- Anthropologie Group growth and long-term plan: Tricia Smith emphasized a 7% Retail comp and continuing double-digit operating income growth; expansion of own-brand penetration to ~70% of the business; plans to extend into active/loungewear Daily Practice and a vacation lifestyle capsule; omnichannel strategy driving growth and customer base expansion (up 1M since FY20). (Context: Anthropologie accelerates on-brand growth, margins and store expansion.)
- Nuuly performance and profitability: Frank highlighted Nuuly’s 25k+ average subscribers QoQ growth to 250k+, with 63% revenue growth and record profit; management signaled Nuuly could be profitable on a full-year basis and expects continued strong subscriber growth in H2. (Context: Nuuly remains a growth driver in URBN’s diversified portfolio.)
- Market dynamics and near-term outlook: Management observed a slight Retail deceleration in late Q2 into July and August, with consumer sentiment softening and more discretionary purchasing; guidance reflects a mid-single-digit total company sales growth in Q3 and ~100bp gross margin pressure in Q3 due to markdowns, offset by longer-term margin improvement. Inventory discipline emphasized as a primary driver of margin recovery, with Lean inventory posture to support holiday performance. (Context: Macro headwinds acknowledged; plan to tighten spend and inventory to protect profitability.)
Total URBN sales grew by 6% to a Q2 record of $1.4 billion and four of our five brands continued to perform remarkably well.
— Frank Conforti
Our five pillars of brand recovery we have identified are: first, we have defined and will consistently focus on our target customer; second, with a clear and united understanding of who our customers are, we will rebuild our customer base by investing in marketing strategies that meet young customers where they are and build affinity with our brand.
— Shea Jensen
Forward Guidance
Outlook and management commentary (guidance repurposed into forward-looking view):
- Revenue trajectory: Expect Q3 total company sales to grow mid-single digits, with Retail comps in low single digits and Wholesale growth in the high single digits; Nuuly expected to deliver mid-double-digit growth. While near-term momentum softens, the mix of strong Nuuly growth, Wholesale strength, and continued digital/store traffic supports a positive full-year trajectory.
- Margin and profitability: Gross margin is expected to be about 50–100 basis points higher for the full year, with a ~100bp Q3 headwind from higher markdown activity and offsetting gross margin improvements from IMU and markdown optimization, particularly at Urban Outfitters. The company aims to maintain or improve gross margin through the year as markdown intensity moderates and inventory balances out.
- SG&A and capital allocation: SG&A growth in the mid-single digits in Q3 driven by marketing and brand investments; capital expenditures around $210 million for FY25, including store openings (~57 net new stores after closures), logistics capacity investments (Nuuly fulfillment center), IT and headcount investments. The company will continue to prioritize disciplined spend and operating discipline across all brands.
- Inventory and store strategy: URBN plans lean inventory exiting Q2 with inventory below sales growth; expect Q3 to tighten further to maintain inventory discipline ahead of seasonally important holidays. Over the next three years, URBN will re-optimize its Urban Outfitters footprint (closings/downsizes/relocations) on a case-by-case basis depending on economics; the expansion of other banners (Anthropologie, Free People, FP Movement and Nuuly) remains the primary driver of growth.
- Key factors for investors to monitor: trajectory of UO North America recovery (five-pillar strategy and Gen Z focus), Nuuly subscriber growth and profitability trajectory, gross margin progression through the year (impacted by markdowns and IMU), rate of store openings/closures, and the effectiveness of marketing investments in driving omnichannel customer acquisition and retention.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
URBN Focus
36.49%
10.70%
5.24%
9.12%
AEO
38.60%
7.83%
4.56%
12.58%
GPS
42.40%
7.88%
7.10%
10.71%
FL
27.70%
-0.47%
-0.41%
-52.29%
PLCE
35.00%
-6.81%
46.60%
-72.80%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
URBN's QQ2 FY25 results underscore a durable, multi-brand platform with meaningful upside from Anthropologie and Free People, and a strategic reset at Urban Outfitters aimed at rebuilding the customer funnel and profitability. The company reports solid profitability and cash generation, a structure that supports ongoing investments in growth initiatives (new stores, omnichannel enhancements, and Nuuly expansion). The near-term earnings trajectory includes a modest gross-margin headwind in Q3 due to markdowns, but management targets a full-year gross margin improvement of 50–100 bps and mid-single-digit revenue growth, supported by Nuuly's mid-double-digit growth and Wholesale strength. The investment thesis rests on: (1) continued sales acceleration from Anthropologie and Free People and (2) disciplined inventory and marketing investments driving a more robust full-price mix in URBN portfolio. Risks center on macro consumer softness, cadence of markdowns, and execution risk in UO’s turnaround. Given URBN's current P/E around 9x and P/S around 3.2x, the stock presents a balanced risk-reward profile with upside if the Urban Outfitters turnaround accelerates and if Nuuly maintains profitability while driving higher-subscriber growth across Europe and other regions.
Key Investment Factors
Growth Potential
Multi-brand diversification (Urban Outfitters, Anthropologie, Free People, FP Movement, Nuuly) supports a broader revenue base and reduces brand concentration risk. Near-term catalysts include: (1) Anthropologie and Free People store expansion and Europe growth, (2) Nuuly subscriber and revenue growth driving profitability, (3) improved markdown management and inventory discipline at Urban Outfitters to support Q4 holiday profitability, and (4) expansion of Daily Practice and other new concepts to broaden the opening-price point mix and improve full-price penetration.
Profitability Risk
Key downside risks include: (1) sustained consumer softening and higher promotional environments that compress margins, (2) execution risk in URBN NA turnaround for Urban Outfitters, (3) markdown intensity in the near term that could erode gross margin if demand deteriorates further, (4) currency and macro headwinds in European markets affecting Anthropologie and Free People EU, (5) potential supply chain disruptions impacting inventory and fulfillment costs, (6) aggressive capex and store expansion could pressure near-term free cash flow if growth slows.
Financial Position
URBN maintains a solid balance sheet with total assets of $4.26B and total liabilities of $2.02B; cash and short-term investments of $561.5M and net debt of $0.894B as of Q2 FY25. Current ratio 1.46, gross margin 36.5%, and operating margin 10.7% reflect healthy profitability vs. industry benchmarks. The company generated $105.3M of operating cash flow and $47.5M of free cash flow in the quarter, supporting ongoing reinvestment in strategic initiatives and modest capital returns via stock repurchase activity (~$37.8M) in the period. Valuation around 9.1x trailing P/E and 3.17x P/S suggests a balanced risk-reward given growth options in Anthropologie and Free People and the ongoing turnaround in Urban Outfitters.
SWOT Analysis
Strengths
Diversified, multi-brand portfolio (URBN, Anthropologie, Free People, FP Movement, Nuuly) with material revenue contributions from both Retail and Wholesale.
Strong omnichannel capabilities and a growing omnichannel customer base (omnichannel customers spend >3x single-channel customers).
Nuuly profitability and strong subscriber growth (avg. active subscribers >250k for full quarter; 63% revenue growth; potential for full-year profitability).
Healthy balance sheet with meaningful cash flow generation and modest leverage; cash balance and liquidity support investments in growth.
Weaknesses
Urban Outfitters brand remains a challenge with negative comps and higher promotionality; execution risk persists in UO North America turnaround.
Near-term gross margin headwinds due to higher markdown activity and potential overhang on seasonally late receipts.
High capital expenditure plan (approx. $210M) with significant store openings/closures; execution risk in timing and returns.
Opportunities
Accelerated growth through Anthropologie and Free People, including EU expansion for Free People and continued Anthropologie EU success.
Expansion of Daily Practice and other own-brand categories to broaden price points and increase full-price sales penetration.
Enhanced data-driven planning and allocation to improve markdown efficiency and inventory turns; test-and-learn approach yields margin improvements.
Store footprint optimization for Urban Outfitters to better match target demographics and real estate dynamics; potential density shifts and smaller-store formats.
Threats
Macro consumer weakness and price sensitivity could accelerate promotional activity and compress margins.
Competitive pressures in fashion and home goods; rapid shifts in Gen Z preferences may necessitate faster product cycles.
Potential regional performance divergence; European market exposure could introduce currency/operational risks.