Urban Outfitters (URBN)

Clothing and accessories retailer Urban Outfitters (NASDAQ:URBN) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 10.7% year on year to $1.33 billion. Its GAAP profit of $1.16 per share was 39.6% above analysts’ consensus estimates.

Company Overview

Founded as a purveyor of vintage items, Urban Outfitters (NASDAQ:URBN) now largely sells new apparel and accessories to teens and young adults seeking on-trend fashion.

Apparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.

Retailers offering casual yet trendy apparel for men, women, and children include H&M (OM:HMB), Inditex (BME:ITX) which owns Zara, Abercrombie & Fitch (NYSE:ANF), and American Eagle Outfitters (NYSE:AEO).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years.

With $5.68 billion in revenue over the past 12 months, Urban Outfitters is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Urban Outfitters grew its sales at a tepid 6.2% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts), but to its credit, it opened new stores and increased sales at existing, established locations.

This quarter, Urban Outfitters reported year-on-year revenue growth of 10.7%, and its $1.33 billion of revenue exceeded Wall Street’s estimates by 3%.

Looking ahead, sell-side analysts expect revenue to grow 5.8% over the next 12 months, similar to its six-year rate. This projection is healthy and suggests the market is forecasting success for its products.

Number of Stores

Urban Outfitters opened new stores quickly over the last two years, averaging 2.2% annual growth, faster than the broader consumer retail sector.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Note that Urban Outfitters reports its store count intermittently, so some data points are missing in the chart below.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

Urban Outfitters’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 4.2% per year. This performance suggests its rollout of new stores is beneficial for shareholders. We like this backdrop because it gives Urban Outfitters multiple ways to win: revenue growth can come from new stores, e-commerce, or increased foot traffic and higher sales per customer at existing locations.

In the latest quarter, Urban Outfitters’s same-store sales rose 4.8% year on year. This performance was more or less in line with its historical levels.

Urban Outfitters’s gross margin is slightly below the average retailer, giving it less room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged a 34.6% gross margin over the last two years. Said differently, Urban Outfitters had to pay a chunky $65.36 to its suppliers for every $100 in revenue.

Urban Outfitters produced a 36.8% gross profit margin in Q1, up 2.4 percentage points year on year and exceeding analysts’ estimates by 4.3%. Urban Outfitters’s full-year margin has also been trending up over the past 12 months, increasing by 1.5 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold.

Operating margin is a key profitability metric because it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

Urban Outfitters has done a decent job managing its cost base over the last two years. The company has produced an average operating margin of 8.2%, higher than the broader consumer retail sector.

Analyzing the trend in its profitability, Urban Outfitters’s operating margin rose by 2.2 percentage points over the last year, as its sales growth gave it operating leverage.

In Q1, Urban Outfitters generated an operating profit margin of 9.6%, up 3.4 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Urban Outfitters’s full-year EPS grew at a spectacular 46.7% compounded annual growth rate over the last five years, better than the broader consumer retail sector.

In Q1, Urban Outfitters reported EPS at $1.16, up from $0.69 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Urban Outfitters’s full-year EPS of $4.54 to shrink by 1.4%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Urban Outfitters has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.6% over the last two years, quite impressive for a consumer retail business.

Taking a step back, we can see that Urban Outfitters’s margin dropped by 1.1 percentage points over the last year. This decrease came from the higher costs associated with opening more stores.

Urban Outfitters broke even from a free cash flow perspective in Q1. The company’s cash profitability regressed as it was 2.4 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Urban Outfitters historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 11.4%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Urban Outfitters reported $475 million of cash and $1.14 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $652.3 million of EBITDA over the last 12 months, we view Urban Outfitters’s 1.0× net-debt-to-EBITDA ratio as safe. We also see its $33.01 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Urban Outfitters blew past analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this quarter featured some important positives. The stock traded up 6.1% to $63.25 immediately after reporting.

Updated: June 14, 2025 at 10:39 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Urban Outfitters.

Urban Outfitters is a fine business. Although its revenue growth was a little slower over the last six years, its growth over the next 12 months is expected to be higher. And while Urban Outfitters’s mediocre ROIC lags the market and is a headwind for its stock price, its EPS growth over the last five years has been fantastic. On top of that, its wonderful same-store sales growth is among the best in the consumer retail sector.

Urban Outfitters’s P/E ratio based on the next 12 months is 15.2x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in. Urban Outfitters is a good one to add to your watchlist - there are better investment opportunities out there at the moment.

Wall Street analysts have a consensus one-year price target of $71.37 on the company (compared to the current share price of $68.52).