Urban Outfitters (URBN)

Clothing and accessories retailer Urban Outfitters (NASDAQ:URBN) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 11.3% year on year to $1.5 billion. Its GAAP profit of $1.58 per share was 7.9% 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).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $5.83 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’s 6.8% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was tepid, 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 11.3%, and its $1.5 billion of revenue exceeded Wall Street’s estimates by 1.9%.

Looking ahead, sell-side analysts expect revenue to grow 7% over the next 12 months, similar to its six-year rate. This projection is admirable and implies the market is baking in success for its products.

Number of Stores

A retailer’s store count influences how much it can sell and how quickly revenue can grow.

Over the last two years, Urban Outfitters opened new stores quickly, averaging 2.3% annual growth. This was 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 4.3% 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 5.6% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.

We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate product differentiation, negotiating leverage, and pricing power.

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 34.9% gross margin over the last two years. Said differently, Urban Outfitters had to pay a chunky $65.14 to its suppliers for every $100 in revenue.

Urban Outfitters produced a 37.6% gross profit margin in Q2, up 1.1 percentage points year on year and exceeding analysts’ estimates by 0.6%. 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.

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 8.4%, higher than the broader consumer retail sector.

Looking at the trend in its profitability, Urban Outfitters’s operating margin rose by 2.3 percentage points over the last year, as its sales growth gave it operating leverage.

This quarter, Urban Outfitters generated an operating margin profit margin of 11.6%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Urban Outfitters’s EPS grew at a decent 13.3% compounded annual growth rate over the last six years, higher than its 6.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q2, Urban Outfitters reported EPS of $1.58, up from $1.24 in the same quarter last year. This print beat analysts’ estimates by 7.9%. Over the next 12 months, Wall Street expects Urban Outfitters’s full-year EPS of $5.12 to stay about the same.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

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 5.7% over the last two years, quite impressive for a consumer retail business.

Urban Outfitters’s free cash flow clocked in at $156.6 million in Q2, equivalent to a 10.4% margin. This result was good as its margin was 6.9 percentage points higher than in the same quarter last year, building on its favorable historical trend.

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).

Although Urban Outfitters has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 12.2%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Urban Outfitters reported $622.8 million of cash and $1.18 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 $625.8 million of EBITDA over the last 12 months, we view Urban Outfitters’s 0.9× net-debt-to-EBITDA ratio as safe. We also see its $32.98 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.

It was encouraging to see Urban Outfitters beat analysts’ revenue and EPS expectations this quarter. On the other hand, its EBITDA missed. Overall, this was a weaker quarter. The stock traded down 7.1% to $72.55 immediately following the results.

Updated: November 8, 2025 at 9:39 PM EST

Before making an investment decision, investors should account for Urban Outfitters’s business fundamentals and valuation in addition to what happened in the latest quarter.

Urban Outfitters possesses a number of positive attributes. 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 new store openings show it’s growing its brand.

Urban Outfitters’s P/E ratio based on the next 12 months is 12x. Looking at the consumer retail space right now, Urban Outfitters trades at a compelling valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $79.75 on the company (compared to the current share price of $63.90), implying they see 24.8% upside in buying Urban Outfitters in the short term.