Clothing and accessories retailer Urban Outfitters (NASDAQ: URBN) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 10.7% year on year to $1.33 billion. Its non-GAAP EPS of $1.16 per share was 38.3% above analysts’ consensus estimates.

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StockStory’s Take

Urban Outfitters’ first quarter results reflected broad-based momentum across its portfolio, with management highlighting strong growth from Anthropologie, Free People, and subscription service Nuuly. Co-President Frank Conforti credited a diversified product offering, improved inventory management, and increased marketing investments for driving higher customer traffic and engagement both in stores and online. Notably, Nuuly’s 60% revenue growth and the first positive comparable sales at Urban Outfitters in some time were key contributors to the company’s improved gross margins. CEO Dick Hayne emphasized the positive impact of regular price sales and successful new launches, stating, "We’re attracting new customers, keeping our loyal ones, and growing our market share across the board."

Looking ahead, management expects continued sales and margin expansion, though they acknowledge uncertainty related to tariffs and supply chain disruptions. CFO Melanie Marein-Efron stated, "We believe gross profit margins could improve by about 50 to 100 basis points compared to last year," supported by lower markdowns and occupancy leverage. However, she cautioned that higher U.S. tariffs and the need to bring inventory in early may increase costs in the back half of the year. The team remains focused on mitigating these headwinds by diversifying sourcing, negotiating better vendor terms, and employing selective price increases where appropriate. Management also anticipates robust growth from new store openings, expanded product categories, and ongoing momentum at Nuuly. Hayne concluded that Urban Outfitters is "well-positioned for continued success" but remains attentive to evolving market risks.

Key Insights from Management’s Remarks

Management attributed the quarter’s profit outperformance to strong execution across brands, disciplined inventory management, and substantial growth in rental and wholesale segments, while addressing tariff uncertainty and changing consumer preferences.

• Anthropologie’s lifestyle expansion: The brand’s strategy to broaden its product offerings—including new resort wear (Celandine), loungewear, and home accessories—drove customer acquisition and engagement, with management noting "all categories saw positive regular price and total sales comps."

• Free People and FP Movement growth: Free People delivered double-digit sales and profit increases, while FP Movement expanded rapidly through new store openings and strong wholesale demand. Management highlighted that FP Movement’s 29% segment growth was fueled by both retail and wholesale channels.

• Nuuly’s subscriber surge: The clothing rental business Nuuly saw a 53% increase in average active subscribers, leading to 60% revenue growth and helping to leverage fixed costs. Management underscored Nuuly’s profitability, with over 5% operating profit in the quarter and a target for future margins in line with the broader company.

• Urban Outfitters brand turnaround: The core brand posted its first positive comparable sales in some time, driven by product assortment improvements, reduced markdowns, and effective marketing. European operations outperformed North America, with a 14% comp increase and strong women’s apparel momentum.

• Tariff mitigation efforts: Facing rising tariffs, management detailed strategies such as shifting sourcing to countries outside China, negotiating with vendors, moving transportation from air to sea, and applying targeted price increases only where consumer demand supports it. They expect tariffs to have a minimal near-term margin impact but continue to monitor the evolving situation closely.

Drivers of Future Performance

Urban Outfitters’ outlook is shaped by continued investment in brand growth, active inventory and sourcing strategies, and cautious management of margin risks from tariffs and supply chain variability.

• Continued store and product expansion: The company plans to open approximately 64 new stores this year, focusing on FP Movement, Free People, and Anthropologie. New product launches, such as expanded resort and lounge categories, are expected to drive both traffic and average transaction value.

• Nuuly’s scaling and profitability: Management projects ongoing double-digit revenue and profit growth at Nuuly, citing strong momentum in subscriber additions and confidence that the business will not dilute company operating margin goals. They are monitoring competitive dynamics in the rental market but see significant opportunity ahead.

• Tariff and supply chain headwinds: Higher tariffs on imported goods and the need to bring in inventory earlier than usual may pressure gross margins, particularly in the back half of the year. Management’s mitigation tactics include further diversifying sourcing regions, optimizing logistics, and minimal, strategic price increases to protect customer loyalty.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the impact of new store openings and expanded product categories on customer growth and sales, (2) Urban Outfitters’ ability to sustain margin improvement amid tariff and supply chain pressures, and (3) Nuuly’s continued subscriber gains and profitability. Progress on sourcing diversification and inventory management will also be crucial for maintaining operational flexibility.

Urban Outfitters currently trades at a forward P/E ratio of 16.7×. In the wake of earnings, is it a buy or sell? The answer lies in our full research report (it’s free).

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