Urban Outfitters

Urban Outfitters achieved 6% same-store sales growth in fiscal 2027's second quarter on increases of 10%, 8%, and 3% at Free People (29% of sales), Urban Outfitters (22%), and Anthropologie (38%), respectively. Excluding a tariff refund, operating margin was unchanged at 11.6%.

Why it matters: Urban Outfitters continues to outperform many apparel retailers in a tough market. Although slower traffic has necessitated markdowns at Anthropologie, the firm's formerly struggling namesake brand and Free People (especially Movement) continue to post stellar results. Results were close to our estimates despite ongoing war-related fuel surcharges on shipping. Moreover, third-quarter guidance aligns with our mid-single-digit comparable sales forecast even as some peers have reported recent weakness in consumer spending and high discounts.

The bottom line: We expect to lift our $73 per share fair value estimate by a low-single-digit rate, but Urban Outfitters' shares remain slightly overvalued. Although the firm continues to operate well, we rate it as no-moat as it lacks a strong brand in a competitive space and its products are substitutable. Urban Outfitters is on track to reach our fiscal 2027 forecast for roughly 8.5% sales growth and a 10% adjusted operating margin. We project mid-single-digit sales growth and 9% operating margins in the long run as comparable growth moderates for all segments. We plan to adjust our Morningstar Uncertainty Rating to High from Very High based on Urban Outfitters' greater consistency in sales and margins over the past few years and our quantitative model.

Between the lines: Nuuly (11% of sales) slightly exceeded our forecast with 29% sales growth and a 10.1% adjusted operating margin. We think ongoing investments in this brand are creating value for shareholders. With capacity expansion plans in place, we forecast Nuuly will reach $1 billion in revenue in fiscal 2029, up from just over $700 million in the current fiscal year.

We have raised our fair value estimate to $75 per share from $73 after Urban Outfitters’ strong fiscal 2027 second-quarter results and positive outlook.

Urban Outfitters achieved 6% same-store sales growth in the second quarter on increases of 10% at Free People, 8% at Urban Outfitters, and 3% at Anthropologie. Excluding a tariff refund, operating margin was unchanged at 11.6%. Results were close to our estimates despite ongoing war-related fuel surcharges on shipping.

Overall, we think Urban Outfitters is outperforming many peers in an uneven environment for apparel retail. For fiscal 2027, we project $6.27 in adjusted earnings per share (up from $6.20 previously) on 9.5% sales growth (from 8.5%). For fiscal 2028, we forecast 7.3% sales growth (from 6.9%), $6.84 in EPS (from $6.64), and $920 million in EBITDA (from $901 million). Our fair value estimate implies fiscal 2028 price/earnings and enterprise value/EBITDA multiples of 11 and 6 times, respectively.

We anticipate mild long-term same-store sales growth for all three of Urban Outfitters' chains. For its namesake chain, we expect 2% long-term same-store sales growth and forecast the number of stores will decline to 246 in fiscal 2036 from 253 at the end of fiscal 2026. We forecast 3% same-store sales growth for Anthropologie and anticipate its store base will grow to 298 in fiscal 2036 from 254 at the end of fiscal 2026. For Free People, we anticipate 4% same-store sales growth. We expect the number of Free People stores to climb to 399 in fiscal 2036 from 268 at the end of fiscal 2026 as it opens dozens of FP Movement stand-alone locations.

Overall, we forecast Urban Outfitters' sales to grow to $10.8 billion in fiscal 2036, implying a compound annual growth rate of 5.8% from its $6.2 billion in fiscal 2026 revenue.

We expect Urban Outfitters' operating margin to stabilize at about 9% in the long run. We forecast that selling, general, and administrative expenses as a percentage of sales will remain in the mid-20s range seen over the past 10 years as the company invests in marketing, e-commerce, and international expansion. Finally, with US store growth stagnant (excluding FP Movement), we project international sales will rise to 18% of total sales in fiscal 2036, up from about 13% in fiscal 2026, driven by expansion in Canada, Europe, and China.

We assign a no-moat rating to Urban Outfitters as we do not believe that any of its three key brands (Urban Outfitters, Anthropologie, and Free People) has established a competitive advantage in the form of an intangible brand asset or cost-based edge.

We believe Urban Outfitters lacks the differentiated product and brand strength to maintain premium pricing in this extremely competitive market. In the US (about 87% of sales), the firm competes with other fashion chains, discount stores, department stores, mass-market retailers, e-commerce, outlets, and specialty chains. As evidence of its lack of a competitive edge, Urban Outfitters' annual operating margins have declined from prior highs. The firm consistently achieved annual operating margins above 15% in fiscal 2005-11, but it has not done so since; we forecast long-term operating margins of 9%.

Urban Outfitters' primary business of apparel retail is highly competitive. The firm offers home goods, accessories, and other categories, but apparel accounts for about two-thirds of its net sales. Most of Urban Outfitters' clothing is sold through its company-owned Anthropologie, Free People, and Urban Outfitters stores. Retail operations account for about 85% of its revenue and operating income even as Nuuly, its online clothing rental and resale operation, has grown rapidly. Urban Outfitters is a relatively small retailer, with roughly 800 company-owned stores, more than 80% of which are in the US. Although the US apparel market is large, Urban Outfitters’ share is only about 1%, so we do not think it has the power to negotiate favorable prices from vendors or suppliers.

We do not think the merchandise sold under Urban Outfitters' eponymous banner (22% of fiscal 2026 sales) is sufficiently differentiated to draw shoppers from the many alternate channels or to command premium pricing. The chain carries both private-label brands and national brands that are widely available. Although Urban Outfitters carries some exclusive products from major brands, much of its national brand merchandise is not exclusive. Moreover, many vendors are opening their own stores, building loyalty clubs, and drawing customers from traditional retailers. We do not think the chain has the brand strength to keep its largely young adult consumers from going elsewhere to purchase similar apparel and other merchandise.

Although popular, Urban Outfitters' Anthropologie (42% of revenue) doesn't provide a moat either, in our view. The chain, which mainly caters to women ages 30-45, carries a mixture of private-label brands, national brands such as Levi's, Birkenstock, and narrow-moat Deckers' Ugg, and lesser-known exclusive brands. Although Anthropologie carries everything from bar soap to large sofas, women's apparel and accessories account for most of its sales. Thus, the chain tends to do well when it gets fashion trends right and poorly when it does not. Moreover, competitors will quickly copy any clothing or home products that are popular. We think Anthropologie has little ability to draw shoppers consistently.

We do not think Urban Outfitters' wholesale business (5% of revenue) provides any durable brand power. Urban Outfitters introduced its wholesale women's apparel line, Free People, in 1984. Known for its bohemian and active styles, Free People is a niche brand targeted at women ages 25-35. The label is carried at some upscale stores but is not a luxury brand, as most items retail for less than $100. Although the brand has a following, Urban Outfitters' wholesale sales remain below prepandemic levels, and margins for the business have contracted. We think exposure to US department stores is hurting Urban Outfitters' wholesale business, as many of these stores have suffered declining operating margins and traffic.

Apart from the wholesale operation, Urban Outfitters operates its own stores under the Free People and FP Movement nameplates. Free People, like Anthropologie, mostly carries midprice apparel. Similarly, FP Movement, an athleisure sub-brand, retails leggings for about $30-$40 less than similar leggings sold by narrow-moat Lululemon. FP Movement has been a success story for Urban Outfitters, but it accounts for less than 15% of the firm’s store base, and its revenue is small in comparison with Lululemon and others.

Although growing rapidly in terms of subscribers and revenue, Nuuly has not changed Urban Outfitters’ competitive position, in our opinion. Launched in 2019, the brand accounts for only a mid-single-digit share of the firm’s total sales and operating profit. Nuuly has attracted loyal customers, but it is still largely unknown to the US public.

Finally, Urban Outfitters' insignificant food and beverage business provides no competitive edge. Although some retailers have successfully used ancillary food and drink offerings to generate income and increase retail sales, food and beverage accounts for less than 1% of Urban Outfitters' total revenue and provides minimal value to the core retail business.

We do not believe that Urban Outfitters has a moat based on a brand intangible asset, cost advantage, or any other source. Some large apparel retailers have created cost advantages by negotiating lower rates from suppliers and getting new products into their stores faster than others. Urban Outfitters, though, is not a fast-fashion producer and is too small to have outsize negotiating power. Although the firm is investing in supply chain efficiency, its competitors are doing the same and have access to similar technology and systems. Further, we do not think Urban Outfitters has a moat based on an efficient scale, as the market size and potential for returns have not impeded entry by competitors. Finally, there are no network effects or switching costs in apparel retail.

Once declining, Urban Outfitters’ namesake retailer has experienced an impressive turnaround.

By achieving scale in apparel rental and resale, Nuuly has succeeded where others have failed. It has become a source of growth and customer acquisition.

Urban Outfitters has been aggressively opening FP Movement stores, and the brand has been performing well. It has made the firm a legitimate player in women's athleisure.

Urban Outfitters has more fashion risk than some other retailers. Its sales suffer when it misses a fashion trend or if a trend moves away from its core styles. Consequently, its sales tend to be volatile.

Anthropologie, Urban Outfitters’ largest retail concept, has experienced a slowdown in sales growth and has limited potential for new stores.

Higher fuel and other costs could reduce consumer spending on apparel and home goods and increase Urban Outfitters’ operating costs. The firm also faces the threat of higher tariffs.