VALUATION HIGHLIGHTS
- Retail Operations constitute 82% of the Trefis price estimate for Urban Outfitters's stock.
WHAT HAS CHANGED?
- Urban Outfitters Q4 Snapshot
Urban Outfitters reported record fourth-quarter sales and profits, surpassing expectations with a 10% increase in total sales to $1.6 billion. URBN's gross profit increased by 21.5% to $528 million, with a gross profit rate improvement of 305 basis points to 36.5%. In addition, the company's net income increased a whopping 2.5x year-over-year to $120 million, or $1.28 per diluted share.
While sales grew nicely in three of Urban Outfitters' four biggest brands (Anthropologie, Free People, and Nuuly), same-store sales at the namesake brand experienced a 3.5% decline, primarily due to disappointing performance in North America.
Note: Urban Outfitters' FY'25 ended on January 31, 2025.
- Outlook
Urban Outfitters has outlined its strategic objectives for fiscal 2026, targeting mid-single-digit sales growth and a 50-100 basis point improvement in gross margins. Key initiatives include the opening of 58 new stores, alongside the closure of 19 underperforming locations, and a $240 million capital expenditure program. Additionally, the company aims to expand its Nuuly subscription service, with a revenue target of $500 million.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
- Urban Outfitters EBITDA Margin
Retail Segment EBITDA Margin: Retail Segment EBITDA Margins have increased from 7.4% in FY 2023 to 11.2% in FY 2025, due to an increase in footfall and higher initial merchandise markups for all segments,
primarily driven by the company's cross-functional initiatives.
We forecast the company's margins to grow gradually over our forecast period. If, due to a better assortment, higher consumer spending, and disciplined inventory control, the company manages to improve the margins to levels higher than expected, there is significant upside potential. On the contrary, if the U.S. apparel industry remains highly promotional, and the company faces problems of inventory hangover due to an imbalance in merchandise mix, its margins can decline.
BUSINESS SUMMARY
URBN is a lifestyle products and services company that operates a portfolio of global consumer brands including the Anthropologie, Free People, FP Movement, Urban Outfitters, and Nuuly brands. It operates under three reportable segments – Retail, Wholesale, and Nuuly. URBN has over 53 years of experience creating and managing retail stores that offer highly differentiated collections of fashion apparel, accessories, and home goods in inviting and dynamic store settings. Its core strategy is to provide unified environments that establish emotional bonds with the customer. In addition to its retail stores, the company offers its products and markets its brands directly to the consumer through its e-commerce websites, mobile applications, and catalogs. The Free People wholesale division develops private label apparel lines of young women's casual wear that are sold through better department and specialty stores, third-party websites, and its retail stores, while the Anthropologie wholesale segment is focused on the sale of home goods. The Nuuly segment includes the Nuuly brand, which offers customers a more sustainable way to explore fashion through a monthly women’s apparel subscription rental service.
KEY TRENDS
Significant scope for expansion internationally
URBN believes Anthropologie has the potential to derive half of its sales from outside the United States in the long term. Currently, a bulk of international sales are obtained from the U.K., but the brand is in the process of expanding into other countries. The company plans to open additional stores in Europe and facilitate the opening of several additional franchise stores in North America.
Online growth
Although Urban Outfitters' store business has not been at its best in the recent past, the online business is continually outperforming. Web traffic and average order value across the brands are on the rise, and the proportion of full-price sell-throughs is also increasing. Urban Outfitters' brand image and appealing portfolio are partially responsible for this rise. The online growth can also be attributed to the industry-wide shift from store to web shopping. We believe that Urban Outfitters will continue to benefit from this growth with its omni-channel and other online initiatives.
Omni-Channel retailing
Omni-channel retailing refers to providing customers with a seamless shopping experience by integrating the inventory pool across channels. This concept allows companies to attract customers irrespective of their preferred shopping channel. The entire U.S. retail industry is gradually adopting this retailing format, and Urban Outfitters is no exception. The company is looking to deploy web, mobile, and Omni initiatives around website optimization, check-out, search, personalization, and many mobile and mobile app enhancements. It is also expanding its store base gradually which will provide it with an optimum presence in the country necessary for omni-channel retailing.
Growth in Subscriptions Segment
The Subscription segment, formerly known as the Nuuly segment, includes the Nuuly brand, which is primarily a monthly women’s apparel subscription rental service. Net sales from the Subscription segment accounted for approximately 6.8%, 4.6%, and 2.7% of total consolidated net sales for fiscal 2025, 2024 and 2023, respectively. The segment achieved an 82% increase in average active subscribers in 2024, contributing to robust double-digit revenue growth (60% increase to $378 million). Nuuly, while profitable, has not yet achieved positive cash flow due to the need to purchase inventory ahead of future subscriber growth.
