Urban Outfitters Q2 2026: Contradictions in Tariff Mitigation, Profitability Timelines, and Pricing Strategies

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 27, 2025

Financials Results

• Revenue: $1.5B, up 11% YOY (Q2 record)
• EPS: $1.58 per diluted share; net income up 22% YOY
• Gross Margin: 37.6%, up 113 bps YOY
• Operating Margin: 11.6%, up 85 bps YOY

Guidance:

• Q3 total company sales expected to grow high single digits.
• Retail segment comps: mid-single-digit growth at Anthropologie, Free People, and Urban Outfitters.
• Nuuly: mid-double-digit revenue growth in Q3; continued subscriber momentum.
• Wholesale: mid-single-digit growth in Q3; tougher compares in 2H.
• FY26 gross margin to improve ~100 bps; 2H up ~50 bps.
• Q3 gross margin ~flat YOY; Q4 gross margin up ~75–100 bps (markdown improvements offset tariffs).
• H2 tariff headwind ~75 bps to gross margin; assumptions include 50% India tariff.
• SG&A to grow roughly in line with sales in 2H; marketing deleverage in Q3, leverage in Q4.
• Effective tax rate: ~23.7% for Q3; ~23% for FY.
• FY26 capex ~$270M; plan ~69 openings and ~17 closures.

Business Commentary:

• Record Sales and Profit Growth:
• Urban Outfitters, Inc. reported record sales of $1.5 billion for Q2, up 11%, marking new quarterly sales and profit records, with a 22% increase in net income.

• Growth was driven by 6% increase in the Retail segment comp and 18% increase in Wholesale segment revenue, along with a 15% rise in gross profit dollars and a 113 basis point improvement in gross profit rate.

• Brand-Specific Success:

• Anthropologie achieved a 6% Retail segment comp increase, driven by equal strength in digital and store channels, benefiting from increased traffic and transactions.

• Free People and its FP Movement brand delivered 14% and 30% growth in total revenue and retail segment comps, respectively, supported by the opening of new stores and strong marketing campaigns.

• Nuuly's Profitable Expansion:

• Nuuly, the rental subscription service, reported a 53% revenue growth and 48% increase in average active subscribers, making it the most profitable quarter to date.

• This success is attributed to marketing campaigns that expanded awareness and drove new customer growth, along with investments in logistics infrastructure.

• Tariff Strategy and Impact:

• The company is working to mitigate tariff impacts, which are expected to affect gross margins by 75 basis points in Q2, due to increased tariff rates.
• Mitigation efforts include negotiations with vendors, sourcing adjustments, and strategic pricing actions, aimed at maintaining customer experience and managing tariff costs.

Sentiment Analysis:

• “Total sales grew by 11%… new second quarter records.” “All brands produced positive comps across all geographies.” “Operating income rose by 20%… operating profit rate improved by 85 bps.” “Success… continued August to date and we are planning high single-digit growth in total sales for Q3.” Management acknowledged a tariff headwind but reiterated ~100 bps FY gross margin improvement.

Q&A:

• Question from Paul Lawrence Lejuez (Citi): What is the gross tariff impact vs. net and how much mitigation is pricing vs. other levers? Also, how are own brands performing at Urban and Anthropologie vs. national brands?
  Response: H2 tariffs are ~75 bps gross-margin headwind; mitigation prioritizes vendor terms, origin shifts, and ocean over air; only gentle, targeted price hikes. Anthropologie own-brand penetration is ~71% and growing; Urban proprietary brands (BDG, Out From Under, iets frans) also strong.

• Question from Lorraine Corrine Maikis Hutchinson (BofA Securities): How will pricing actions be executed across brands and price tiers given tariff pressure?
  Response: All brands will protect opening price points and selectively raise higher AUR items where value supports it; minimal and surgical increases to preserve customer experience.

• Question from Adrienne Eugenia Yih-Tennant (Barclays): Denim cycle trends and timing/extent of tariff impact (including India 50%) on 4Q and into spring?
  Response: India 50% tariffs will impact 4Q and carry into 1H next year; limited near-term sourcing shifts to protect product. Denim offers varied silhouettes, but full-leg bottoms remain the top seller.

• Question from Matthew Robert Boss (JPMorgan): Health of the global consumer and Urban’s path from here?
  Response: Consumer is healthy: traffic, transactions, and conversion up; AOV down on mix. Urban has momentum and plans continued sequential improvements toward profitability.

• Question from Alexandra Ann Straton (Morgan Stanley): Impact from ending de minimis and why the spread between total sales growth and comp narrows in 2H?
  Response: De minimis is immaterial to URBN; competitors relying on it could be pressured. Spread narrows as Wholesale anniversaries strong 1H comps, moving to mid-single-digit growth in 2H.

• Question from Mark R. Altschwager (Baird): Update on Urban Outfitters profitability and potential breakeven this year?
  Response: Breakeven will not occur this year; focus is steady progress via regular-price sales recovery and then leveraging occupancy and fixed costs to improve the bottom line.

• Question from Dana Lauren Telsey (Telsey Advisory Group): 3Q/4Q SG&A cadence and magnitude of marketing; real estate plans including Maeve?
  Response: SG&A to grow in line with sales in 2H; marketing deleverages in Q3 (brand campaigns), then leverages in Q4. Maeve’s first stand-alone opens in Raleigh; 3–4 store test through spring.

• Question from Marni Shapiro (The Retail Tracker): Update on Anthropologie Home; Urban dorm/Chipotle collab; timing for Urban men’s recovery and EU read-across?
  Response: Anthropologie Home comped up for a third straight quarter (accessories/textiles strong; furniture still lagging). Chipotle collab drove strong engagement. Urban men’s rebuild should show by spring; EU men’s strength in BDG and iets frans supports optimism.

• Question from Jay Daniel Sole (UBS): Reframe Nuuly’s long-term opportunity on sales and margins after recent outperformance?
  Response: Nuuly leads U.S. apparel rental with growing awareness; ~370k active subscribers currently; expects continued strong growth on a sizable market opportunity with improving profitability.

• Question from Janet Joseph Kloppenburg (JJK Research Associates): Have you implemented price increases and what’s elasticity? What drove FP Movement acceleration? Could marketing as a % of sales keep rising?
  Response: Selective, small increases on higher-ticket items saw good customer acceptance. FP Movement gains from delivering on performance plus fashion across channels. Marketing higher in Q3 (Nuuly, Maeve) and moderates in Q4; next-year plans TBD.