Urban Outfitters Reports Record Q2 Sales, Drives Growth Initiatives Despite Tariff Pressures

Urban Outfitters Inc reported record-breaking Q2 2026 sales growth of 11% and net income increase of 22%, with all brands under URBN delivering positive comparable sales across geographies. Nuuly achieved a 53% revenue growth and a 48% increase in average active subscribers, marking its most profitable quarter ever. Despite strong performance, the company faces challenges from increased tariff rates, which could impact gross margins by approximately 75 basis points in the second half of the year.

Urban Outfitters Inc. (URBN) reported a strong fiscal Q2 2026, with total sales growing by 11% to $1.5 billion, marking a new quarterly record. The company's net income increased by 22% to $144 million, or $1.58 per diluted share, also setting a new record for the quarter. All brands under the URBN umbrella delivered positive comparable sales across various geographies, with four out of five brands achieving record sales for the period.

Nuuly, the company's subscription apparel rental service, stood out with a 53% revenue growth and a 48% increase in average active subscribers. This growth was driven by an increase of 120,000 active subscribers compared to the prior year, making it the most profitable quarter for Nuuly. The company also saw a 15% increase in gross profit, reaching $566 million, with the gross profit rate rising to 37.6%. This improvement was primarily due to lower markdowns and occupancy leverage, driven by strong top-line growth.

However, the company faces challenges from increased tariff rates. Frank Conforti, Co-President and COO, stated that the impact for the second half of the year could be approximately 75 basis points to gross margins, with the 50% India tariff included. Despite this, the company is projecting a full-year gross margin improvement of about 100 basis points for fiscal 2026.

The company's SG&A expenses increased by 13%, with a deleverage of 28 basis points, mainly due to higher marketing spend fueling sales and customer growth. Operating income grew by 20% to $174 million, with the operating profit rate improving by 85 basis points to 11.6%.

The retail segment comp grew by 6%, with all brands and geographies delivering positive comps. Wholesale revenue rose by 18% across all distribution channels, but it is expected to deliver mid-single-digit growth in fiscal Q3 2026 due to tougher comparisons. Anthropologie and Free People also reported strong performances, with retail segment comps growing by 6% and 14%, respectively, and wholesale revenue increasing by 19% for Free People.

For fiscal Q3 2026, management expects high single-digit total sales growth, mid-single-digit retail segment comp increases for Anthropologie, Free People, and Urban Outfitters, mid-double-digit Nuuly growth, and a mid-single-digit wholesale increase. The company is also planning to open approximately 69 new stores and close 17 in fiscal 2026, with the majority of net growth coming from FP Movement, Free People, and Anthropologie brands.

References:
[1] https://www.fool.com/earnings/call-transcripts/2025/08/27/urban-outfitters-urbn-q2-2026-earnings-transcript/