It has been about a month since the last earnings report for Urban Outfitters (URBN Quick QuoteURBN - Free Report) . Shares have added about 14.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Urban Outfitters due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Urban Outfitters’ Q3 Earnings Beat Estimates, Wholesale Sales Up Y/Y

Urban Outfitters reported impressive results for third-quarter fiscal 2025, wherein both top and bottom lines surpassed the Zacks Consensus Estimate. Also, both metrics improved from the prior-year quarter’s reported figure.

URBN’s Quarterly Performance: Key Metrics and Insights

This lifestyle specialty retailer delivered earnings per share of $1.10, surpassing the Zacks Consensus Estimate of 85 cents. Also, the bottom line increased 25% from the comparable quarter of the prior fiscal year.

Total net sales increased 6.3% year over year to $1,361.9 million, surpassing the consensus estimate of $1,334 million. Total net sales in the Retail segment rose 3.2%, with comparable net sales in this segment increasing 1.5%. This growth was primarily fueled by low single-digit positive gains in both digital channel sales and sales from retail stores. Specifically, comparable Retail net sales rose 5.3% at Free People and 5.8% at Anthropologie but fell 8.9% at Urban Outfitters. 

In the Wholesale segment, net sales grew 17.4% year over year, due to a 20.3% rise in Free People's wholesale sales, which was attributed to increased sales to department stores and specialty customers. This was, however, somewhat offset by a decline in Urban Outfitters' wholesale sales. 

The Nuuly segment saw a significant 48.4% increase in net sales mainly due to a 51% rise in average active subscribers from the prior-year quarter.

Margin & Cost Insights of Urban Outfitters

Gross profit rose 9.4% from the prior-year quarter to $497.3 million. Also, the gross margin expanded 105 basis points (bps) to 36.5%, mainly owing to higher initial merchandise markups across all brands, primarily due to the company's cross-functional initiatives. Moreover, merchandise markdowns in the Retail segment showed improvement, driven by reduced markdowns at Urban Outfitters, though this was partially offset by higher markdowns at Free People.

Selling, general and administrative (SG&A) expenses were up 6.7% year over year to $368.6 million. This increase was mainly due to higher marketing expenses, aimed at boosting customer traffic and sales in the Retail and Nuuly segments, as well as increased payroll costs to support the growth in comparable sales at Retail segment stores. As a percentage of net sales, SG&A deleveraged 11 bps to 27.1% in the quarter under review. 

URBN recorded an operating income of $128.7 million, up 18.1% from $109 million in third-quarter fiscal 2025. As a rate of sales, the operating margin increased 90 bps year over year to 9.4%.

URBN’s Store Update

In the fiscal third quarter, the company opened 25 retail locations, which included six Urban Outfitters stores, six Anthropologie stores and 13 Free People stores (including six FP Movement stores). Also, it closed six retail locations, which included three Urban Outfitters stores, two Anthropologie stores and one Free People store.

As of Oct. 31, 2024, URBN operated 264 Urban Outfitters stores in the United States, Canada and Europe and websites; 242 Anthropologie Group stores in the United States, Canada and Europe, catalogs and websites; 216 Free People stores (including 50 FP Movement stores) in the United States, Canada and Europe, catalogs and websites; nine Menus & Venues restaurants; seven Urban Outfitters franchisee-owned stores and two Anthropologie Group franchisee-owned stores.

Urban Outfitters’ Financial Health Snapshot

Urban Outfitters ended the quarter with cash and cash equivalents of $182.5 million and a total shareholders’ equity of $2.35 billion. As of Oct. 31, 2024, the total inventory was up 10% year over year. Total Retail segment inventory increased 8.1%, driven by the Retail segment’s comparable inventory increasing 3.7% and planned early receipts of holiday merchandise. Meanwhile, the Wholesale segment inventory grew 41.6%, indicating the timing of receipts and the need to support higher sales.

URBN provided net cash of $182.4 million from operating activities as of Oct. 31, 2024. During the nine months ended Oct. 31, 2024, the company repurchased and subsequently retired 1.2 million shares at a total cost of approximately $52 million. As of the same date, 18 million common shares remained available for repurchase under the program.

URBN’s Fiscal 2025 Outlook

The company anticipates total sales growth in the mid-single digits for the fourth quarter. This growth could result from low single-digit growth in the Retail segment comparable sales and high-teen growth in the Wholesale segment. Furthermore, Nuuly segment revenues are expected to grow in the mid-double digits.

The company expects a gross margin rate improvement of approximately 100 bps for the fourth quarter compared with the prior year, driven by lower markdowns, especially at the Urban Outfitters brand and higher initial product margins from cross-functional initiatives.

SG&A expenses are expected to grow in the mid-single digits, primarily due to increased marketing efforts, aimed at boosting customer growth and sales at Anthropologie, Free People, FP Movement and Nuuly. The company maintains flexibility in variable SG&A spending to adjust according to sales performance.

Inventory levels in the fourth quarter are expected to grow at a pace similar to sales growth.

Capital expenditures for fiscal 2025 are planned at approximately $210 million. Approximately half of this will be allocated to retail store expansion and support, around 25% to logistics capacity investments, including the Nuuly rental fulfillment center in Raymore, MO, which opened in the fiscal first quarter and the remaining 25% to standard capital investments supporting IT, home office and logistics operations.

The company plans to open approximately 58 new stores and close 31 stores in fiscal 2025. Net new store growth will be driven by FP Movement, Free People and Anthropologie, with plans to open 25 FP Movement stores, 13 Free People stores and 13 Anthropologie stores.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Urban Outfitters has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Urban Outfitters has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.