Shares of Urban Outfitters fell more than 4% in early trading on Thursday after the fashion retailer issued a cautious outlook despite reporting quarterly earnings that topped expectations.
Through Wednesday’s close, the stock had risen 42% this year and more than doubled over the past 12 months, underscoring the abruptness of the pullback.
For the second quarter ending July, the company reported net sales of $1.50 billion, an 11% increase from the same period a year earlier.
Earnings per share climbed to $1.58 from $1.24. FactSet data showed results beat Wall Street estimates, highlighting resilient consumer demand across the company’s brands.
US tariffs cloud otherwise upbeat results
The warning that weighed on shares came from executives’ acknowledgement that escalating US tariffs on imported apparel would pressure margins in the coming quarters.
Urban Outfitters sources the majority of its clothing from India, Vietnam, and Turkey, while less than 5% comes from China.
Under new US trade rules, imports from India now face tariffs of 50%, those from Vietnam are subject to 20%, and goods from Turkey are levied at 15%.
Chinese imports continue to carry a 30% tariff.
“The landscape continues to change as tariff rates have increased for many countries,” said co-President Frank Conforti.
“As of today and based on new assumptions, we believe the impact for the second half of the year could be approximately 75 basis points to gross margins.”
Conforti added that the company was pursuing mitigation strategies, including negotiating better terms with suppliers, diversifying sourcing, and shifting more shipping to ocean freight.
Still, he acknowledged that Urban Outfitters would be “gently raising prices” to offset higher costs.
Nuuly subscription service leads growth
Urban Outfitters expects sales to grow in the high single digits in the current quarter, with its Nuuly subscription business forecast to be the fastest-growing segment.
The $98 monthly clothing rental service has gained traction with younger consumers seeking variety without ownership.
Meanwhile, its core retail brands, Anthropologie, Free People, and Urban Outfitters, are expected to post mid-single-digit same-store sales growth.
Gross margins, excluding the tariff impact, are anticipated to remain flat compared with last year.
Chief Executive Richard Hayne said demand momentum has continued into the third quarter.
“Both consumer demand and our execution remain strong,” he said, adding that tariffs were the “only major headwind” the company faces.
Analysts weigh upside and limits
Jefferies analyst Corey Tarlowe praised the company’s execution, calling the 11.3% sales jump “impressive.”
However, he noted that investors may begin to wonder how much further upside remains given that all segments—retail, wholesale, and subscription—are performing well.
“Still, it’s a well-managed business with a strong balance sheet and solid leadership team,” Tarlowe said in a client note.
AInvest research described the latest earnings as a “strategic breakthrough,” highlighting the company’s ability to balance inventory discipline with digital innovation.
It said Urban Outfitters’ expansion into rental apparel could give the stock compelling long-term upside.
Refreshing the brand for new customers
Urban Outfitters’ leadership also emphasised the company’s efforts to broaden its appeal.
Shea Jensen, president of the brand’s North America operations, said the company has successfully reconnected with younger consumers while also attracting suburban shoppers.
Denim, lounge wear, novelties, and gift items have been strong performers.
The strategy reflects a broader reset across the retail sector.
While tariffs and inflation continue to challenge discretionary spending, several companies are signalling cautious optimism.
This week, PVH Corp., parent of Tommy Hilfiger and Calvin Klein, reiterated expectations for a return to growth in 2025, while discount chain Five Below raised its outlook.
For Urban Outfitters, the combination of strong consumer demand, diversified sales channels, and digital innovation suggests that the longer-term story remains intact, even as tariffs present near-term obstacles.
The post Urban Outfitters stock slides 4% despite strong quarter on cautious outlook appeared first on Invezz
