Urban Outfitters, Inc. (URBN Quick QuoteURBN - Free Report) reported impressive results in third-quarter fiscal 2026, wherein the top and bottom lines beat the Zacks Consensus Estimate. Also, both metrics improved from the prior-year quarter’s reported figure.

Shares of this Philadelphia, PA-based player jumped 18.7% in the after-market trading session yesterday as investors reacted to its exceptionally strong third-quarter momentum, broad-based comp strength across all brands, sharp improvement at Urban Outfitters globally and continued rapid growth at Nuuly. 

Management also reinforced confidence with robust fiscal fourth-quarter expectations and plans for full-year margin expansion despite tariff headwinds, which collectively boosted sentiment and fueled the sharp after-hours surge.

URBN’s Quarterly Performance: Key Metrics & Insights

This lifestyle specialty retailer delivered earnings per share of $1.28, surpassing the Zacks Consensus Estimate of $1.19. Also, the bottom line increased 16.3% from the prior-year quarter. 

Total net sales increased 12.3% year over year to $1,529.4 million, surpassing the consensus estimate of $1,493 million.

Total net sales in the Retail segment rose 9.6%, with comparable net sales in this segment increasing 8%. The growth in comparable Retail sales was driven by high single-digit increases across both digital channel and brick-and-mortar store sales. Within the segment, comparable Retail segment net sales grew 12.5% at Urban Outfitters, 7.6% at Anthropologie and 4.1% at Free People. We estimated the Retail segment’s sales to increase 6.3% year over year.

In the Wholesale segment, net sales rose 7.6%, driven by an 8.4% increase in Free People Wholesale revenues, largely attributable to higher sales to specialty customers. We estimated the Wholesale segment’s sales to rise 5.3% year over year.

Nuuly, a women’s apparel subscription rental service, saw a significant 48.7% increase in net sales, primarily reflecting a 42.2% increase in average active subscribers compared with the same quarter last year. We estimated the Nuuly segment’s sales to rise 47.7% year over year.

Margin & Cost Insights of Urban Outfitters

Gross profit rose 13.3% from the prior-year quarter to $563.3 million. Also, the gross margin expanded 31 basis points (bps) to 36.8%. The gross margin improvement was driven by improved Retail segment markdowns, reflecting reduced markdown activity at Urban Outfitters and Free People, as well as leverage in store occupancy expenses resulting from higher comparable Retail segment net sales. 

These benefits were partially offset by deleverage in initial merchandise costs. Management estimates that the tariff impact reduced third-quarter gross margin by approximately 60 bps. The rise in gross profit was driven by both increased net sales and margin expansion. We estimated the gross margin to be 36.5%. During the quarter, the company recorded $2 million in store impairment charges.

Selling, general and administrative (SG&A) expenses rose 13.7% year over year to $419 million. This increase was mainly due to higher marketing expenses to support customer growth and stronger sales in the Retail and Subscription segments, along with increased store payroll to support Retail segment store sales growth. Our model estimated SG&A expenses to increase 11.8% year over year in the fiscal third quarter. 

As a percentage of net sales, SG&A deleveraged 32 bps to 27.4% in the quarter under review, which lagged our estimate of 27.7%. This increase was primarily driven by higher marketing spend to support customer growth and increased sales in the Retail and Subscription segments, partially offset by leverage in store payroll expenses resulting from Retail segment stores’ net sales growth.

URBN recorded an operating income of $144.3 million, up 12.1% from $128.7 million in the prior-year quarter. As a rate of sales, the operating margin remained flat year over year at 9.4%.

URBN’s Store Update

In the fiscal third quarter, this Zacks Rank #3 (Hold) company opened 27 retail locations, which included five Urban Outfitters stores, seven Anthropologie stores and 15 Free People stores (including eight FP Movement stores). Also, it closed two Free People stores and four Urban Outfitters stores.

As of Oct. 31, 2025, URBN operated 258 Urban Outfitters stores across the United States, Canada and Europe, along with associated websites. The company also operated 248 Anthropologie Group stores in these regions, supported by catalogs and websites. Additionally, there were 253 Free People stores, including 76 FP Movement stores, in the United States, Canada and Europe, accompanied by catalogs and websites. URBN further operated nine Menus & Venues restaurants, seven Urban Outfitters franchisee-owned stores and two Anthropologie Group franchisee-owned stores.

Urban Outfitters’ Financial Health Snapshot

URBN ended the fiscal third quarter with cash and cash equivalents of $306.6 million and a total shareholders’ equity of $2.70 billion. As of Oct. 31, 2025, total inventory increased 5.9% year over year. Retail segment inventory increased 6.3%, with comparable Retail segment inventory up 7.4%, while Wholesale segment inventory remained flat. The increase in the Retail segment inventory was driven by higher sales.

Urban Outfitters generated net cash of $312.2 million from operating activities in the nine months ended Oct. 31, 2025. During this period, the company repurchased and subsequently retired 3.3 million shares for approximately $152 million. As of Oct. 31, 2025, 14.7 million common shares were available for repurchase under the program.

URBN’s Fiscal Q4 Outlook

The company expects strong performance in the fiscal fourth quarter, planning for total sales to grow in the high single digits. Within the retail segment, comparable sales are expected to grow mid-single-digit positive, led by high single-digit retail segment comps at the Urban Outfitters brand, mid-single-digit comps at Anthropologie and low to mid-single-digit comps at Free People. 

Nuuly is anticipated to continue delivering mid-double-digit revenue growth, supported by ongoing momentum in subscriber additions, while the Wholesale segment is expected to grow mid-single digits. 

The company anticipates fiscal fourth-quarter gross margins to expand nearly 25-50 basis points, supported by fewer markdowns, primarily at Urban Outfitters, but moderated by tariff-related declines in initial merchandise margins. Management estimates a 75-basis-point tariff impact during the fiscal fourth quarter. 

SG&A expenses are expected to grow in line with sales in the fiscal fourth quarter, driven mainly by increased marketing spend and labor associated with store openings. Inventory levels are expected to grow in line with sales as the company focuses on improving product turns.

Urban Outfitters’ Fiscal 2026 Guidance

For fiscal 2026, the company currently believes that full-year gross margins could improve by approximately 100 basis points, with the back half of the year exceeding the prior year by about 50 basis points. SG&A expenses are expected to grow roughly in line with sales for the full year. 

Management is planning for roughly 100 basis points of operating margin improvement for the full year, which would bring the company very close to its long-term goal of a 10% operating margin. 

Capital expenditures for fiscal 2026 are planned at approximately $300 million. Capital project spend is allocated as follows: approximately 45% is dedicated to retail store expansion and support, around 35% is designated for technology and logistics investments and the remaining 20% is allocated to home office expansion to support the company’s growing businesses. 

The company expects to open approximately 69 new stores and close 17, with most new openings coming from FP Movement, Free People and Anthropologie.

URBN Stock Past Three-Month Performance

Image Source: Zacks Investment Research

Shares of this company have lost 12.4% in the past three months compared with the industry’s 6.3% decline.

Key Picks

We have highlighted three better-ranked stocks, namely, Steven Madden, Ltd. (SHOO Quick QuoteSHOO - Free Report) , Boot Barn Holdings, Inc. (BOOT Quick QuoteBOOT - Free Report) and American Eagle Outfitters Inc. (AEO Quick QuoteAEO - Free Report) .

Steven Madden designs, sources, markets and sells fashion-forward branded and private-label footwear, accessories, handbags and apparel. It currently holds a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The Zacks Consensus Estimate for Steven Madden’s current financial-year earnings and revenues implies a decline of 40.1% and growth of 10.3%, respectively, from the year-ago actuals. SHOO delivered a trailing four-quarter average earnings surprise of 3.3%.

Boot Barn operates as a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories. It currently carries a Zacks Rank of 2. 

The Zacks Consensus Estimate for Boot Barn’s fiscal 2026 earnings and sales implies growth of 20.5% and 16.2%, respectively, from the year-ago actuals. Boot Barn delivered a trailing four-quarter average earnings surprise of 5.4%.

American Eagle is a specialty retailer of casual apparel, accessories and footwear. It carries a Zacks Rank of 2 at present.

The Zacks Consensus Estimate for American Eagle's current fiscal-year earnings and sales indicates declines of 35.1% and 0.1%, respectively, from the year-ago actuals. AEO delivered a trailing four-quarter average earnings surprise of 30.3%.