Note: Urban Outfitters' FY'25 ended on January 31, 2025.
Finally, the company plans to continue expanding its store footprint: about 69 new stores are projected in fiscal 2026 (with some closures), with expansion focused on its proprietary brands rather than wholesale distribution.
We forecast the company's margins to grow gradually over our forecast period. If, due to a better assortment, higher consumer spending, and disciplined inventory control, the company manages to improve the margins to levels higher than expected, there is significant upside potential. On the contrary, if the U.S. apparel industry remains highly promotional, and the company faces problems of inventory hangover due to an imbalance in merchandise mix, its margins can decline.
URBN is a lifestyle products and services company that operates a portfolio of global consumer brands including the Anthropologie, Free People, FP Movement, Urban Outfitters, and Nuuly brands. It operates under three reportable segments – Retail, Wholesale, and Nuuly. URBN has over 53 years of experience creating and managing retail stores that offer highly differentiated collections of fashion apparel, accessories, and home goods in inviting and dynamic store settings. Its core strategy is to provide unified environments that establish emotional bonds with the customer. In addition to its retail stores, the company offers its products and markets its brands directly to the consumer through its e-commerce websites, mobile applications, and catalogs. The Free People wholesale division develops private label apparel lines of young women's casual wear that are sold through better department and specialty stores, third-party websites, and its retail stores, while the Anthropologie wholesale segment is focused on the sale of home goods. The Nuuly segment includes the Nuuly brand, which offers customers a more sustainable way to explore fashion through a monthly women’s apparel subscription rental service.
URBN believes Anthropologie has the potential to derive half of its sales from outside the United States in the long term. Currently, a bulk of international sales are obtained from the U.K., but the brand is in the process of expanding into other countries. The company plans to open additional stores in Europe and facilitate the opening of several additional franchise stores in North America.
Although Urban Outfitters' store business has not been at its best in the recent past, the online business is continually outperforming. Web traffic and average order value across the brands are on the rise, and the proportion of full-price sell-throughs is also increasing. Urban Outfitters' brand image and appealing portfolio are partially responsible for this rise. The online growth can also be attributed to the industry-wide shift from store to web shopping. We believe that Urban Outfitters will continue to benefit from this growth with its omni-channel and other online initiatives.
Omni-channel retailing refers to providing customers with a seamless shopping experience by integrating the inventory pool across channels. This concept allows companies to attract customers irrespective of their preferred shopping channel. The entire U.S. retail industry is gradually adopting this retailing format, and Urban Outfitters is no exception. The company is looking to deploy web, mobile, and Omni initiatives around website optimization, check-out, search, personalization, and many mobile and mobile app enhancements. It is also expanding its store base gradually which will provide it with an optimum presence in the country necessary for omni-channel retailing.
The Subscription segment, formerly known as the Nuuly segment, includes the Nuuly brand, which is primarily a monthly women’s apparel subscription rental service. Net sales from the Subscription segment accounted for approximately 6.8%, 4.6%, and 2.7% of total consolidated net sales for fiscal 2025, 2024 and 2023, respectively. The segment achieved an 82% increase in average active subscribers in 2024, contributing to robust double-digit revenue growth (60% increase to $378 million). Nuuly, while profitable, has not yet achieved positive cash flow due to the need to purchase inventory ahead of future subscriber growth.
