URBN vs. AEO: Why Urban Outfitters Could Be the Smarter Bet?

American Eagle Outfitters (NYSE: AEO) has been making headlines with its recent stock gains, but investors should also take a closer look at Urban Outfitters (NASDAQ: URBN). URBN trades at a leaner 14 times earnings compared to AEO’s 18x multiple. With stronger growth, higher margins, and a resilient portfolio, URBN isn’t just cheaper—it’s the smarter bet.

1. Growth: Urban Outfitters is expanding faster. Revenue has risen over 8% in the past twelve months, while American Eagle has seen a marginal decline. In the first half of fiscal 2025, URBN generated nearly $3 billion in sales, more than double AEO’s figures.
2. Margins: Profitability also favors URBN. Its trailing twelve-month margin tops 9%, compared with AEO’s closer to 6%. For 1H FY2025, URBN posted a 10.7% operating margin versus 7.8% for AEO, reflecting greater efficiency.
3. Tariffs: Both companies are navigating tariffs through sourcing shifts and negotiations, but impacts differ. URBN expects about 75 basis points of margin compression in H2 2025, manageable given its strong margins and cost discipline. AEO faces higher dollar costs—roughly $20 million in Q3 and $40–50 million in Q4—though mitigation cuts total exposure to nearly $70 million from $180 million. URBN leans on pricing power, while AEO relies on brand momentum, including celebrity campaigns, to cushion the impact.

Image by Pexels from Pixabay

Is URBN A Safe Bet?

While some might consider Urban Outfitters a “safe haven,” its track record during past market shocks tells a different story. In the 2022 inflation-driven downturn, URBN dropped over 56%, and during the 2020 pandemic, it fell around 56%. Clearly, URBN isn’t exactly a “safe stock.” Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

Still, the stock has gained about 30% year-to-date, climbing from roughly $55 in January to around $71 today (as of writing). But single-stock bets always come with risk. For investors looking for a steadier, long-term approach, consider the Trefis High Quality Portfolio. This strategy has outperformed the market with over 91% returns since its inception.

From Free People to Nuuly: URBN’s Growth Engines Shine

Free People and Anthropologie continue to drive growth. Free People revenues are up 12% year-over-year, with FP Movement expanding 30%+ in 1H FY2025. Anthropologie reached $1.18 billion (+7%), Free People $768 million (+12%), while the core Urban Outfitters brand remained resilient at $607 million (+3%). The subscription business Nuuly surged 56% to $263 million, highlighting the adoption of new channels. Premium banners maintain pricing power, helping offset inflation pressures on younger, price-sensitive shoppers. With nearly 40% of sales online and international revenue still under 15%, URBN has room to scale and return capital.

Potential Risks to Consider

URBN offers strong growth potential, but risks remain. Tariffs—50% on India, 20% on Vietnam, 15% on Turkey, and 30% on China—could shave roughly 75 basis points off H2 gross margins, despite management’s mitigation strategies. The Urban Outfitters brand is sensitive to consumer trends and economic shifts, and elevated inventories or supply chain disruptions could lead to markdowns. In a competitive retail landscape, constant innovation is required. URBN’s brand momentum is strong, but investors must weigh operational, market, and macroeconomic pressures carefully.

Long-Term Perspective

For long-term investors with a 3–5 year horizon who can tolerate volatility, URBN at current levels presents an interesting entry point. Its premium brands, subscription growth, and digital footprint provide structural growth potential, while strong cash reserves and minimal debt offer flexibility. For those seeking strategies to navigate market downturns and potentially capitalize on them, exploring options like the Trefis  Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors, or consulting a financial advisor with experience in bear markets could be beneficial. Remember, significant wealth can be generated in the market by those who maintain a calm and strategic approach during periods of volatility.

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