What's Driving the Record Gross Margin at Urban Outfitters This Year?

Globe and Mail

16-06-2025

Urban Outfitters Inc. URBN reported a strong start to fiscal 2026, driven by improved profitability and greater operational efficiency. In the first quarter, gross profit rose 19.8% year over year to a record $489.1 million. This resulted in a gross margin of 36.8%, an expansion of 278 basis points from the prior year. The margin improvement included a 36-basis-point benefit from a one-time $4.8-million gain and a 38-basis-point lift from the absence of last year's impairment and lease abandonment charges.
Excluding these factors, URBN achieved a core margin increase of 204 basis points. This was primarily driven by lower markdowns in the Retail segment, particularly at the Urban Outfitters brand. Additional improvements came from reduced delivery costs, supported by lower carrier rates and fewer packages per order, as well as improved leverage on store occupancy costs resulting from stronger comparable retail sales.
Operating income surged 72% to $128.2 million from the prior year. As a percentage of sales, the operating margin moved up 340 basis points to 9.6%. Strong full-price selling, disciplined inventory management, and strategic marketing spend contributed to this outperformance. Anthropologie and Free People continued to deliver steady double-digit margins, reinforcing the strength of URBN's brand portfolio.
Management expects the second-quarter gross margin to improve 50-100 basis points year over year. Gains from lower markdowns and occupancy leverage are expected to offset some pressure from reduced initial product margins due to higher U.S. tariffs. Also, the company remains confident in achieving its 10% operating margin goal for fiscal 2026.
With solid execution across brands and momentum building in both revenue and margin performance, URBN appears well-positioned to meet its profitability targets and potentially set a new long-term standard for operational excellence.
Urban Outfitters' Zacks Rank & Share Performance Details
Shares of this Zacks Rank #1 (Strong Buy) company have rallied 38.4% in the past three months compared with the Zacks Retail-Apparel and Shoes industry's modest 4% growth. This leading lifestyle specialty retailer's ongoing strategic initiative and operational efficiencies have enabled it to outperform the broader Retail-Wholesale sector and the S&P 500 index's growth of 2.3% and 5.2%, respectively, during the same period.
Image Source: Zacks Investment Research
Closing at $68.01 as of Friday, the URBN stock is trading 10.3% below its 52-week high of $75.80 attained on May 28, 2025. Technical indicators support Urban Outfitters' strong performance. The stock is trading above its 50 and 200-day SMAs (simple moving averages) of $58.41 and $49.65, respectively, highlighting a continued uptrend. This technical strength, along with sustained momentum, indicates positive market sentiment and investors' confidence in URBN's financial health and growth prospects.
URBN Trades Above 50 & 200-Day Moving Averages
Is URBN a Value Play Stock?
Urban Outfitters stands out as a compelling value play within the industry, trading at a forward 12-month price-to-sales ratio of 0.99, below the industry average of 1.65 and the sector average of 1.59. This undervaluation highlights its potential for investors seeking attractive entry points in the retail space. URBN's Value Score of A emphasizes its investment appeal.
Estimate Revisions Favor Urban Outfitters Stock
The positive sentiment surrounding URBN is reflected in the upward revisions in the Zacks Consensus Estimate for earnings. In the past seven days, the consensus estimate has moved up four cents to $4.96 per share for the current fiscal year and by five cents to $5.45 for the next fiscal year, indicating year-over-year growth of 22.2% and 9.9%, respectively. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
The Zacks Consensus Estimate for the current and next fiscal year's sales is pegged at $6.02 billion and $6.42 billion, implying year-over-year growth of 8.5% and 6.6%, respectively.
Other Key Picks
Some other top-ranked stocks are Stitch Fix SFIX, Canada Goose GOOS, and Allbirds Inc. BIRD.
Stitch Fix delivers customized shipments of apparel, shoes and accessories for women, men and kids. It carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Stitch Fix's current fiscal year's earnings implies growth of 69.7% from the year-ago actuals. SFIX delivered a trailing four-quarter average earnings surprise of 51.4%.
Canada Goose is a global outerwear brand. GOOS is a designer, manufacturer, distributor and retailer of premium outerwear for men, women and children. It carries a Zacks Rank #2 at present.
The Zacks Consensus Estimate for Canada Goose's current fiscal year's earnings and sales indicates growth of 10% and 2.9%, respectively, from the year-ago actuals. Canada Goose delivered a trailing four-quarter average earnings surprise of 57.2%.
Allbirds is a lifestyle brand that uses naturally derived materials to make footwear and apparel products. It carries a Zacks Rank of 2 at present.
The Zacks Consensus Estimate for BIRD's current financial-year earnings implies growth of 16.1% from the year-ago actual. The company delivered a trailing four-quarter average earnings surprise of 21.3%.
Zacks' Research Chief Names "Stock Most Likely to Double"
Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.
This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.
Free: See Our Top Stock And 4 Runners Up
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.
Urban Outfitters, Inc. (URBN): Free Stock Analysis Report
Canada Goose Holdings Inc. (GOOS): Free Stock Analysis Report
Stitch Fix, Inc. (SFIX): Free Stock Analysis Report
Allbirds, Inc. (BIRD): Free Stock Analysis Report