Urban Outfitters (URBN) Up 2.2% Since Last Earnings Report: Can It Continue?

Core Viewpoint - Urban Outfitters reported strong Q2 fiscal 2026 earnings, surpassing estimates and showing year-over-year growth, but faces challenges from tariff increases and rising SG&A costs that may impact future gross margins [2][3][6]. Financial Performance - Earnings per share reached $1.58, exceeding the Zacks Consensus Estimate of $1.44, marking a 27.4% increase from the prior year [3]. - Total net sales rose 11.3% year over year to $1,504.8 million, surpassing the consensus estimate of $1,476 million [3]. Segment Performance - Retail segment net sales increased by 7.8%, with comparable net sales up 5.6%, driven by growth in both retail store and digital sales [4]. - Wholesale segment net sales grew 18.1%, primarily due to a 19.5% increase in Free People's wholesale sales [5]. - Nuuly, the women's apparel subscription service, saw a significant 53.2% increase in net sales, supported by a 48.1% rise in average active subscribers [5]. Margin and Cost Insights - Gross profit increased by 14.8% year over year to $566.2 million, with gross margin expanding 113 basis points to 37.6% [6]. - SG&A expenses rose 12.5% year over year to $391.8 million, primarily due to higher marketing and payroll costs [7]. - Operating income was $174.4 million, up 20.2% from the previous year, with an operating margin of 11.6% [8]. Inventory and Cash Flow - Cash and cash equivalents stood at $332.2 million, with total shareholders' equity at $2.58 billion [10]. - Total inventory increased by 15.1% year over year, driven by higher sales and planned early merchandise receipts [10]. - The company generated net cash of $251 million from operating activities in the first half of fiscal 2026 [11]. Future Outlook - Urban Outfitters expects total company sales to grow in the high single digits for Q3 fiscal 2026, with mid-single-digit growth anticipated in the Retail segment [12]. - Gross profit margin is expected to remain flat year over year in Q3, with SG&A expenses projected to rise faster than sales [13]. - For the full fiscal year 2026, gross margins are expected to improve by approximately 100 basis points, despite tariff pressures [14]. Capital Expenditures and Store Expansion - Capital expenditures for fiscal 2026 are projected at approximately $270 million, with significant allocations for retail store expansion and technology investments [16]. - The company plans to open approximately 69 new stores and close 17 in fiscal 2026, focusing on FP Movement, Free People, and Anthropologie [17].