Urban Outfitters Stock Dips: Can a Gen-Z Strategy Boost Sales?

Urban Outfitters (NASDAQ: URBN) is a mid-cap firm in the consumer discretionary sector. In 2024, the company’s shares vastly outperformed their sector, with a total return of over 16% before its recent earnings.

The SPDR Consumer Discretionary Select Sector Fund (NYSEARCA: XLY) has returned just under 5%. The company reported fiscal Q2 2025 earnings on Aug 21. I’ll provide some background on the firm’s operations and then review its earnings report and conference call. I’ll close with some outlook of the company.

Urban Outfitters: Traditional Retail Combined with a Market Differentiator

Urban Outfitters operates as three reportable segments: Retail, Wholesale, and Nuuly. The company's retail segment consists of its physical stores and websites through which it directly sells to consumers. Its notable retail store brands are Anthropologie, Free People, and Urban Outfitters.

 Anthropologie caters to sophisticated and contemporary women aged 28 to 45, making up 43% of the company’s total revenues in 2023. Free People targets contemporary women aged 25 to 30 and makes up 21% of the firm's total revenues.

Urban Outfitters targets young adults aged 18 to 28 who are “culturally sophisticated, self-expressive, and actively engaged with their peer group." It made up 26% of the company’s total revenues.

The wholesale segment sells Free People and Urban Outfitters clothing to department stores. It makes up 4.6% of total revenues.

The Nuuly segment is one area where Urban Outfitters differentiates itself considerably compared to massive apparel companies like Nike (NYSE: NKE) and Lululemon (NASDAQ: LULU). Nuuly offers a subscription service for women's clothing, allowing customers to rent a variety of clothing pieces.

Customers select products to rent for a month and then send them back to receive new products the next month. The available items stretch beyond the clothes the company makes itself, including third-party and vintage products. The Nuuly segment made up 4.6% of total revenues.

Urban Outfitters Beats on Headline Number but Shows Underlying Weakness

Urban Outfitters beat estimates on adjusted earnings per share (EPS) and revenue. Adjusted EPS came in at $1.24, 24% above analyst expectations and an increase of 13% from the past year. Net sales came in at $10 million above analyst expectations at $1.35 billion, 6% above analyst expectations.

Comparable sales for the retail segment increased by 2%. Free People grew by 7.1%, Anthropologie grew by 6.7%, and Urban Outfitters decreased by 9.3%. Nuuly's sales were impressive. They rose 63% from last year's quarter, well above expectations.

Despite many positives in the company’s earnings release, a few factors caused the market to react sourly. First, comparable sales at Urban Outfitters stores came in below analysts' expectations.

This isn’t the first time this has happened recently. Urban Outfitters stores' comparable sales dropped 14% in fiscal Q1 2025 and fiscal Q4 2024, as Free People and Anthropologie both saw strong growth.

Earning’s Call Causes Concern for the Namesake Business

In the company’s earnings call, executives used dramatic wording about the Urban Outfitters stores. Shea Jensen, President of Urban Outfitters America, said the firm has been reviewing the brand for six months.

She had strong words about that review: “What we have learned is that while there is a great deal of opportunity for improvement, the brand is not fundamentally broken." It is good that they have ways to improve, but even suggesting the brand might be “fundamentally broken” is alarming.

She noted that through the pandemic, the market saw “rapid and seismic shifts as the generational passage from millennials to Gen Z” occurred. She admitted that the company essentially lost track of how to win their young buyers, causing their customer funnel to erode.

She laid out a five-pillar plan for how the firm intends to restore the business, saying, “Our first step is to understand the Gen-Z customer." She added that in the firm's research, they “heard very clearly that customers perceive us as expensive."

Shares were down nearly 13% in after-hours and premarket trading on Aug. 21 and 22.

Restoring the UO Brand is Not a Quick Fix

Overall, the market wants Urban Outfitters to restore its namesake business. That will take a while, especially since the firm says it is just now starting to understand the Gen-Z customer.

Also, the perception that the brand is expensive will weigh it down based on the currently depressed economic sentiment. However, the company can likely restore the brand eventually. Strength in its other segments shows that it is able to market to customers successfully.

The article "Urban Outfitters Stock Dips: Can a Gen-Z Strategy Boost Sales?" first appeared on MarketBeat.