Nuuly Hits Inflection Point as URBN Delivers Another Record Quarter
Record sales, Nuuly scale, and tariff tailwinds mix with Anthropologie's assortment rebalance.
URBN · Earnings Call · 2026-08-26
Urban Outfitters delivered another record quarter, with net sales up 10% to $1.7 billion and EPS up 9% to $1.72, marking the eighth consecutive quarter of record sales and profits. The standout was Nuuly, which hit 484k average active subscribers and delivered a 29% revenue increase, with a first-ever 10% operating margin.
Nuuly's Inflection Point
The subscription rental business has reached critical scale. As Dave Hayne noted, “In the second quarter, average active subscribers reached 484,000, up 30% versus last year, and we actually crested over 500,000 active subscribers in early June before easing back into our typical summer seasonality.” — David Hayne, President of Nuuly · 2026-08-26 This milestone, combined with the 10% operating margin, validates the business model. The company is investing heavily in automation and capacity—expanding Kansas City from 600k to 1 million square feet and adding a new Pennsylvania facility by 2028. This is a clear signal that average active subscriber growth remains the priority, as they continue to improve personalization and fit guidance. Retention rates have stayed stable, a key indicator for subscription businesses. The upcoming ARPU extension program, launching H1 next year, is a new growth avenue that could further boost subscriber economics.Anthropologie's Turn
Anthropologie's comp improved to 3% from 2%, with encouraging early fall reads. Tricia Smith expressed confidence in getting back to mid-single-digit comps. The team is working through slower-turning inventory with elevated markdowns, but the early fall transition products have driven regular price comps nicely positive. This is a marked improvement from the past few quarters. The brand's ability to leverage its own brands and beauty category adds to the optimism. However, the brand still contends with higher markdowns, a factor that has weighed on margins.Macro Backdrop and Outlook
The quarter included a significant IEEPA refund from tariffs imposed in the prior spring, which provided a tailwind. Frank Conforti noted: “During the second quarter, we received substantially all of our refund relating to the incremental IEEPA tariffs imposed beginning in the spring of FY '26.” — Francis Conforti, Chief Financial Officer · 2026-08-26 However, fuel surcharges from the Middle East situation are a headwind. Management guided to 25-50 basis points of gross margin improvement in Q3, helped by lower tariffs and occupancy leverage, though fuel surcharges will have a ~70 bps negative impact each quarter. CapEx is planned at $475M, with 50% for logistics, reflecting heavy investment in scaling Nuuly and other growth initiatives.This confidence, combined with the strong portfolio performance, suggests URBN is well-positioned for the back half. As Melanie stated, “We're off to a solid start this quarter. And based on what we're seeing so far, we're planning for Q3 total company sales to grow in the high-single-digit range.” — Melanie Marein-Efron, Chief Accounting Officer or similar finance role · 2026-08-26 The company's structural diversification across brands, channels, and geographies remains a core strength, evidenced by all retail brands posting positive comps. The turnaround at the Urban Outfitters brand, which had been a loss in North America, is now contributing positively. Prior calls highlighted the UO turnaround—“the brand hit profitability last year. And in the first quarter, they continue to build upon that...” — Francis Conforti, Chief Financial Officer · 2026-05-20 and Anthropologie's challenges—“Our sales accelerated coming out of the holiday period with receipt of new spring transitional product...” — Tricia Smith, Executive or Brand Leader (Anthropologie) · 2026-02-28 The current quarter shows these efforts are bearing fruit. The massive CapEx increase reflects management's conviction in the growth story. Capital expenditure reached $193M, up 319% year-over-year, driven by logistics and store expansion. This investment, alongside the record results, underscores a company investing for the long term while delivering near-term beat.However, based on what we see across our businesses every day, the economy and the customers remain in very solid shape. Job stability is real, take-home incomes are rising, and our customers continue to spend on fashion.