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Date
Wednesday, August 27, 2025 at 5 p.m. ET
Call participants
Chairman and Co-Founder — Dick Hayne
Co-President and Chief Operating Officer — Frank Conforti
Chief Financial Officer — Melanie Marein-Efron
Global CEO, Urban Outfitters — Sheila Harrington
European President, Urban Outfitters — Emma Wiston
President, Urban Outfitters North America — Shay Jensen
President, Free People — Meg Hayne
Global CEO, Anthropologie Group — Tricia Smith
President, Nuuly — Dave Hayne
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Risks
Tariffs— Frank Conforti explicitly stated, "the impact for the second half of the year could be approximately 75 basis points to gross margins," with the 50% India tariff included.
SG&A deleverage— Melanie Marein-Efron said, "you will see the third quarter, we have a bit of deleverage, and then in the fourth quarter, it comes back with leverage."
Elevated inventory— The CFO noted, "We ended Q2 with slightly elevated inventory levels, as we intentionally brought in product early to reduce the impact of announced tariff increases."
Furniture headwinds— Tricia Smith said, "The furniture business continues to be challenging, but the comps are lessening as we head into Q3."
Takeaways
Total sales-- $1.5 billion, up 11%, marking a fiscal Q2 2026 record for the company.
Net income-- Increased 22% to $144 million, or $1.58 per diluted share, setting a new fiscal Q2 2026 high.
Gross profit-- Rose 15% to $566 million, with the gross profit rate up 113 basis points to 37.6% in fiscal Q2 2026, driven by lower markdowns and occupancy leverage.
SG&A-- Increased 13%, deleveraging by 28 basis points, mainly due to higher marketing spend fueling both sales and customer growth in fiscal Q2 2026.
Operating income-- Grew 20% to $174 million, with the operating profit rate improving by 85 basis points to 11.6% in fiscal Q2 2026.
Retail segment comp-- Increased 6%, with all brands and geographies delivering positive comps in fiscal Q2 2026. Four out of five brands achieved record fiscal Q2 2026 sales.
Nuuly subscription-- Delivered 53% revenue growth, with average active subscribers increasing 48% in fiscal Q2 2026 to approximately 370,000 by August. It also posted its most profitable quarter, with a 9% operating margin in fiscal Q2 2026.
Wholesale revenue-- Rose 18% across all distribution channels in fiscal Q2 2026. However, it is expected to deliver mid-single-digit growth in fiscal Q3 2026 due to tougher comparisons.
Anthropologie-- Retail segment comp grew 6%, with every category—including shoes, accessories, apparel, and home—posting positive comps in fiscal Q2 2026. Own brands now constitute approximately 71% of the business and are growing at double digits as of fiscal Q2 2026.
Free People-- Total revenue was up 14%, with a 7% retail segment comp and a 19% wholesale increase in fiscal Q2 2026. The FP Movement segment rose 30%, and non-comp sales grew over 200%, with five new FP Movement stores opened in the second quarter.
Urban Outfitters brand-- Global revenue was up 5%, with retail segment comps up 4% in fiscal Q2 2026. There was double-digit growth in Europe, positive comps in North America, and a second consecutive quarter of global comp growth in fiscal Q2 2026.
Q3 outlook-- Management guides for high single-digit total sales growth, mid-single-digit retail segment comp increases for Anthropologie, Free People, and Urban Outfitters, mid-double-digit Nuuly growth, and a mid-single-digit wholesale increase in fiscal Q3 2026.
Gross margin outlook-- Full-year gross margin is projected to rise by about 100 basis points for fiscal 2026, despite a second-half tariff drag of approximately 75 basis points.
Capital expenditure-- Projected at approximately $270 million for fiscal 2026, split roughly 50% for retail store support, 25% for technology/logistics, and 25% for home office expansion.
Store plans-- Approximately 69 new stores are to be opened and 17 closed in fiscal 2026, with the majority of net growth coming from FP Movement, Free People, and Anthropologie brands.
Summary
Urban Outfitters(URBN 2.29%) reported record-setting sales and net income for fiscal Q2 2026 (period ended July 31, 2025), with every brand and segment delivering positive comps and strong operating income improvement. Management confirmed that mitigation strategies against tariff headwinds are in effect, targeting a 100-basis-point full-year gross margin improvement for fiscal 2026 despite a 75-basis-point tariff impact in the second half. The Nuuly rental segment accelerated subscription and revenue growth, now representing around 370,000 active subscribers and delivering robust margin expansion in the second quarter. Strategic priorities remain on omnichannel traffic growth, new store expansion, and disciplined inventory and expense control.
Shay Jensen highlighted, "Second-quarter new customer growth was up 17%" at Urban Outfitters North America. Reactivation rates also rose by double digits, with enhanced full-price conversion among new cohorts in fiscal Q2 2026.
Frank Conforti detailed, "The de minimis for us is obviously really immaterial." making the end of the U.S. de minimis exemption a negligible direct impact for Urban Outfitters.
Management confirmed proactive pricing strategies: The company is focused on protecting that customer experience, using direct price increases only as a last step, with prioritized negotiations and sourcing shifts ahead of direct price increases.
Emma Wiston reported, "Urban Outfitters Europe has achieved a 15% compounded annual growth rate over the past five years."
Melanie Marein-Efron stated, "For the third quarter, our brands are planning outsized marketing investments." This will lead to SG&A deleverage in fiscal Q3 2026 before returning to leverage in fiscal Q4 2026.
Expansion investments include Nuuly’s Kansas City logistics facility, growing from 600,000 to 1,000,000 square feet, with automation and storage capacity to further drive recurring subscription growth by mid-next year.
The men’s business at Urban Outfitters North America is on track for a renewed assortment and performance. “I would expect, you know, largely sort of, probably by spring that you'll really see a noticeable difference in that assortment with, you know, some evolution between now and then, as we build towards that,” with best practices taken from success in Europe’s proprietary brands.
Industry glossary
Comp sales: Comparable sales, representing growth from stores and digital channels open and operational in both the current and comparison period.
Own brand: Product designed, produced, and sold under company-exclusive labels rather than third-party or national branded inventory.
De minimis exemption: U.S. customs threshold allowing imports under a set value to enter duty-free, recently under regulatory review and industry scrutiny.
AUR: Average unit retail, describing the average sales price per item sold across a specific product category or assortment.
FP Movement: Performance apparel sub-brand operated by Free People, focused on activewear, athleisure, and fitness products across channels.
Maeve: Anthropologie’s proprietary label recently launched as a standalone brand, catering to expanded apparel and lifestyle customer segments.
Nuuly: Subscription apparel rental service operated by Urban Outfitters, focused on recurring revenue from active monthly subscribers.
Full Conference Call Transcript
Dick Hayne: Thanks, Oona, and good afternoon, everyone. The Urban Outfitters, Inc. teams delivered another outstanding quarter. Total sales grew by 11%, and net income increased by 22%. Both new second-quarter records. We are especially pleased to report that all brands produced positive comps across all geographies, including the Urban brand in North America. The agenda for today's call includes comments from Frank Conforti, our Co-President and COO, who will elaborate on Q2 performance by brand and business segment and address the tariff situation. After Frank, we will spend some time talking about the exciting second-quarter successes at the Urban Outfitters brand.
Speaking to this will be Sheila Harrington, Global CEO of Urban Outfitters, Emma Wiston, Urban's European President, and Shay Jensen, North American President. After that, Melanie Marein-Efron, our CFO, will walk you through our outlook for the second half. I will then wrap things up with a few closing thoughts before we open the call up for your questions. I now turn the call over to Frank.
Frank Conforti: Thank you, Dick, and good afternoon, everyone. Today, I'm excited to share our company's second-quarter results compared to last year. And then I will dive into some detailed notes by brand. Overall, our teams delivered another outstanding quarter, exceeding our plans and setting new sales and profit records. Total Urban Outfitters, Inc. sales grew by over 11%, reaching a Q2 record of $1.5 billion. All of our retail segment brands delivered positive retail segment comps, and four of our five brands posted record second-quarter sales. Nuuly continued to deliver exceptional performance as the brand posted record revenue and operating income driven by an increase of 120,000 average active subscribers compared to the prior year.
Our total sales growth was partly driven by a 6% increase in the retail segment comp, with Urban Outfitters, Inc.'s comps being similar in both channels. Nuuly delivered impressive 53% revenue growth with a 48% increase in average active subscribers. Additionally, the wholesale segment delivered an 18% increase in revenue driven by growth in all channels of distribution. Next, I will turn your attention to gross profit. Urban Outfitters, Inc. saw a 15% increase in gross profit dollars, reaching a record $566 million. The gross profit rate also improved nicely by 113 basis points, rising to 37.6%.
The improvement in gross margins was primarily driven by lower markdowns largely driven by the Urban Outfitters brand, as well as occupancy leverage driven by the strong top-line growth. In the quarter, SG&A increased by 13% deleveraging by 28 basis points. The growth in SG&A dollars was primarily driven by increased marketing spend, which fueled sales and customer growth for all brands. The marketing efforts drove increases in traffic and transactions, both in stores and online, for total Urban Outfitters, Inc. While Nuuly's campaigns resulted in healthy double-digit growth in average active subscribers.
Overall, total Urban Outfitters, Inc. operating income rose by 20% compared to last year, reaching $174 million, while the operating profit rate improved by 85 basis points to 11.6%. Net income saw a 22% increase to a new Q2 record of $144 million or $1.58 per diluted share. Now moving on to brand performance. Starting with Anthropologie. The Anthropologie team had another fantastic quarter, achieving a 6% increase in their retail segment comp, which marks over four years of consecutive quarterly positive comps. This success was fueled by equal strength in the digital and store channels, both of which benefited from increased traffic and transactions.
Every product category saw positive regular price and total sales comps, with strong performance across shoes and accessories in addition to apparel and home. Strength in apparel was driven by the team's continued success in expanding their product offering to fit their customers' full lifestyle. In addition to Celandine, an Anthra-owned brand offering year-round vacation-ready styles, and Daily Practice, Anthro successfully launched another owned brand, Lyrebird, providing an expanded assortment of intimates and lounge. All three Anthropologie-owned brands showed strong growth within the second quarter and continue to expand the customer share of wallet with Anthropologie. Within the home category, home accessories led the growth driven by fashion newness.
As part of Anthropologie's ongoing strategy to serve a multigenerational customer across all aspects of her lifestyle, the brand recently marked a major milestone with the launch of their in-house Maeve label as a standalone brand. This launch reflects meaningful progress on the strategic priorities Tricia Smith outlined last August to focus on investment in owned brand development, enhancing selling environments, delivering inspirational creative content, and expanding the customer base across each demographic. In August, the brand implemented a robust full-funnel marketing strategy, and we are planning to open the brand's first standalone store this fall in Raleigh, North Carolina. So far, the marketing campaign has exceeded our expectations, and we are excited to open our first store.
We believe this evolution of Maeve reinforces Anthropologie's commitment to brand-led growth, lifestyle expansion, and unlocks further opportunity to build on the momentum already underway while strengthening relevance with high-value customers across generations and ushering in a new era of customer engagement. Based on our current plans, we believe the Anthropologie group could deliver a mid-single-digit positive retail segment comp in Q3. Next, let's turn our attention to another impressive performance by the Free People team. They delivered a 14% increase in total revenue and double-digit operating income growth. Their sales growth was driven by a 7% retail segment comp and a 19% increase in Free People wholesale segment revenues.
The positive retail segment comp was driven by similar comps in both the store and digital channels and positive comps across all major product categories. Non-comp sales grew by over 200% boosted by the opening of new Free People and FP Movement stores. The brand successfully opened an additional 10 stores in the second quarter, including five Free People and five FP Movement stores. The FP Movement brand delivered robust total growth of 30% driven by a 14% retail segment comp, and wholesale segment sales growth of 52%. The brand continues to make significant progress on our long-term strategic focus to build our Performance Apparel business.
The brand had a strong 360-degree marketing campaign focused on sports bras and bottoms with both categories delivering healthy double-digit comps. The brand saw double-digit increases in new, reactivated, and retained customers during the quarter. Based on our current plan, we believe the Free People retail segment could deliver a mid-single-digit positive comp in Q3. Free People wholesale revenues increased by 19% during the quarter, driven by sales gains in all channels and geographies. As we move into the back half of the year, the wholesale channel faces more difficult year-on-year comparisons versus the prior year. Based on our plans, we believe the wholesale channel could deliver mid-single-digit growth in the third quarter.
Finally, let's touch on the Nuuly business, which delivered another exceptional quarter, achieving its most profitable quarter ever and beating our previous best operating profit rate from last year's second quarter by over 300 basis points. The brand continues to outperform our most optimistic expectations. The 48% growth in average subscribers contributed to a 53% increase in brand revenue and added four percentage points of revenue growth to total Urban Outfitters, Inc. sales. The strong revenue growth in the second quarter resulted in leverage in almost every expense line item, helping to deliver a record second-quarter operating profit of 9%. As we scale the Nuuly business, we see further opportunity for growth and are primarily focused on building brand awareness.
That is why we are investing in more upper-funnel marketing efforts, most notably our latest campaign, which launched in August. This campaign builds on strong momentum from the successful first-quarter marketing campaign. While the first-quarter campaign focused on broad education around the value of clothing rental, this new campaign speaks specifically to our target audience. It positions Nuuly as the solution to common wardrobe challenges faced by our core demographic, like feeling overwhelmed with clothing options, yet still having nothing to wear. Our first-quarter campaign was instrumental in expanding awareness, with 66% of new subscribers indicating they had never rented clothing before.
Our first brand awareness campaign launched last year in the third quarter, followed by a first-quarter campaign this year, both contributed to significant new customer growth and drove a measurable increase in market awareness. We believe that due to Nuuly's predictable recurring revenue model, as well as the strong retention profile, we can make thoughtful marketing that yields returns over multiple future quarters. We look forward to continuing to increase brand awareness and drive new subscription adoption now and in future quarters. To support Nuuly's growth, we are expanding our logistics operations in Kansas City, Missouri, from 600,000 square feet to 1,000,000 square feet. The brand is currently adding storage capacity in this additional space to hold more rental products.
We believe this expansion will be complete by mid-next year. We are also adding new sortation automation in Kansas City to drive a more efficient operation that should be delivered in the back half of next year. These investments will continue to support Nuuly's robust growth, which we believe could provide further operational leverage. Nuuly's performance on top and bottom line continues to strengthen our confidence in the business model. We believe that we are leading the industry and that there is a very large and growing opportunity in the US for apparel rental. The performance at Nuuly over the past year has fortified our confidence to push the business forward with further investments and expansions.
Based on our current plans, we believe Nuuly could deliver healthy double-digit revenue growth in the third quarter. Now moving on to tariffs. Since our previous call, the landscape continues to change as tariff rates have increased for many countries. As of today and based on new assumptions, we believe the impact for the second half of the year could be approximately 75 basis points to gross margins. Our teams continue to work on mitigation strategies, including negotiating better terms with our vendors, diversifying our countries of origin, changing our mode of transportation from air to ocean, and strategically adjusting pricing to minimize the impact on our customers.
Although tariffs present a temporary challenge to our business, we are confident in our ability to manage through this environment and still achieve approximately 100 basis points of gross margin improvement for the full fiscal year 2026. I want to stress that this plan is based on what we know today. In summary, it was an exceptional quarter. All brands delivered positive retail segment sales comps, both the wholesale and subscription segments drove double-digit revenue growth, and all brands recorded healthy operating income improvement. We could not be prouder of the teams and their amazing execution.
I want to take a moment to especially congratulate the Urban Outfitters team for their significant progress in returning the brand to growth and improving profitability. On that note, I will now turn the call over to Sheila Harrington.
Sheila Harrington: Thank you, Frank, and good afternoon. I'm very pleased to report that Global Urban Outfitters delivered 5% revenue growth this quarter, with a 4% comparable sales increase in our retail segment. This represents the second consecutive quarter of positive comparable growth across our global business, highlighted by double-digit comp growth in Europe and positive comp growth in North America. Notably, this quarter saw year-over-year double-digit growth in gross profit and strong improvement in operating income. Based on the strong back-to-school sales reads, we believe that the brand can achieve mid-single-digit retail segment comparable sales growth in the second half while continuing to build on its profitability.
I want to congratulate and thank Shay, Emma, Meg, and their teams for delivering these strong results. Their strategic leadership, operational discipline, and consistent focus on the customer with creativity and passion have been instrumental in driving this change. Starting with our EU business, we delivered an 11% comparable sales increase in the retail segment, with strong performance across both channels led by stores. Over the past five years, Urban Outfitters Europe has achieved a 15% compounded annual growth rate. This quarter's results were driven by solid growth in both the UK and Continental Europe, with strength across both channels in Europe. Emma will share further details on our long-term plans for continued European expansion.
Our positive Urban Outfitters North America business reflects sequential improvement across both channels, with stores delivering positive results and DTC driving strong regular price comps. It is clear Shay's strategic growth initiatives introduced last year are yielding positive results. We look forward to seeing continued progress in this region. This momentum across regions, including the acquisition of new customers globally, reduced reliance on promotions, and growth in regular price sales, gives us confidence in the significant growth potential for the brand in both North America and Europe. The strength and positive reception of our proprietary product globally, combined with our ability to tailor products to local consumer preferences, remain key drivers of our success.
We are positioning Urban Outfitters globally not only to recover but return as a growth brand for Urban Outfitters, Inc. Our teams are well prepared for this growth in both regions. Now Emma Wiston will share more on the Urban Outfitters' EU business and growth opportunities. Followed by Shay Jensen, who will speak about the North America business. I will now turn the call over to Emma.
Emma Wiston: Thank you, Sheila, and good afternoon. I'm pleased to report another strong quarter for the Urban Outfitters brand in Europe, with performance coming in ahead of our expectations. Building on the momentum from the first quarter, our EU business delivered double-digit growth in the second quarter across several key categories supported by stellar product execution, disciplined inventory management, and a continued focus on the customer experience. Women's apparel and accessories were clear standouts with strong double-digit growth driven by an exceptional bottom cycle and viral item that resonated with customers. Men's and home also performed well, while our proprietary brands continue to gain market share.
Stronger, more localized inventory management lifted conversion, both in stores and online, and led to a markdown rate close to historical lows. From a marketing perspective, our strategy of authentic community-driven activations is paying off. We've seen a significant increase in both reach and engagement, outpacing industry benchmarks. Collaborations with emerging artists and cultural communities are reinforcing our brand's relevance. And our digital campaigns are delivering strong results. Regionally, the UK remains a highly established business with over a decade of strong customer connection. And our primary focus now is on Mainland Europe, where we are still in the early stages of growth but gaining momentum. Germany is our second-largest market with 18 stores and a growing digital business.
And we're building momentum quickly in France, Spain, and Italy. Our consistent growth over the past several years gives us confidence to open more stores across both Northern and Southern Europe and continue to expand our marketing efforts. All of this has been possible because of the strength of our leadership team. Their stability and experience have been crucial to delivering consistent divisional growth year after year. Looking ahead, our plan is not just about near-term wins, it's a long-term strategy that we believe in. One that's delivering results today and setting us up for future success. I will now turn the call over to Shay to speak to the North American business.
Shay Jensen: Thank you, Emma, and good afternoon. This time last year, we laid out our strategy to recover the North American business. Today, I'm happy to report on the significant progress we've made. We are not only executing the plan we outlined, but we're also building incredible momentum, and I'm excited to share the details with you. Over the past year, our team has passionately focused on our customer. We've evolved our product assortment to appeal to a broader target audience, built and applied new marketing strategies to acquire more customers, and adapted our channels to offer a more relevant experience. We're also operating with greater discipline, especially in inventory management and expense control.
Because of these efforts, our business continues to stabilize. We delivered a strong single-digit comp in the month of July, with growth in both channels, and a positive comp for the second quarter. With inventory more aligned to sales and disciplined expense management, we made incredible progress on our bottom line. We reduced markdowns by hundreds of basis points and leveraged almost all areas of expense, considerably reducing our loss compared to last year's second quarter and year to date. From a product perspective, we continue to apply customer insights and research to evolve our assortment, aiming to appeal to a broader range of our target customer. Our strategy is anchored in denim and lounge.
Our customers told us we were winning with great fit, exceptional comfort, and value. We've deliberately invested in and grown these businesses. With our foundation built in our two hero home brands, BDG Denim and Out From Under Lounge and Athleisure. These brands have grown by more than 30% year to date and now represent a considerable portion of our overall women's apparel business. As a lifestyle retailer, we recognize the opportunity to differentiate ourselves in the market by amplifying our accessories, novelties, and gifting categories. These categories offer our customers moments of discovery, experience, and price accessibility, uniquely positioning Urban Outfitters as a destination. They drive trips and build engagement.
Over the past year, these categories have grown exponentially and delivered some of the most exciting and exclusive products in our offer. From fun collaborations to limited edition items. In addition to our category distortions and growth, we've recalibrated our pricing architecture. We now have a better balance of opening, mid, and better price points with the goal of offering the best price-to-value combination on every item we sell. Opening price points now represent approximately 15% of our total assortment, and the customer continues to respond to these products. We've also broadened the range of occasions and categories we serve and offer to ensure our assortment is more relevant to our target customer.
Our assortment has evolved to include occasions such as game day and sorority rush, and we've broadened our size range. Overall, our women's business is healthy, driving strong comps, and we're confident that our focus on offering relevant products at the right price and on time for the occasion she attends is a winning recipe. From a marketing perspective, we're extremely excited about the progress the team is making. Second-quarter new customer growth was up 17%, with an increasing number of these customers aligning with our target demographic. Our team has been working to engage these new customers to drive brand loyalty and repeat trips, with a reactivation rate in the quarter up double digits.
These new customers are shopping full price, spending more than prior cohorts, and shopping more frequently. Our marketing progress reflects our team's clear strategy to engage customers authentically, not just in more places, but in the right places, on the right platform, and in more intentional and coordinated ways across creative, brand, and performance media. In addition to acquiring and activating new customers, we saw increased brand affinity as our unaided brand awareness grew in the quarter. More young customers are being welcomed into the brand through the team's compelling creative, culturally relevant conversation, and exciting collaborations with brands our customers know.
We're also excited about the progress we've made in adapting our selling experiences to be more relevant for our customers. We know our stores are a valuable asset and a place our customers love to shop. In our stores, we've evolved our selling model, repositioning our staff to reflect a more welcoming environment. We've also updated our in-store merchandising to support our new product strategy, allowing for ease of shopping while still offering the inspirational styling Urban Outfitters is known for. On our website, our new creative takes center stage and reflects the occasions our customers shop for and attend. In both channels, our net promoter scores are up meaningfully, indicating customers are pleased with our efforts.
While much progress has been made, we recognize this is a journey, and we have more work to do. The back-to-school season is underway, and our Q2 strength continues. Our college stores are abuzz, welcoming students back to campus. And the spirit of game day, reconnecting, and meeting new friends is in the air. Looking ahead, we're excited about the work underway to rebuild our men's apparel business, the opening this fall of a remodeled store featuring a newly designed store environment, and the continuation of our current strategy. With solid momentum, continued sequential improvement in our top-line sales, and disciplined control of expenses and inventory, we believe we will continue to deliver progress on our path to profitability.
Finally, I would like to congratulate and thank our team on the results they've delivered. The planning, collaboration, and commitment they brought to the brand has been incredible, and I'm grateful. I especially want to thank and recognize our leadership team, who I have the opportunity to work with day in and day out. I know I speak on their behalf when I say we feel optimistic and that the best is yet to come. I will now turn the call over to Melanie.
Melanie Marein-Efron: Thanks, Shay, and good afternoon, everyone. Let me walk you through how we're thinking about our third-quarter financial performance. We are excited to announce that we are off to a solid start this quarter. Based in part on our strong start to the quarter, we're planning for total company sales to grow in the high single digits for the quarter. In our retail segment, comp sales could grow mid-single digit, driven by mid-single-digit positive retail segment comps at Anthropologie, Free People brands, and the Urban Outfitters brand. At Nuuly, the brand could deliver mid-double-digit revenue growth driven by continued subscriber momentum. Finally, our wholesale segment could produce mid-single-digit growth.
Based on our current sales performance and plan, we believe Urban Outfitters, Inc.'s full-year gross profit margins could increase by approximately 100 basis points, with the second half growing by approximately 50 bps versus last year. Within the second half, third-quarter gross margins could be flat versus last year, as lower initial project margins from increased tariffs offset improvements in occupancy leverage and lower product markdowns. Fourth-quarter gross profit margins could increase by approximately 75 to 100 basis points as lower product markdowns, particularly the Urban Outfitters brand, offset lower initial product margins from increased tariffs.
Our current assumptions on tariffs are based on the announced tariff rates as of August 27, which includes 50% tariff rates on goods from India. Turning to SG&A. For the second half of the year, we expect expenses to grow approximately in line with sales based on current sales performance and plans. The planned growth in SG&A is mainly driven by higher marketing spend to support customer and sales growth, along with increased store labor costs related to new store locations. For the third quarter, our brands are planning outsized marketing investments driven by brand campaigns at the Nuuly and Anthropologie brands, along with a preholiday push to drive customer acquisition ahead of the fourth quarter holiday season.
As a result, we believe market expenses could deleverage in the third quarter while leveraging in the fourth quarter. As always, if sales performance fluctuates, we maintain a certain level of variable SG&A spending that we can adjust up and down depending on how our business is performing. We are currently planning for an effective tax rate of about 23.7% for the quarter and 23% for the full year. Now on to inventory. We ended Q2 with slightly elevated inventory levels, as we intentionally brought in product early to reduce the impact of announced tariff increases.
In Q3, we expect inventory could grow at a rate similar to third-quarter sales as our teams continue to focus on increasing our product turns. For FY 2026, capital expenditures are planned at approximately $270 million. The FY 2026 capital project spend is broken down as follows: Approximately 50% is related to retail store expansion and support, approximately 25% is related to supporting technology and logistics investments, and the remaining 25% is for home office expansion to support our growing businesses. Lastly, we're planning to open approximately 69 stores and close approximately 17 this fiscal year. Most of our net new store growth will come from FP Movement, Free People, and Anthropologie.
Specifically, we're planning 25 new FP Movement stores, 18 new Free People stores, and 16 new Anthropologie stores. As a reminder, the foregoing does not constitute a forecast but is simply a reflection of our current views. The company disclaims any obligation to update forward-looking statements. With that, I'll hand it back over to Dick.
Dick Hayne: Thanks, Melanie. What an incredible quarter. Each brand has cause to celebrate. Our two larger brands continue to attract more new customers and take additional market share. This while generating mid-teen profitability. As you heard earlier, the Urban brand smashed sales expectations in Europe and broke into positive comp territory in North America due to a very strong back-to-school season. Both newer brands, FP Movement and Nuuly, drove outstanding double-digit revenue comparisons and posted record profitability. In total, our portfolio of brands is a fantastic collection of consumer favorites. Each one successful on its own. The foundation of this success is a healthy consumer combined with excellent brand execution.
During the quarter, customers remained enthusiastic about fashion newness, and we delivered compelling products and distinctive experiences. Together, this produced a record second-quarter performance. I do want to take a moment to recognize and thank the Urban Brand teams on both sides of the Atlantic for their results. The turnaround in North America is real, with the brand recording nicely positive comp sales during the crucial back-to-school season. Both North America and Europe registered strong growth in new customers and better full-price selling. The Urban Outfitters brand is now clearly trending up globally and regaining its mantle as a preferred destination for young adults. Congratulations to both teams.
Looking forward, success for all brands has continued August to date, and we are planning to deliver high single-digit growth in total sales for Q3. Both consumer demand and our execution remained strong. The only major headwind we currently face is the uncertainty surrounding tariff rates. We're confident that the product sourcing diversification Urban Outfitters, Inc. adopted post-COVID will serve us well as we navigate this lack of clarity. Overall, the future for our brands appears bright, and we believe there are many more record quarters to come. Finally, my thanks to our entire Urban Outfitters, Inc. family, brands, and shared services for producing another outstanding quarter.
I want to acknowledge the phenomenal job each of our brand leaders and Meg Hayne have done. I understand the amazing amount of hard work and long hours you and your teams devote to making our brands among the best in retail today. Our results are a testament to your efforts and your talent. Lastly, I thank our partners around the globe and our shareholders for your ongoing support. That concludes our prepared remarks. We now invite your questions.
Operator: Certainly. And ladies and gentlemen, we'd like to ask that if you do have a question during today's call, please press *1 on your telephone keypad. Our first question comes from the line of Paul Lejuez from Citi. Your question, please.
Paul Lejuez: Hey, thanks, guys. I think you gave the tariff impact on a net basis. I'm curious if maybe you could talk about what the gross impact is and how much of the mitigation you are driving with pricing actions, looking to take prices higher or reduce promotions. And then also, just curious if you could just talk about, at a very high level, the performance of your own brands, which came up several times during the call, performance of own brands versus national brands at Urban and Anthro. Thanks.
Frank Conforti: Hey, Paul, it's Frank. I can take the first part of your question. Yes, you're correct that we're focused on the net here versus the gross, as we're focused on our mitigation strategies. As it relates to pricing, honestly, we have a sort of four-pronged approach, and pricing is really the last piece. And that's intentional. We're focused on protecting that customer experience as much as we possibly can. So first, you know, our first piece there is negotiating better terms with our vendors. Second is gonna be shifting our countries of origin where possible. Third is gonna be adjusting our mode of transportation from air to ocean. And lastly is gonna be gently raising prices.
And what I want to stress there is that the teams are being very thoughtful about the final step. We're looking to protect opening price points and only targeting areas where we believe we could gently raise some prices without significantly affecting the overall customer experience. I think to the credit, to the sourcing, to the brand teams, to the logistics teams, despite the tariff headwinds, which we discussed would be about 75 basis points over the back half of the year, and that does include India at 50%, we did hold our gross profit margin goal of hitting 100 basis points of improvement this year.
So that feels really good given the tariff headwinds and the mitigation efforts that we put into play. Okay. Let's talk about own brand penetration starting with you, Tricia, and Anthropologie.
Tricia Smith: Yeah. Hi, Paul. I can speak a little bit to Anthropologie. We've been focused on growing our own brands for the last several years, and I'm really pleased with the results that our buying, design, and creative teams have been putting in. Our own brand total portfolio is growing at double digits. And that's not to say that our market brand partners are not growing; they're just growing at a faster rate. So our penetration of owned brands currently sits at about a bit of a record high at about 71% of our total business.
So very pleased with not only the new brands that we've launched across Celandine, Daily Practice, and Lyrebird, but really thrilled with the results that we're seeing with Maeve and excited about the new plans that we have to expand that further.
Sheila Harrington: Thanks, Tricia. And I can jump in for global Urban Outfitters, and then Emma or Shay can jump in and support. We're thrilled with the proprietary brand growth in both Europe and North America. I feel like it's just spoke to, BDG and Out From Under have been particularly strong brands, and with high levels of growth this year supported by both the product and the marketing efforts on both. And then over in Europe, the same thing is happening; BDG and Itz France both extremely strong, resonating really well with their consumer.
That being said, I think the North America team in particular has done an amazing job with some of its national brand support, whether it's Awala or Bagu, the reintroduction of Nike, have supported just the total customer interest.
Emma Wiston: Thanks, Sheila. Yes, I think just to sort of reiterate, really, what Tricia and Sheila said. Proprietary brands in Europe have been very key to our success across sensibilities. Talking to mostly the casual brand, if you like, where we are distorting. BDG was mentioned, but also our streetwear brand, ETS France, has been exceptional in driving exclusivity and hype and foot traffic. So, yeah, it's been great.
Operator: Our next question comes from the line of Lorraine Hutchinson from Bank of America. Your question, please.
Lorraine Hutchinson: Thanks. Good afternoon. I wanted to follow up on the pricing conversation. Frank, I know you said you'd be pricing gently. Are you pricing at all major brands? Will you focus on the higher price points? If you could just help us out a little bit strategically with how you'll be executing this. It is a lot of tariff pressure to offset, so I think there are a lot of questions on how much of this will be passed to the consumer.
Frank Conforti: Now let's let Tricia answer that about Anthropologie. Okay. And then, Sheila, if you'd like to answer about Urban and Free People.
Tricia Smith: Yeah. I think, hi, Lorraine, that our pricing strategy, as Frank mentioned, is really to look at some gentle price increases where we feel like there's the value that contributes to that. So making sure that we're protecting some of the opening price points that the customer counts on and some programs that we know drive a lot of volume.
But I think the combination of really gentle price increases really maintains our AURs and the growth of that at a rate that feels comfortable to the business and then offsetting the rest of tariffs around negotiations with our factories and trying to understand how to hold that line without baking any significant price increases, then we don't think that'll have any impact on our sales ability.
Sheila Harrington: I feel like for Free People and Urban, definitely echoing exactly the same strategy. Recognizing the value equation is really important to all of our consumers. And we want to maintain our opening price point, our welcoming price point for our consumers so they participate in the brand. And then where possible, asking the customer to join in the value equation and raising our high AUR a little bit more gently than not touching openings.
Operator: Our next question comes from the line of Adrienne Yih from Barclays. Your question, please.
Adrienne Yih: Great. A huge congratulations and shout out to everybody in all brands, all divisions. So congrats. I guess I'm gonna have my first one is for anybody who wants to chime in on this. As we're looking at kinda back to school and sort of the denim cycle, we've seen kind of the wide silhouette everywhere, but it seems like there's a new wave of the premium over a $100 denim that seems to be taking hold. A little bit of an elevation. Can somebody by brand or if somebody wants to take that on hold? And then, Frank, I'm still stuck on the tariff thing. You're really mitigating it extremely well.
The fourth quarter in particular, Frank or Melanie, the up 75 to 100 basis points. Can you help us kind of shape the tariffs and the now India as of today? Based on your turns, would those necessarily be impactful to the holiday and the back half of the year? Or is there some hangover effect that kinda bleeds out into spring of next year? Thank you.
Frank Conforti: I can certainly take the tariff one. I don't think the brands want me touching any denim or fashion trends. Yes, our plan does include the 50% all-in tariff on India right now. I think I do want to stress when we talk about shifting countries of origin, which is an impactful mitigation strategy, you know, we talk about doing that where possible. Obviously, the ability for a factory in a country to execute our product is critically important. And we also talk about when appropriate. And what I mean by this is, you know, the tariff landscape is changing day to day right now, and we want to protect our customer experience, and that means protecting our product.
So we're not going to make extensive changes that are gonna impact our products right now or our customers. I think we're gonna try and do the best that we can waiting for the dust to settle before we start to make extensive changes. That being said, we've got great relationships with our vendors. We have a very flexible sourcing network. So, I think the first two strategies of working back with our vendors to help negotiate better terms to mitigate some of the impact as well as some of the things we've been able to do in adjusting countries of origin has certainly led the way helping offset the tariff.
Yes, the impact that's hitting today, right, for India, I think it hits for air receipts after today and ocean in the next couple of weeks, will absolutely have an impact on our fourth quarter. We turn our business here pretty quickly. And that is baked into our plans. And, you know, absolutely, you know, that will have some carryover into the first half of next year.
Dick Hayne: Well. And Adrienne, I'll take a shot talking about denim for all three brands. And ladies, if I make mistakes, please feel free to correct me. But I think what we see is an opportunity to offer a number of different silhouettes. In leg openings, rises, and colors. And so that's exactly what we're doing. But I want to stress that the full-legged bottoms are still by far the number one silhouette that the customer is voting for. And you I hope you all remember, and, Adrienne, I'm sure you will, you've been with us for a long time, that we've been talking about the full-legged silhouette since before COVID. So this is nothing new to us.
But I think there are varied silhouettes from straight to flare to full leg. Next.
Operator: Certainly. Our next question comes from the line of Matthew Boss from JPMorgan. Your question, please.
Matthew Boss: Congrats on a nice quarter.
Dick Hayne: Thank you, Matt.
Matthew Boss: Dick, I guess, how would you characterize the health of the global consumer into the back half today? And can you speak to trends that you've seen across concepts in August? And then for Shay, at the Urban brand, I guess, you just elaborate on the best is yet to come maybe as it relates to additional opportunities that you see from here?
Dick Hayne: Sure. Matt, let me try the consumer. You know, we think that consumers are feeling very optimistic. And we have noticed that they're behaving accordingly. You know, from our customer purchasing data, Q2 shows that well, we told you the comp sales were up very nicely in mid digits. But traffic was very positive, both in the stores and online. Transactions were up. Conversion improved. And UPT was up as well. So the only decrease we saw was in AOV. And this was largely driven by the shift in mix by category. So lower price areas like athleisure and lounge, and accessories outperform some of the more expensive categories. And that's what drove the lower AOV.
So I guess our conclusion from this data is that our customers remain very enthusiastic about acquiring the latest fashion, and they're finding our assortments very compelling.
Shay Jensen: Hi, Matthew. It's Shay. First of all, I think I just want to amplify our enthusiasm about our results. And I think just to clarify what we meant by best is yet to come, we have a lot of momentum in the business. And, you know, I think our results reflect that our plan is working. Our strategies are definitely paying off. I think, you know, we see a continuation of those results in back to school, and as we're heading into the third quarter, and that gives us a lot of confidence as we look ahead, you know, into even the holiday season. So we intend to continue to deliver sequential improvement.
We believe that will result in, you know, continued growth on the top line. We intend to manage with, you know, continued discipline on the bottom line. And, you know, we certainly hope that doing those two things and staying focused on our plan will drive us towards a path to profitability.
Dick Hayne: Thank you. Next question, please.
Operator: Certainly. Next question comes from the line of Alex Straton from Morgan Stanley. Question, please.
Alex Straton: Perfect. Just a couple from me. Maybe for whoever is best suited. Just any thoughts on what the end of the de minimis exemption means for the competitive landscape? And any comments on if you use that at all? And then maybe for Frank or Mel, it seems like the spread between total sales growth and comp should narrow in the back half compared to the front half. I just want to make sure that's right. And then if you can comment on what exactly drives that change. Thanks so much.
Frank Conforti: Hey, Frank. You wanna take it?
Frank Conforti: Yeah. Thanks, Dick. And thanks, Alex. The de minimis for us is obviously really immaterial. Impact for us. We have just a very small amount of sales that we've utilized and receive that benefit on. So, it's obviously just not something that we're worried about or that's gonna impact our business. As it relates to the spread between total and the retail segment, comps shrinking a little bit. I think that's probably largely about wholesale. Wholesale had really strong double-digit gains in the first half of the year. They start to anniversary those strong double-digit gains in the back half of the year. So as we say, they're up against a more difficult comparison.
And I think as Melanie said on the call, we're planning sort of mid-single digits in the third quarter and back half. So that's probably the biggest piece.
Dick Hayne: Alex, I will say about de minimis. As far as the Urban brand is concerned, it can only help. I mean, some of the folks who were big into this, Shane and some others, are obviously having a little bit harder time coping with some of the new regulations. So to the degree that they're shipping less, it should help us. Okay. Next question.
Operator: Certainly. And our next question comes from the line of Mark Altschwager from Baird. Your question, please.
Mark Altschwager: Great. Definitely sound more bullish on the momentum you're seeing at UO. So I was hoping you could update us on how you're thinking about the progress for profitability at that brand and whether breakeven could be in the cards this year, with the top line that you're seeing?
Frank Conforti: Thanks, Mark. This is Frank. So, we are definitely more bullish. And again, congratulations to Sheila, Shay, and Emma on just the incredible performance. I think the strategy they put and the teams that they've built were excited to see the turnaround and the significant progress in the second quarter building what started last year. We are not, you know, sort of giving a timeline on to profitability. That will not be this year. I feel comfortable saying that. I want to say that we and stress here that we are planning for and believe we can drive consistent, steady progress to achieve profitability, but to do this right, it's going to take some time.
And I think the brand is doing it right, focusing on MMU. You're seeing that from the rent price sales gain sort of leading the way. Now you're seeing total comps come into play. So you started to see that. And then you recapture. And then as the comps grow, you'll start to see things like occupancy and other fixed expenses leverage, which will start to benefit the bottom line. So I think the brand is going about it the right way, focusing on the consumer, focusing on that right price sale, and we're certainly on the right track.
Dick Hayne: Thank you. Next question, please.
Operator: Certainly. Our next question comes from the line of Dana Telsey from Telsey Advisory Group. Your question, please.
Dana Telsey: Hi. Good afternoon. Two quick ones. When you think about the framework for the third and fourth quarter, I just want to make sure I heard it right. I think you said SG&A up in line with sales for the second half. Or is marketing deleverage in the third quarter and leverage in the fourth? Any clarification on that, the magnitude of marketing spend? And just lastly, on the real estate portfolio, how you're thinking about some of the remodel and new stores. And now with Maeve, what do you see as the opportunity there? Thank you.
Melanie Marein-Efron: Thanks, Dana. I'll start with your question about SG&A for the second half. So, I just wanted to highlight, we did leverage in the first half. And we think that we can grow sales and expenses in line with that sales growth. But by quarter, there is a little bit of unevenness as a result of the marketing campaigns. So you will see the third quarter, we have a bit of deleverage, and then in the fourth quarter, it comes back with leverage.
Tricia Smith: And you wanna Tricia, you wanna talk about the real estate? It's Maeve? Sure. Hi, Dana. We're really excited to launch our first standalone Maeve store this fall and looking at a three to four store test through the course of spring, and then we're planning to really read and react to those results to determine what the longer-term growth plan could be. But I'm very excited to get the first store open. Lots to learn. Very excited to be able to share more of the Maeve brand with our customers, and excited to see what happens.
Dick Hayne: And that's the store is in Raleigh? Correct? Yep. Raleigh, North Carolina. Thank you. Next question.
Operator: Certainly. And our next question comes from the line of Marni Shapiro from The Retail Tracker. Your question, please.
Marni Shapiro: Hey, guys. Congratulations to everyone. Source of the next fantastic. So I'm also gonna stay away from denim and that conversation. And kind of shift. Could we get an update on what's going on with the home assortment specifically Anthropologie? And then Shay at Urban Outfitters where you launched some great dorm assortment followed by that Chipotle assortment, which I thought was fabulous. And then could we also get an update on I guess, what the timing for the improvement on men's at Urban Outfitters looks like? And are you seeing a different trend in Europe that makes you hopeful about how that will come to pass in The US?
Tricia Smith: Hershey, you wanna talk about Anthro? Yeah. Happy to. Marni, our teams have been working incredibly hard on our home assortment, and as I've mentioned before, really focused on driving profit and making some really nice gains. But very proud of the fact that we've now delivered our third consecutive quarter of comp increases in the home business. That's largely been driven by really fantastic growth in categories like home accessories and textiles. The furniture business continues to be challenging, but the comps are lessening as we head into Q3.
But, overall, I think we believe that we can still continue to deliver low single-digit comp increases in home and really proud of the team's progress that we've made there and feeling like we're in a really great place.
Shay Jensen: Shay, would you like to talk about men's at Urban? Yeah. Hey, Marni. First, let me just talk briefly about you mentioned the Chipotle collab, which was really, really exciting. Obviously, Chipotle is a brand that's really well known by our customer. We were really excited to partner with them as is part of our strategy to partner with some of the best and most well-known brands. We, last week, launched a collab in with some dorm furniture accessories. It was really well received. Brought in a lot of new customers for us. Really exciting. Had great well-received product acceptance by the customer, and just overall was really exciting.
A great example of what we wanna do more of, which is partnering with great brands that the customer loves and bring some great product to market. So, we are really excited. We think Chipotle was real excited, and thanks for noticing and asking the question. As far as the men's assortment goes, we're really excited to be the progress of rebuilding the men's assortment with a great new leader in place. We think that the timing on that, you know, is forthcoming. I would expect, you know, largely sort of, probably by spring that you'll really see a noticeable difference in that assortment with, you know, some evolution between now and then, as we build towards that.
Your question about working, with Emma and team, we do work really close with them and share a lot of conversation. And with that, maybe I'll flip it over Emma to talk about some things that are working in her men's business.
Emma Wiston: Okay. So I can jump in for Emma. Feel like just like with everything, the Zoom phenomenon leaves us a little challenged. Emma and her team have driven tremendous year-over-year growth in men's. They've been able to learn about their men's business in The UK, in Germany, and the proprietary brands that they have really made an impact. And now she's up and running, so I'm gonna let her say in her own words. Yes. Huge apologies there. I don't know what's happening today. Yeah. Just to add, I think menswear in Europe is particularly strong. There are certain regions, in Northern Europe, that distort in menswear.
But essentially, the casual brand BDG and EF from are extremely strong men's as they own women's wear. So and, yeah, those streetwear brands and denim brands will be driving. A great performance.
Dick Hayne: Okay. Thank you, Marni. I hope you've got your leave it here, Chipotle door mat. I know everybody wants one. Okay. Next question, please.
Operator: Certainly. Our next question comes from the line of Simeon Siegel from UBS. Your question, please.
Simeon Siegel: Super. Thanks so much. My question is about Nuuly. I think you mentioned in the prepared remarks that it surpassed even your highest expectations. If you just take a step back and about what you saw over the last ninety days, can you just reframe what the big picture opportunity is at Nuuly today from a total sales and margin perspective, if you look out, say, three or five years?
Dave Hayne: Okay, Dave. Take it away. Thanks for the question, Simeon. Appreciate it. I would reiterate a lot of the excitement you've already heard on the call and just say that we have a similar amount of excitement for Nuuly. It's kind of steady growth and steady progress. We continue to add new subscribers. Awareness continues to grow as we do more and more marketing campaigns and more receive more word-of-mouth from our subscribers, telling their friends and their family about what Nuuly is. We think there's an incredible amount of awareness still to be had out in the market. We're seeing a lot of our new subscribers that have never rented before, so they're really new to the rental model.
As we said in the prepared remarks, that's about 66%. We saw in the second quarter. So we think that there's a really sizable opportunity here, and we think the market is actually a lot bigger than a lot of people may believe at the moment. So I think rental apparel is a very viable business and a very viable market, and we think we're leading now in that market and very excited about that opportunity. So we continue to see sizable growth, we're excited about where we are in August. Currently, at the moment, we're about 370,000 active subscribers for where we are currently, and we think third quarter is going to continue with a lot of growth.
So very excited about it.
Operator: Thank you. Next question, please.
Operator: Certainly. And our next question comes from the line of Janet Kloppenburg from JJK Research Associates. Your question, please.
Janet Kloppenburg: Hi, everybody, and congratulations. A couple of quick ones. Have you, in fact, executed some price increases and you know, I was wondering, you know, the elasticity levels that you are experiencing. Three people for a minute. And what drove that acceleration particularly as free people movement? And I wanted to ask Dick given the success of the marketing program, if he thought that you know, marketing as a percentage of sales could continue to tick higher. Thank you.
Sheila Harrington: Okay. Sheila, do you wanna talk about Yeah. Price increases? I think you have had some, but not many. Yeah. I'll the first two questions. I think there was something about movement as well. But we've been very thoughtful about where to do our price increases, really leaving opening as it is and really focusing on where we could gently raise prices according to the value of the product. Some higher-priced jackets, and select pieces in our assortment. So and we're feeling very good about it. Our customer has been very, very receptive to where we've made those changes, think the merchants have studied very hard where they're asking the customer to pay a small amount more.
But like Dick mentioned, we are seeing lower price point categories. Certainly, penetrate deeper, whether it be accessories, or intimate classes, etcetera.
Dick Hayne: And, Janet, I'll talk a little bit about the marketing. We do have two, as Frank talked about, two projects going right now. One is in Nuuly. And the other is to introduce Maeve. At the Anthropologie brand. So marketing expenses were up a little bit in the third quarter, we expect it then to come back down in the fourth quarter. As far as next year is concerned, we think it's a little too early to start talking about we're gonna do next year. And so we will save that for the November call. Okay? Thank you very much.
Sheila Harrington: I was I just said that there was a question about movement. I we hear. Well, any on that note, that movement works relative with the performance of our FP movement across the three channels of business. Wholesale, retail, and direct. Where the team is thrilled with the impact of performance. It's been a long road to really focus on making sure we're delivering on the prominence of performance as well as fashion, and we're making significant inroads on that front. I think with that momentum, I think there'll be a very sticky customer as we continue to build.
Dick Hayne: Okay. I'm with you a 100%, Sheila. We are in love with them. So thank you all very much for joining the call. And we hope to see you back in a few months.
Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.