[Management View]
Urban Outfitters reported record-setting sales and net income for fiscal Q2 2026, with all brands delivering positive comps and strong operating income improvement. Strategic priorities focus on omnichannel traffic growth, new store expansion, and disciplined inventory and expense control.

[Outlook]
Management guides for high single-digit total sales growth in Q3, with mid-single-digit retail segment comp increases for Anthropologie, Free People, and Urban Outfitters. Nuuly is expected to deliver mid-double-digit growth, and wholesale is projected to increase by mid-single digits. Full-year gross margin is projected to rise by about 100 basis points despite tariff impacts.

[Financial Performance]
Total sales reached $1.5 billion, up 11%, marking a fiscal Q2 2026 record. Net income increased 22% to $144 million, or $1.58 per diluted share. Gross profit rose 15% to $566 million, with the gross profit rate up 113 basis points to 37.6%. SG&A increased 13%, deleveraging by 28 basis points. Operating income grew 20% to $174 million, with the operating profit rate improving by 85 basis points to 11.6%.

[Q&A Highlights]
Question 1: Could you talk about the gross impact of tariffs and mitigation strategies, and the performance of own brands versus national brands at Urban and Anthro?
Answer: The focus is on net impact, with mitigation strategies including negotiating better terms, shifting countries of origin, adjusting transportation modes, and gentle price increases. Own brands are growing at double digits, with Anthropologie's penetration at 71%.

Question 2: How are you executing pricing strategies across major brands to offset tariff pressure?
Answer: Pricing strategies involve gentle increases where value supports it, protecting opening price points, and negotiating with factories to minimize significant price hikes.

Question 3: Can you elaborate on the denim cycle and tariff mitigation for the fourth quarter?
Answer: Full-legged bottoms remain the top silhouette. Tariff mitigation includes flexible sourcing and vendor negotiations, with impacts expected in Q4 and carryover into next year.

Question 4: How would you characterize the health of the global consumer and Urban's opportunities?
Answer: Consumers are optimistic, with positive traffic, transactions, and conversion. Urban's strategies are working, with continued growth expected into the holiday season.

Question 5: What does the end of the de minimis exemption mean for the competitive landscape?
Answer: The impact is immaterial for Urban Outfitters, with wholesale facing tougher comparisons in the back half of the year.

Question 6: How are you thinking about profitability progress at Urban Outfitters?
Answer: Steady progress is expected, focusing on MMU and regular price sales gains, with profitability not expected this year.

Question 7: Can you clarify SG&A expectations and real estate plans, including Maeve's opportunity?
Answer: SG&A is expected to grow in line with sales, with marketing deleverage in Q3 and leverage in Q4. Maeve's standalone store test is planned, with potential for expansion.

Question 8: Update on home assortment at Anthropologie and men's at Urban Outfitters?
Answer: Home accessories and textiles are driving growth, with furniture challenges lessening. Men's assortment improvements are expected by spring, with insights from Europe.

Question 9: What is the big picture opportunity for Nuuly?
Answer: Nuuly continues to grow, with 370,000 active subscribers and significant market opportunity in apparel rental.

Question 10: Have you executed price increases, and what drove Free People's acceleration?
Answer: Price increases are selective, focusing on value. Free People's growth is driven by performance apparel and marketing efforts.

[Sentiment Analysis]
Analysts and management expressed optimism and confidence in strategic initiatives and growth potential, with a focus on mitigating tariff impacts and expanding brand presence.

[Quarterly Comparison]
| Metric | Q2 2026 | Q2 2025 | Change |
|--------|---------|---------|--------|
| Total Sales | $1.5B | $1.35B | +11% |
| Net Income | $144M | $118M | +22% |
| Gross Profit | $566M | $492M | +15% |
| Operating Income | $174M | $145M | +20% |

[Risks and Concerns]
Tariff impacts remain a concern, with potential effects on gross margins. Elevated inventory levels and SG&A deleverage are noted, with strategies in place to mitigate these risks.

[Final Takeaway]
Urban Outfitters delivered a record quarter with strong sales and income growth across all brands. Strategic initiatives in omnichannel expansion, inventory management, and pricing strategies are driving positive results. Despite tariff challenges, the company remains confident in its ability to achieve gross margin improvements and continue growth momentum into the next quarter.