URBN is hot right now.

The parent company of Urban Outfitters, Anthropologie, and Free People is currently trading near YTD highs, bolstered by a return to consumer favor in brands outside its namesake banner.

Last quarter URBN exceeded market expectations with an +8% increase in total revenue, reaching $1.3 billion. This growth was driven primarily by the remarkable performance of brands like Anthropologie, Free People, and FP Movement, with FP Movement notably experiencing a 57% increase in comparable sales. (However, the Urban Outfitters brand underperformed, marking a negative comp at -14%.)

So – how did URBN accomplish this brand growth?

According to LikeFolio data, the company absolutely nailed its rental service, Nuuly, which is helping to expand its audience.

Nuuly is URBN’s subscription-based clothing rental service that allows customers to rent multiple fashion items for a fixed monthly fee, offering them a cost-effective way to enjoy a diverse and constantly rotating wardrobe without incurring the full expense of buying new outfits.

Nuuly mentions have risen by more than +140% on a YoY basis, besting other direct-to-consumer/discovery clothing models including Rent the Runway and Stitch Fix.

Forward-looking web visits follow the same trend.

What is Nuuly doing right?

1. Consumers love that they can self-curate a box of high-quality items for less than the price of a single item would run brand new in store.
2. A monthly subscription that is easy to pause allows consumers to remain on-brand for trips and special events.
3. With several “slots” open in consumer rental boxes, users can try out different brands and be a bit more exploratory when it comes to their fashion.

Most importantly, Nuuly is ushering new customers into the door of URBN’s core brands…and it shows.

Comprehensive mentions for Urban Outfitters and its portfolio of retailers have risen by +18% YoY.

Heading into earnings we’re expecting a strong report on the consumer front.

LikeFolio data confirms outsized growth in Anthropologie (Mentions +211% YoY) and Nuuly vs. Free People (+20% YoY) and Urban Outfitters (+14% YoY).

The bar is high for earnings growth as well.

In the second quarter URBN reported a substantial increase in profitability, with a 54% increase in operating income to $132 million and a 72% increase in earnings per share to $1.10. This was largely attributed to improved supply chain efficiency returning to pre-COVID levels and a 400-plus basis point improvement in gross margins, driven by lower markdown rates and improved initial margins.

High happiness levels (78% positive) provide a vote of confidence that URBN can maintain its improved brand positioning.

We’re playing this one to the upside, and view pullbacks as entry opportunities.