Urban Outfitters Inc

NASDAQ:URBN

Q2-2026 Earnings Call

[Operator]

Good day, ladies and gentlemen, and welcome to the Urban outfitters, Inc. Second Quarter Fiscal 2026 Earnings Call. [Operator Instructions]

As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Oona McCullough, Executive Director of Investor Relations. Please go ahead, Ms. McCullough.

[Oona McCullough, executive]

Good afternoon, and welcome to the URBN Second Quarter Fiscal 2026 Conference Call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the 3- and 6-month period ending July 31, 2025. The following discussions may include forward-looking statements. Please note that actual results may differ materially from those statements.

Additional information concerning factors that could cause actual results to differ materially from projected results is contained in the company's filings with the Securities and Exchange Commission. For more detailed commentary on our quarterly performance and the text of today's conference call, please refer to our Investor Relations website at www.urbn.com. I will now turn the call over to Dick.

[Richard Hayne, executive]

Thanks, Oona, and good afternoon, everyone. The URBN 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 Wisden], Urban's European President; and Shea 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'd now turn the call over to Frank.

[Francis Conforti, executive]

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 URBN sales grew by over 11% and reaching a Q2 record of $1.5 billion. All of our retail segment brands delivered positive retail segment comps, and 4 of our 5 brands posted record second quarter sales. Newly 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 URBN comps being similar in both channels. Newly 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. URBN 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 margin 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 URBN while Nuuly's campaign resulted in healthy double-digit growth in average active subscribers. Overall, total URBN 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 the retail segment comp, which marks over 4 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 a 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 [indiscernible], an Arthro owned-brand offering year-round vacation-ready styles and daily practice Anthro successfully launched another owned brand, [ Larbert ], providing an expanded assortment of intimates and lounge. All 3 Anthropologie owned brands showed strong growth within the second quarter and continued 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 our lifestyle, the brand recently marked a major milestone with the launch of their in-house Maeve label as a stand-alone brand. This launch reflects meaningful progress on the strategic priorities Tricia outlined last August, to focus on investment in own brand development, enhancing selling environments, delivering inspirational creative content and expanding the customer base across each demographics.

In August, the brand implemented a robust full funnel marketing strategy, and we are planning to open the brand's first stand-alone 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 [ late ] 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. Noncomp sales grew by over 200% and 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 5 Free People and 5 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 plans, 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 4 percentage points of revenue growth to total URBN 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.

With the first quarter campaign focused on broad education around the value of clothing rental, the new campaign speaks specifically to our target audience. It positions Nuuly as the solution to common more do 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 closing before. 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 investments that yield 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 million 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. July'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 U.S. 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 from 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 comp, 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 Herington.

[Sheila Harrington, executive]

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 rates, 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 Shea, [ 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 5 years, Urban Outfitters Europe has achieved a 15% compounded annual growth rate. This quarter's results were driven by solid growth in both the U.K. 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 Shea'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 remains key drivers of our success. We are positioning Urban Outfitters globally not only to recover, but return as a growth brand for URBN. Our teams are well prepared for this growth in both regions. Now Emma Wisden will share more on the Urban Outfitters EU business and growth opportunities, followed by Shea Jensen, who will speak about the North America business. I will now turn the call over to Emma.

[Emma Wisden, executive]

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 items 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 relevance and our digital campaigns are delivering strong results.

Recently, the U.K. 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, 1 that's delivering results today and setting us up for future success. I will now turn the call over to Shea to speak to the North American business. Shea.

[Shea Jensen, executive]

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 customers. We've evolved our product assortment to appeal to a broader target audience, build and apply new marketing strategies to acquire more customers and adopted 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 month 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 customers. Our strategy is anchored in denim and lounge, where 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 [ 2 Hero 1 brand, BDG denim, and Altrom ] under lounge in at leisure. These brands have grown by more than 30% year-to-date and now represents a considerable portion of our overall women's better 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 fund collaborations to limited edition items. In addition to our category distortions and growth, we have 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 customers. Our assortment has evolved to include occasions such as [ Game and Surety Rush ] and we 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 to the occasion she attended 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 7% and with an increasing number of these customers aligning with our target demographics. 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 tire 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 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 conversations and exciting collaborations with brands our customers know and won.

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 take 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 as 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 a buzz, welcoming students back to campus and the spirit of game day, reconnecting and meeting new friends in the year.

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 defined 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 of ability. 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.

will now turn the call over to Melanie.

[Melanie Marein-Efron, executive]

Thanks, Shea, 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 moment. Finally, our wholesale segment could produce mid-single-digit growth. Based on our current sales performance and plan, we believe URBN's full year gross profit margins could increase by approximately 100 basis points with second half growing by approximately 50 bps versus last year.

Within the second half, third quarter gross margins could be flat versus last year and 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 and 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 experience 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 pre-holiday 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 the 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 terms.

For FY '26, capital expenditures are planned at approximately $270 million. The FY '26 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 6 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.

[Richard Hayne, executive]

Thanks, Melanie. What an incredible quarter. Each brand has caused to celebrate. Our 2 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 smash 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 1 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 this mental 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 remains strong. The only major headwind we currently face is the uncertainty surrounding tariff rates. We're confident that the product sourcing diversification URBN 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 URBN family brands and shared services for producing another outstanding quarter. I want to acknowledge the phenomenal job each of our brand leaders and 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]

[Operator Instructions] First question comes from the line of Paul Lejuez from Citi.

[Paul Lejuez, analyst]

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, reduce promotions. And then also, just curious if you could just talk about at a very high level performance of your own brands, which came up several times during the call, performance of own brands versus national brands at Urban and Anthro.

[Francis Conforti, executive]

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 fronted 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, our first piece there is negotiating better terms with our vendors. Second is going to be shifting our countries of origin where possible. Third is going to be adjusting our mode of transportation from air to ocean. And lastly, it's going to 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 generally 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 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.

[Richard Hayne, executive]

Okay. Let's talk about own brand penetration, starting with you, Tricia, and the Anthropologie. .

[Tricia Smith, executive]

Yes. Paul, I can speak a little bit to Anthropologie. We've been focused on growing our own brands for the last several years and are really pleased with the results that are buying, design, 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 selling Dean, daily practice and, but really thrilled with the results that we're seeing with May been excited about the new plans that we have to expand that further. .

[Richard Hayne, executive]

Thanks, Tricia.

[Sheila Harrington, executive]

I can jump in for global urban and then Emma or -- Shea and or Shea can jump in and support we're thrilled with the proprietary brand growth in both Europe and North America. I feel like as Shea spoke too, 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 [indiscernible] 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 a [ wall or bag ], the reintroduction of NIKE have supported just the total customer interest .

[Richard Hayne, executive]

Thank you, Sheila. Emma, do you have anything to add? .

[Emma Wisden, executive]

Thanks, Dave. Yes, yes, no, I think just sort of reiterate really what Tricia and Sheila, the 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, France, has been exceptional in driving exclusivity and hype and foot traffic. So yes, it's been great. .

[Operator]

Our next question comes from the line of Lorraine Hutchinson from Bank of America.

[Lorraine Maikis, analyst]

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. Is there 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. .

[Richard Hayne, executive]

Let's let Tricia answer that about Anthropologie and then Shea, if you'd like to answer about Urban and Free People.

[Tricia Smith, executive]

Yes. I think, Lorraine, our pricing strategy, as Frank mentioned, is really to look at some gentle price increases where we feel like there's the value that can contribute to that. So making sure that we're protecting some of the opening price points with the customer count on [indiscernible] programs that we know drive a lot of volume. But I think the combination of really gentle price increases really maintain 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 how to hold that line without making any significant price increases, and we don't think that will have any impact on our sales ability.

[Sheila Harrington, executive]

I feel like for Free People and Urban, definitely acting 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. They can 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 opening. So .

[Operator]

Next question comes from the line of Adrienne Yih from Barclays. .

[Adrienne Yih-Tennant, analyst]

Great. Thank you. A huge congratulations and sad to everybody. in all brands, all the -- so congrats. I guess, I'm going to have my first 1 is for anybody who wants to chime in on this. As we're looking at kind of 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 $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, up 75 to 100 basis points. Can you help us kind of shape the 8.7% tariffs and now India as of today, based on your turns, would those necessarily be impactful to the holiday in the back half of the year? Or is there some hangover effect that kind of bleeds out into spring of next year? .

[Francis Conforti, executive]

I can certainly take the tariff and I don't think the brand want me touching any fashion trends. So yes, our plan does include the 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. We talked 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 the tariff landscape is changing day-to-day right now. And we want to protect our customer experience, and that means protecting our products.

So we're not going to make extensive changes that are going to impact our product right now for our customers. I think we're going to 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 2 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 that we've been able to do in adjusting countries of origin has certainly led the way in helping offset the tariff. Yes, the impact that's hitting today, right, for India I think it hits for air -- any air receipts after today and 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 absolutely, that will have some carryover into the first half of next year as well.

[Richard Hayne, executive]

And Adrienne, I will take a shot at talking about denim for all 3 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 [ lag ] 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 #1 silhouette that customer is voting for and 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. .

[Operator]

Our next question comes from the line of Matthew Boss from JPMorgan. .

[Matthew Boss, analyst]

Dick, I guess, how would you characterize 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 Shea, at the Urban brand, I guess, could you just elaborate on the best is yet to come, maybe as it relates to additional opportunities that you see from here.

[Richard Hayne, executive]

Sure. Matt, let me try the consumer. We think the consumers are feeling very optimistic, and we have noticed that they're behaving accordingly. From our customer purchasing data, 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 new PT 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 as leisure and lounge and accessories outperformed 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 assortment is very compelling.

[Shea Jensen, executive]

Matthew, it's Shea. 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 the best is yet to come, we have a lot of momentum in the business. And I think our results reflect that our plan is working. Our strategies are definitely paying off. I think 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 into even the holiday season.

So we intend to continue to deliver sequential improvement. We believe that will result in continued growth on the top line. We intend to manage with continued discipline on the bottom line. And we certainly hope that doing those 2 things and staying focused on our plan will drive us towards the path to profitability. .

[Operator]

Our next question comes from the line of Alex Straton from Morgan Stanley. .

[Alexandra Straton, analyst]

Perfect. Just just a couple for me. Maybe for whoever is that's 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 got to make sure that's right. And if you can comment on what exactly drives that change. .

[Richard Hayne, executive]

Frank, do you want to take it?

[Francis Conforti, executive]

Yes. Thanks, Dick, and thanks, Alex. The de minimis for us is honestly is really immaterial impact for us. we have just a very small amount of sales that we utilize and receive that benefit on. So it's obviously just not something that we're worried about that's going to impact our business. As it relates to the spread between total and the retail segment comp 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.

[Richard Hayne, executive]

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 and some others are obviously having a little bit harder time hoping with some of the new regulations. So to the degree that they're shipping less, it should help us. .

[Operator]

And our next question comes from the line of Mark Altschwager from Baird. .

[Mark Altschwager, analyst]

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 top line that you're seeing?

[Francis Conforti, executive]

Sorry. Thanks, Mark. This is Frank. So we are definitely more bullish. And again, congratulations to Sheila, Shea and Emma on just the incredible performance I think the strategy they put in the teams that they've built, we were just excited to see the turnaround and the significant progress in the second quarter building on what started last year. We are not sort of giving a time line on return 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 reg price sales gain sort of leading the way. Now you're seeing total comps come into play. So you started to see that no 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 reg price sale. And we're certainly on the right track. .

[Operator]

Certainly, our next question comes from the line of Dana Telsey from Telsey Advisor .

[Dana Telsey, analyst]

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 with 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 are you thinking about some of the remodels and new stores and now with Maeve, what is the opportunity there? .

[Melanie Marein-Efron, executive]

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 uneven miss as a result of the marketing campaigns. So you will see in the third quarter, we have a bit of deleverage and then in the fourth quarter, it comes back with leverage.

[Richard Hayne, executive]

And do you want -- Tricia, you want to talk about the real estate, Maeve?

[Tricia Smith, executive]

Sure. Dana. We're really excited to launch our first stand-alone Maeve store this fall and looking at a 3 to 4 store test through the course of spring. And then we're planning to really read and react to those results, determine what the longer-term growth plans 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. .

[Richard Hayne, executive]

And that's -- the store is [indiscernible]

[Tricia Smith, executive]

Yes, Yes, probably, North Carolina. .

[Operator]

And our next question comes from the line of Marni Shapiro from The Retail Tracker.

[Marni Shapiro, analyst]

Congratulations to everyone. Stores have been fantastic. So I'm also going to stay away from denim in that conversation and a shift -- could we get an update on what's going on with the home assortment, specifically at Anthropologie? And then Shea at Urban Outfitters, where you launched some -- a great dorm assortment followed by the [ Chipotle ] assortment, which I thought was fabulous. And then can 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 U.S. .

[Richard Hayne, executive]

Tricia, you want to talk about answer? .

[Tricia Smith, executive]

Yes, 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 we're 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, we believe that we can still continue to deliver low single-digit comp increases in home and just really proud of the team's progress that we've made there and feeling like we're in a really great place.

[Richard Hayne, executive]

Shea, would you like to talk about [indiscernible] Urban? .

[Adrienne Yih-Tennant, analyst]

Yes. Marni, first, let me just talk briefly about, you mentioned the Chipolte co-lab, which was really, really exciting. Obviously, Chipolte is a brand that's really well known by our customer. We were really excited to partner with them as a part of our strategy to partner with some of the best and most well-known brands. We last week launched a colab and -- with some [ dorpurniture ] 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, it was really exciting. A great example of what we want to do more of, which is partnering with great brands that the customer loves and bring some great product to market.

So we were really excited. We think [ Chipolte ] was really excited, and thanks for noticing and asking the question. As far as the men's assortment goes, we're really excited to be in the progress of rebuilding the men's assortment with a great new leader in place. We think that the timing on that is forthcoming, I would expect largely sort of probably by spring that you'll really see a noticeable difference in that assortment with 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 to Emma to talk about some things that are working in her men's business. .

[Sheila Harrington, executive]

Okay. So I can jump in for Emma feel like just like with everything, the Zoom phenomenon, less just 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 U.K., in Germany and the proprietary brands that they have really made an impact. And now she's up and running, so I'm going to her us say in her own words.

[Emma Wisden, executive]

Yes, huge apologies there. I don't what's happening today. Yes, just to add, I think men's wear in Europe is particularly strong. There are certain regions, particularly in Northern Europe that distorts in menswear. But essentially, the casual brand, BDG and are extremely strong men's with as they own womenswear. So those streetwear brands and denim brands really driving great performance. .

[Richard Hayne, executive]

Okay. Thank you, Marni. I hope you've got your [ Levit here, Chipotle Dorma ] everybody wants one. .

[Operator]

Certainly, our next question comes from the line of Sole Jay from UBS. .

[Jay Sole, analyst]

My question is about newly. I think you mentioned in the prepared remarks that it surpassed even your highest expectations. If you just take a step back and think about what you saw over the last 90 days, can you just reframe what the big picture opportunity is it newly today from a total sales and margin perspective if you look out, say, 3 or 5 years?

[Richard Hayne, executive]

Okay. Dave takeaway .

[David Hayne, executive]

Thanks for the question, Jay. I 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 Nuully, 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 newly 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. We continue to see sizable growth and 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 the third quarter is going to continue with a lot of growth. So very excited about it.

[Operator]

And our next question comes from the line of Janet Joseph Kloppenburg from JJK Research Associates.

[Janet Kloppenburg, analyst]

Congratulations. A couple of quick ones. Have you, in fact executed some price increases and I was holding the levels that you are experiencing [indiscernible] what was that acceleration, particularly actually people movement. And I wanted to ask Dick, given the success of the marketing program, if he thought that marketing as a percentage of sales could continue to tick higher?

[Richard Hayne, executive]

Okay. Sheila, do you want to talk about price increases. I think you have had some, but not many. .

[Sheila Harrington, executive]

Yes. I'll take the first 2 questions. I think there was something about movement as well. But we've been very thoughtful about where to do our price increases, really leading opening as it is and really focusing on where we could gently raise prices according to the value of the product, some higher price jackets and select pieces in our assortment and we're feeling very good about it. Our customer has been very, very receptive to where we've made those changes. I 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, et cetera.

[Richard Hayne, executive]

And Janet, I'll talk a little bit about the marketing. We do have 2, as Frank talked about, 2 projects going right now. One is in Nuuly and the other is to introduce Maeve and 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 what we're going to do next year. And so we will save that for the November call. Okay. Thank you very much.

[Sheila Harrington, executive]

I would answer the other your question about movement [indiscernible] that movement worked relative with the performance of our FP move across the 3 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 promise of performance as well as fashion and we're making significant inroads on that front. And I think with that momentum, I think there will be a very sticky customer as we continue to build. .

[Richard Hayne, executive]

Okay. I'm with you 100%. Sheile, we are in love with move. 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.