Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We operate under three reportable segments – Retail, Subscription and Wholesale. Our Retail segment primarily includes our Anthropologie, Free People, FP Movement and Urban Outfitters brands. Our Retail segment products and services are sold directly to our customers through our retail locations, websites, mobile applications, social media and third-party digital platforms, customer contact centers and franchisee-owned stores. Our Subscription segment includes the Nuuly brand, which offers customers a more sustainable way to explore fashion primarily through a monthly women’s apparel subscription rental service. Our Wholesale segment includes our Free People, FP Movement and Urban Outfitters brands that sell through department and specialty stores worldwide, third-party digital businesses and our Retail segment. Our Wholesale segment primarily designs, develops and markets apparel, intimates, activewear and shoes.
Our fiscal year ends on January 31. All references to our fiscal years refer to the fiscal years ended on January 31 in those years. For example, our fiscal year 2026 ended on January 31, 2026, our fiscal year 2025 ended on January 31, 2025, and our fiscal year 2024 ended on January 31, 2024.
As used in this document, unless otherwise defined, "Anthropologie" refers to our Anthropologie, Terrain and Maeve brands and "Free People" refers to our Free People and FP Movement brands.
Macroeconomic Environment and Other Recent Developments
During 2025, the U.S. government enacted significant changes to its tariff regime that increased rates on a substantial number of imports. Certain foreign jurisdictions responded with reciprocal tariffs which resulted in corresponding actions by the U.S. government. Certain of these tariffs have been paused or modified from time to time and the uncertainty of tariff rates among multiple jurisdictions is contributing to overall macroeconomic volatility and increasing recessionary concerns. In February 2026, in response to the U.S. Supreme Court invalidating many of the existing International Economic Emergency Powers Act ("IEEPA") tariffs, the government instituted incremental global tariffs on all imports and has signaled it may seek higher tariffs. The potential for additional tariff increases may continue to result in increased reciprocal tariffs or other restrictive trade measures by the U.S. or foreign jurisdictions. The process for obtaining refunds for IEEPA tariffs is currently not finalized, but we are analyzing available options to preserve our refund rights and expect further guidance. These factors may continue to contribute to uncertain global economic conditions (including inflationary costs, consumer spending patterns and volatility in foreign currencies), which may impact our operations.
We have been and continue to regularly evaluate global trade policies and take appropriate actions when necessary to mitigate the risks associated with tariffs. These actions include:
Negotiating better terms with our vendors;
Shifting our countries of origin (where possible) to enable the dual sourcing of most of our own branded products (we currently have no single country that represents the majority of our production);
Shifting our mode of transportation from air to ocean; and
Gently raising prices in a strategic fashion where we believe we could without affecting the overall customer experience.
Even with these mitigation strategies in place, we believe that tariffs could have a negative impact on our financial results.
On July 4, 2025, the United States enacted legislation commonly referred to as the One Big Beautiful Bill Act which includes various tax provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework, and the restoration of favorable tax treatment for certain business provisions like bonus depreciation. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. This legislation, enacted during the second quarter of fiscal 2026, did not have a material impact on the Company's fiscal 2026 income tax provision. The Company continues to assess the impact of the legislation on our consolidated financial statements. Additional guidance from the Internal Revenue Service and U.S. Treasury may affect the interpretation and application of certain provisions.
Retail Segment
Our Retail segment omni-channel strategy enhances our customers’ brand experience by providing a seamless approach to the customer shopping experience. All Company-owned Retail segment shopping channels are closely integrated, including retail locations, websites, mobile applications, social media and third-party platforms and customer contact centers. Our investments in areas such as marketing campaigns and technology advancements are designed to generate demand for the Retail segment omni-channel and not the separate store or digital channels. We manage and analyze our performance based on a single Retail segment omni-channel rather than separate channels and believe that the Retail segment omni-channel results present the most meaningful and appropriate measure of our performance.
Our comparable Retail segment net sales data is equal to the sum of our comparable store and comparable digital channel net sales. A store is considered to be comparable if it has been open at least 12 full months, unless it was materially expanded or remodeled within that year or was not otherwise operating at its full capacity within that year due to store specific closures from events such as damage from fire, flood and natural weather events. A digital channel is considered to be comparable if it has been operational for at least 12 full months. Sales from stores and digital channels that do not fall within the definition of comparable store or digital channel are considered to be non-comparable. Franchise net sales and the effects of foreign currency translation are also considered non-comparable.
We monitor Retail segment metrics including customer traffic, conversion rates and average units per transaction at our stores and on our websites and mobile applications. We also monitor average unit selling price and transactions at our stores and average order value on our websites and mobile applications. We believe that changes in any of these metrics may be caused by a response to our brands’ fashion offerings, our marketing campaigns and an overall growth in brand recognition.
The Anthropologie brand tailors its merchandise and inviting store environment to sophisticated and contemporary women aged 28 to 45. The internally designed and third-party brand product assortment includes women’s apparel, accessories, intimates, shoes, furniture, home decor and beauty and wellness. The brand also has a bridal collection consisting of wedding, bridesmaid and party dresses, accessories and decor. The Terrain brand is designed to appeal to women and men interested in a creative and sophisticated outdoor living and gardening experience. Merchandise includes lifestyle home, garden and outdoor living products, antiques, live plants, flowers, wellness products and accessories. The Maeve brand is designed to appeal to the modern woman seeking a versatile wardrobe by offering a comprehensive range of women's apparel, shoes and accessories. We are in the early stages of testing Maeve as a standalone brand which we will continue to evaluate over the coming years. Anthropologie stores are located in specialty centers, upscale street locations and enclosed malls. Anthropologie operates websites and mobile applications that capture the spirit of its brands by offering a similar yet broader selection of merchandise as found in its stores and sells merchandise through franchisee-owned stores in the Middle East. Anthropologie's North American Retail segment net sales accounted for approximately 47.2% of total Retail segment net sales for fiscal 2026, compared to approximately 47.8% of total Retail segment net sales for fiscal 2025. European Retail segment net sales accounted for approximately 1.8% of total Retail segment net sales for both fiscal 2026 and fiscal 2025.
The Free People brand focuses its product offering on private label merchandise targeted to contemporary women aged 25 to 30 and provides a unique merchandise mix of casual women’s apparel, intimates, activewear, shoes, accessories, home products, gifts and beauty and wellness. The FP Movement brand offers performance-ready activewear, beyond-the-gym staples and wellness essentials. Free People stores are located in enclosed malls, upscale street locations and specialty centers. Free People operates websites and mobile applications that capture the spirit of its brands by offering a similar yet broader selection of merchandise as found in its stores, as well as substantially all of the Free People and FP Movement brands' wholesale offerings. Free People's North American Retail segment net sales accounted for approximately 23.8% of total Retail segment net sales for fiscal 2026, compared to approximately 23.4% of total Retail segment net sales for fiscal 2025. European Retail segment net sales accounted for approximately 1.2% of total Retail segment net sales for fiscal 2026, compared to approximately 1.1% of total Retail segment net sales for fiscal 2025.
Urban Outfitters targets young adults aged 18 to 28 through a unique merchandise mix, compelling store environment, social media and third-party digital platforms, websites and mobile applications and a product offering that includes women’s and men’s fashion apparel, activewear, intimates, footwear, accessories, home goods, electronics and beauty. A large portion of our merchandise is exclusive to Urban Outfitters, consisting of an assortment of products designed internally or designed in collaboration with third-party brands. Urban Outfitters stores are located in street locations in large metropolitan areas and select university communities, specialty centers and enclosed malls that accommodate our customers’ propensity not only to shop, but also to congregate with their peers. Urban Outfitters operates websites and mobile applications that capture the spirit of the brand by offering a similar yet broader selection of merchandise as found in its stores and sells merchandise through franchisee-owned stores in the Middle East. Urban Outfitters’ North American Retail segment net sales accounted for approximately 15.3% of total Retail segment net sales for fiscal 2026, compared to approximately 16.2% of total Retail segment net sales for fiscal 2025. European Retail segment net sales accounted for approximately 10.0% of total Retail segment net sales for fiscal 2026, compared to approximately 8.9% of total Retail segment net sales for fiscal 2025.
Menus & Venues focuses on a dining and event experience that provides excellence in food, beverage and service. Menus & Venues net sales accounted for less than 1.0% of total Retail segment net sales for fiscal 2026 and fiscal 2025.
Net sales from the Retail segment accounted for approximately 85.7%, 88.2% and 90.8% of total consolidated net sales for fiscal 2026, 2025 and 2024, respectively.
Store data for fiscal 2026 was as follows:
January 31,
Stores
Stores
January 31,
Opened
Closed
Anthropologie
North America
Europe
Anthropologie Global Total
Free People
Free People Brand
North America
Europe
Free People Brand Global Total
FP Movement Brand (1)
Free People Global Total
Urban Outfitters
North America
Europe
Urban Outfitters Global Total
Menus & Venues (2)
Total Company-Owned Stores
Franchisee-Owned Stores (3)
Total URBN
FP Movement brand stores are all located in North America.
Menus & Venues includes various casual restaurants and event venues, all of which are located in North America.
Franchisee-owned stores are located in the Middle East.
Selling square footage by brand as of January 31, 2026, and January 31, 2025, was as follows:
January 31,
January 31,
Change
Selling square footage (in thousands):
Anthropologie
Free People Brand
FP Movement Brand
Urban Outfitters
Total URBN (1)
Menus & Venues locations and franchisee-owned stores are not included in selling square footage.
We plan for future store growth for our brands to come from expansion domestically and internationally, which may include opening stores in new and existing markets or entering into additional franchise agreements. We plan for future digital channel growth to come from expansion domestically and internationally.
Projected store openings and closings for fiscal 2027 are as follows:
January 31,
Projected
Openings
Projected
Closings
January 31,
Anthropologie
Free People Brand
FP Movement Brand
Urban Outfitters
Menus & Venues
Total Company-Owned Stores
Franchisee-Owned Stores
Total URBN
Subscription Segment
Our Subscription segment includes the Nuuly brand, which is primarily a monthly women’s apparel subscription rental service. For a monthly fee, Nuuly subscribers can rent product from a wide selection of the Company’s own brands, third-party brands and one-of-a-kind vintage pieces via a custom-built, digital platform. Subscribers select their products each month, wear them as often as they like and then swap into new products the following month. Subscribers are also able to purchase rental product in their possession that was delivered as part of the customer's monthly subscription rental order or through the Nuuly website or mobile application, which will ship along with their next monthly subscription rental order. Net sales from the Subscription segment accounted for approximately 9.2%, 6.8%, and 4.6% of total consolidated net sales for fiscal 2026, 2025 and 2024, respectively.
Wholesale Segment
Our Wholesale segment includes the Free People, FP Movement and Urban Outfitters brands that sell through department and specialty stores worldwide, third-party digital businesses and our Retail segment. The Wholesale segment primarily designs, develops and markets women’s contemporary apparel, intimates, FP Movement activewear and shoes under the Free People and FP Movement brands and the BDG and “iets frans” apparel collections under the Urban Outfitters brand. Net sales from the Wholesale segment accounted for approximately 5.1%, 5.0% and 4.6% of total consolidated net sales for fiscal 2026, 2025 and 2024, respectively.
Critical Accounting Policies and Estimates
Our Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States. These generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses during the reporting period.
Our significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K. We believe that the following discussion addresses our critical accounting policies, which are those that are most important to the portrayal of our financial condition, results of operations and cash flows and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. If actual results were to differ significantly from estimates made, the reported results could be materially affected. We are not currently aware of any reasonably likely events or circumstances that would cause our actual results to be materially different from our estimates.
Revenue Recognition
Merchandise: Merchandise is sold through retail stores and the digital sales channel, as well as to wholesale customers, franchise partners and subscription customers. Revenue is recognized when control of the promised goods is transferred to the customer. We have elected to treat shipping and handling as fulfillment activities and not a separate performance obligation. Accordingly, we will recognize merchandise revenue for the Retail segment for our single performance obligation at the point of sale, when furniture is delivered or at the time of shipment for non-furniture merchandise, which is when transfer of control to the customer occurs.
A subscription customer may purchase merchandise through the Nuuly website or mobile application, which will ship along with their next monthly subscription rental order. We recognize revenue for these merchandise sales at the time of shipment. A subscription customer may also elect to purchase merchandise already in their possession that was delivered as part of their monthly subscription rental order. We recognize revenue for these merchandise sales when the customer completes the transaction through the website or mobile application.
Revenue does not include taxes assessed by governmental authorities, including value-added and other sales-related taxes, that are imposed on and concurrent with revenue-producing activities. Revenue is recognized net of estimated customer returns. Uncollectible accounts receivable in the Retail and Subscription segments primarily results from unauthorized credit card transactions. We maintain an allowance for doubtful accounts for our Wholesale segment accounts receivable, which we review on a regular basis and believe is sufficient to cover potential credit losses and billing adjustments. Payment terms in our Wholesale segment vary by customer.
Subscription Fees: Revenue for the Subscription segment is primarily generated through monthly subscription fees. The monthly subscription rental fee is recognized over the monthly period over which the customer's monthly subscription fee pertains. The subscription automatically renews on a monthly basis until cancelled or paused by the customer at which point the customer will not be billed for future months until the subscription is no longer paused.
Gift Cards: We account for a gift card transaction by recording a liability at the time the gift card is issued to the customer in exchange for consideration from the customer. At the time of issuance, we have an open performance obligation for the future delivery of promised goods or services. The liability remains outstanding until the card is redeemed by the customer, at which time we recognize revenue. Over time, a portion of the outstanding gift cards will not be redeemed by the customer which we refer to as “breakage.” Revenue is recognized from breakage over time in proportion to gift card redemptions. Judgment is used in determining the amount of breakage revenue to be recognized and is based on historical gift card redemption patterns. Gift card breakage revenue is included in net sales and is not material. Our gift cards do not expire.
Sales Return Reserve
We record a sales return reserve for estimated product returns where the sale has occurred during the period reported, but the return is likely to occur subsequent to the period reported. The reserve for estimated product returns is based on our most recent historical return trends. If the actual return rate is materially different than our estimate, sales returns would be adjusted in the future. The costs of returns are recorded as a current asset rather than net with the sales return reserve. As of January 31, 2026, and 2025, reserves for estimated sales returns totaled $77.0 million and $90.4 million, representing 3.5% and 4.4% of total liabilities, respectively.
Inventory
We value our inventory, which consists primarily of general consumer merchandise held for sale, at the lower of cost or net realizable value. Cost is determined on the first-in, first-out method and includes the cost of merchandise and import-related costs, including freight, import duties and taxes and agent commissions. A periodic review of inventory is performed in order to determine if inventory is properly stated at the lower of cost or net realizable value. Factors we consider in our review, such as future expected consumer demand and fashion trends, current aging, current and anticipated retail markdowns or wholesale discounts and class or type of inventory, are analyzed to determine estimated net realizable value. Criteria that we consider in our review of aging trends include average selling cycle and seasonality of merchandise, the historical rate at which merchandise has sold below cost during the prior 12 months and the value and nature of merchandise currently held in inventory and priced below original cost. A provision is recorded to reduce the cost of inventory to its estimated net realizable value, if appropriate. Any significant unanticipated changes in the factors noted above could have a significant impact on the value of our inventory and our reported operating results. Our estimates generally have been accurate, and our reserve methods have been applied on a consistent basis. The majority of inventory at January 31, 2026, and 2025 consisted of finished goods. Raw materials and work-in-process were not material to the overall inventory value. Inventory as of January 31, 2026 and 2025 totaled $700.9 million and $621.1 million, representing 14.0% and 13.7% of total assets, respectively.
Rental Product
The cost of our Subscription segment rental product is amortized to cost of sales over the subscription period based on the cost of each unit rented, which is estimated based on the number of times the unit is expected to be rented and the cost of the rental product. Lost, damaged and retired rental product is also charged to cost of sales. We make assumptions as to the number of times each unit can be rented. If the actual number of times a unit can be rented were to vary significantly from our estimates, it could materially affect the amount of rental product amortization included in cost of sales. Rental product is included in "Other assets" in the Consolidated Balance Sheets. Purchases of rental product were $232.4 million, $175.7 million, and $150.7 million for fiscal 2026, 2025 and 2024, respectively. Rental product as of January 31, 2026, and January 31, 2025, totaled $246.4 million and $216.1 million, representing 4.9% and 4.8% of total assets, respectively.
Impairment of Long-lived Assets
We review the carrying values of our definite-lived, long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Events that result in an impairment review include plans to close a retail location, distribution or fulfillment center, a significant decrease in the operating results of a long-lived asset or significant adverse changes in the business climate. Our retail locations are reviewed for impairment at the retail location level, which is the lowest level at which individual cash flows can be identified. Newly opened retail locations may take time to generate positive operating and cash flow results. Factors such
as store type (e.g., mall versus free-standing), location (e.g., urban area versus college campus or suburb), current marketplace awareness of our brands, local customer demographic data and current fashion trends are all considered in determining the time frame required for a retail location to achieve positive financial results. When events indicate that an asset may be impaired and the estimated undiscounted cash flows (based on forecasts of sales and gross profit) are less than the carrying amount of the asset, the impaired asset is adjusted to its estimated fair value and an impairment loss is recorded. The estimated fair value of the asset or asset group is based on future cash flows of the asset or asset group. For lease right-of-use assets, the Company determines the estimated fair value of the assets by comparing the discounted contractual rent payments to estimated market rent using an acceptable valuation methodology. During fiscal 2026, we recorded impairment charges for four retail locations, totaling $2.0 million, with a carrying value after impairment of $9.9 million related to the right-of-use assets. During fiscal 2025, we recorded impairment charges for one retail location, totaling $0.8 million, with a carrying value after impairment of $1.5 million related to the right-of-use assets. During fiscal 2024, we recorded impairment charges for 15 retail locations, totaling $3.6 million, with a carrying value after impairment of $41.0 million related to the right-of-use assets. Additionally, during fiscal 2024 we recorded an asset impairment charge of $6.4 million related to the write-off of "Property and Equipment, net" of the Nuuly Thrift marketplace which the Company wound down in fiscal 2025.
Leases
We have operating leases for stores, distribution and fulfillment centers, corporate offices and equipment that are recognized as right-of-use assets and lease liabilities. We sublease certain properties to third parties. We have elected not to record a lease liability and right-of-use asset for leases with original terms of 12 months or less. We have elected the practical expedient to not separate non-lease components from lease components as it pertains to real estate leases.
Store leases generally have initial lease terms that range from 5 to 15 years, some of which contain options to extend the lease for one or two 5-year periods. Payments related to a renewal period are included in the lease liability and right-of-use asset only when we are reasonably certain that we will exercise the option to renew the lease for an extended period of time. Certain leases may contain variable lease payments such as rent based on a percentage of net sales. Variable lease payments may be subject to a breakpoint threshold of fixed rent. Variable lease payments, other than those that depend on an index or a rate, are not included in the measurement of the lease liability. The lease liability is calculated at the present value of certain future payments, discounted using our incremental borrowing rate, which approximates the rate of interest we would pay to borrow an amount equal to the lease payments on a fully collateralized basis over a similar term. Significant judgment is used in determining the incremental borrowing rate related to estimates for credit rating, credit spread and the impact of collateral. We developed incremental borrowing rates at a lease portfolio level. The right-of-use asset is initially equal to the value of the lease liability less any amounts received from the landlord as incentives or tenant improvement allowances.
Accounting for Income Taxes
As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our income taxes in each of the tax jurisdictions in which we operate. This process involves estimating our actual current tax obligations together with assessing temporary differences resulting from differing treatment of certain items for tax and accounting purposes, such as depreciation of property and equipment and valuation of inventories. These temporary differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income. A valuation allowance is recognized if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax asset will not be realized. In making such a determination, we consider all material available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. Actual results could differ from this assessment if adequate taxable income is not generated in future periods. Net deferred tax assets as of January 31, 2026, and January 31, 2025, totaled $35.6 million and $48.5 million, respectively, representing less than 1.0% and 1.1% of total assets, respectively.
To the extent we believe that recovery of a deferred tax asset is at risk, we establish valuation allowances. To the extent we establish valuation allowances or increase the allowances in a period, we record additional income tax expense in the Consolidated Statements of Income. Valuation allowances were $26.3 million as of January 31, 2026, and $32.5 million as of January 31, 2025. Valuation allowances are based on evidence of our ability to generate sufficient taxable income in certain foreign and state jurisdictions. In the future, if enough evidence of our ability to generate sufficient future taxable income in these jurisdictions becomes apparent, we would be required to reduce our valuation allowances, resulting in a reduction in “Income tax expense” in the Consolidated Statements of Income. On a quarterly basis, management evaluates the likelihood that we will realize the deferred tax assets and adjusts the valuation allowances, if appropriate.
We consider certain earnings of non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future United States cash generation will be sufficient to meet future United States cash needs and our specific plans for reinvestment of those subsidiaries’ earnings. Should we decide to repatriate the foreign earnings, we would need to adjust our income tax provision in the period we determined that the earnings will no longer be indefinitely invested outside the United States.
Results of Operations
As a Percentage of Net Sales
The tables below set forth, for the periods indicated, the results of operations and the percentage of our net sales represented by certain statement of operations data. The tables should be read in conjunction with the discussions that follow.
(amounts in millions)
Fiscal Year Ended
January 31,
Net sales
Cost of sales (excluding store impairment and lease abandonment charges)
Store impairment and lease abandonment charges (1)
Gross profit
Selling, general and administrative expenses
Asset impairment (2)
Income from operations
Interest income
Interest expense
Other expense (3)
Income before income taxes
Income tax expense
Net income
AS A PERCENTAGE OF NET SALES
Net sales
Cost of sales (excluding store impairment and lease abandonment charges)
Store impairment and lease abandonment charges (1)
Gross profit
Selling, general and administrative expenses
Asset impairment (2)
Income from operations
Interest income
Interest expense
Other expense (3)
Income before income taxes
Income tax expense
Net income
Period over Period Change:
Net sales
Gross profit
Income from operations
Net income
During fiscal 2026, we recorded store impairment charges for four retail locations, totaling $2.0 million. During fiscal 2025, we recorded store impairment charges for one retail location and lease abandonment charges for one retail location, totaling $4.6 million. During fiscal 2024, we recorded store impairment charges for 15 retail locations and lease abandonment charges for two retail locations, totaling $11.9 million.
During fiscal 2024, we recorded a charge of $6.4 million related to the write-off of "Property and equipment, net" of the Nuuly Thrift marketplace which the Company wound down in fiscal 2025.
During fiscal 2026, we made a $46.0 million charitable contribution to a donor-advised fund.
Fiscal 2026 Compared to Fiscal 2025
Net sales in fiscal 2026 increased by 11.1% to $6.17 billion, from $5.55 billion in fiscal 2025. The $614.7 million increase was attributable to a $386.0 million, or 7.9%, increase in Retail segment net sales, a $190.0 million, or 50.2%, increase in Subscription segment net sales and a $38.7 million, or 14.0%, increase in Wholesale segment net sales.
The increase in our Retail segment net sales during fiscal 2026 was due to an increase of $278.8 million, or 6.0%, in Retail segment comparable net sales and an increase of $107.2 million in non-comparable net sales. Retail segment comparable net sales increased 7.3% at Urban Outfitters, 5.9% at Anthropologie and 4.8% at Free People. Retail segment comparable net sales increased in both Europe and North America. The overall increase in Retail segment comparable net sales was driven by mid single-digit positive growth in both digital channel sales and retail store sales. The digital channel net sales increase was driven by increases in sessions and units per transaction, while average order value and conversion rate decreased. Comparable retail store net sales increased as a result of higher store traffic, transactions, conversion rate and average unit retail, which were partially offset by a decrease in units per transaction. The increase in non-comparable net sales during fiscal 2026 was due to the impact of the 78 net new Company-owned stores and restaurants opened since the prior comparable period and the positive impact of foreign currency translation.
The increase in Subscription segment net sales during fiscal 2026 was primarily driven by a 45.3% increase in average active subscribers in the current year versus the prior year period. The increase in Wholesale segment net sales in fiscal 2026 was driven by a $39.1 million, or 15.2%, increase in Free People wholesale sales primarily due to increases in sales to specialty customers, partially offset by a decrease of less than $1.0 million in Urban Outfitters wholesale sales.
Gross profit percentage for fiscal 2026 increased to 36.0% of net sales, from 34.7% of net sales in fiscal 2025. Gross profit increased to $2.22 billion for fiscal 2026 from $1.93 billion in fiscal 2025. The increase in gross profit rate was primarily due to improved Retail segment markdowns driven by lower markdowns at Urban Outfitters and Free People, leverage in store occupancy costs due to the increase in comparable Retail segment net sales and leverage in delivery expense due to a reduction in packages per order, partially offset by deleverage in initial merchandise costs. The increase in gross profit dollars was due to higher net sales and the improved gross profit rate. Additionally, the Company recorded $2.0 million of store impairment charges during fiscal 2026, and $4.6 million of store impairment and lease abandonment charges during fiscal 2025.
Total inventory at January 31, 2026 increased by $79.8 million, or 12.8%, to $700.9 million from $621.1 million at January 31, 2025. Total Retail segment inventory increased 13.4% and Retail segment comparable inventory increased 5.3%. Wholesale segment inventory increased 8.5%. The increase in inventory for both segments was due to the increase in sales and timing of inventory receipts.
Selling, general and administrative expenses increased by $159.2 million, or 11.0%, compared to the prior year, and expressed as a percentage of net sales, leveraged 2 basis points. The leverage in selling, general and administrative expenses as a percentage of net sales was primarily related to leverage in store payroll expenses due to the Retail segment stores net sales growth. The dollar growth in selling, general and administrative expenses was primarily related to increased marketing expenses to support customer growth and increased sales in the Retail and Subscription segments, as well as increased store payroll expenses to support the growth in Retail segment store net sales.
Income from operations for fiscal 2026 was 9.8% of net sales, or $605.6 million, compared to 8.5% of net sales, or $473.8 million, for fiscal 2025. The increase in operating income dollars was primarily driven by the increase in gross profit dollars. The increase in operating income rate was primarily due to the higher gross profit rate.
During fiscal 2026, the Company made a $46.0 million charitable contribution to a donor-advised fund, which is included in "Other expense" in our Consolidated Statements of Income.
Our effective tax rate for fiscal 2026 was 22.1% compared to 19.5% in fiscal 2025. The increase in the effective tax rate was primarily due to the non-recurrence of a significant tax reserve release recorded in the prior year. See Note 10, “Income Taxes,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K, for a reconciliation of the statutory U.S. federal income tax rate to our effective tax rate.
Fiscal 2025 Compared to Fiscal 2024
Net sales in fiscal 2025 increased by 7.7% to $5.55 billion, from $5.15 billion in fiscal 2024. The $397.4 million increase was attributable to a $218.0 million, or 4.7%, increase in Retail segment net sales, a $142.5 million, or 60.4%, increase in Subscription segment net sales and a $36.9 million, or 15.5%, increase in Wholesale segment net sales.
The increase in our Retail segment net sales during fiscal 2025 was due to an increase of $151.2 million, or 3.4%, in Retail segment comparable net sales and an increase of $66.8 million in non-comparable net sales. Retail segment comparable net sales increased 8.9% at Free People and 7.7% at Anthropologie and decreased 8.7% at Urban Outfitters. Retail segment comparable net sales increased in both North America and Europe. The overall increase in Retail segment comparable net sales was driven by mid single-digit positive growth in digital channel sales and low single-digit positive growth in retail store sales. The digital channel net sales increase was driven by increases in sessions, while average order value decreased. Conversion rate and units per transaction were flat. Comparable retail store net sales increased as a result of higher store traffic and transactions, which were partially offset by a decrease in units per
transaction. Conversion rate and average unit retail price were flat. The increase in non-comparable net sales during fiscal 2025 was due to the impact of the 33 net new Company-owned stores and restaurants opened since the prior comparable period and the positive impact of foreign currency translation.
The increase in Subscription segment net sales during fiscal 2025 was primarily driven by a 51.3% increase in average active subscribers in the current year versus the prior year period. The increase in Wholesale segment net sales in fiscal 2025 was driven by a $39.1 million, or 17.9%, increase in Free People wholesale sales primarily due to increases in sales to specialty customers and department stores, partially offset by a decrease of $2.2 million in Urban Outfitters wholesale sales.
Gross profit percentage for fiscal 2025 increased to 34.7% of net sales, from 33.3% of net sales in fiscal 2024. Gross profit increased to $1.93 billion for fiscal 2025 from $1.72 billion in fiscal 2024. The increase in gross profit rate was primarily due to higher initial merchandise markups for all segments primarily driven by Company cross-functional initiatives. The increase in gross profit dollars was due to higher net sales and the improved gross profit rate. Additionally, the Company recorded $4.6 million of store impairment and lease abandonment charges during fiscal 2025, and $11.9 million of store impairment and lease abandonment charges during fiscal 2024.
Total inventory at January 31, 2025 increased by $70.9 million, or 12.9%, to $621.1 million from $550.2 million at January 31, 2024. Total Retail segment inventory increased 10.1%. Retail segment comparable inventory increased 11.3%. Wholesale segment inventory increased 43.7%. The increase in inventory for both segments was to support increased sales and planned early receipts.
Selling, general and administrative expenses increased by $113.7 million, or 8.5%, compared to the prior year, and expressed as a percentage of net sales, deleveraged 19 basis points. The deleverage in selling, general and administrative expenses as a rate to sales was primarily related to increased marketing expenses to support customer growth and increased sales in the Retail and Subscription segments. The dollar growth in selling, general and administrative expenses was primarily related to increased marketing expenses to support customer growth and increased sales in the Retail and Subscription segments, as well as increased store payroll expenses to support the growth in Retail segment store net sales.
Income from operations for fiscal 2025 was 8.5% of net sales, or $473.8 million, compared to 7.2% of net sales, or $369.8 million, for fiscal 2024. The increase in operating income dollars was primarily driven by the increase in gross profit. The increase in operating income rate was primarily due to the higher gross profit rate.
Our effective tax rate for fiscal 2025 was 19.5% compared to 24.6% in fiscal 2024. The decrease in the effective tax rate was primarily due to the tax benefit from the release of a portion of our income tax reserves as a result of a lapse of the statute of limitations for federal tax purposes. See Note 10, “Income Taxes,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K, for a reconciliation of the statutory U.S. federal income tax rate to our effective tax rate.
Liquidity and Capital Resources
The following tables set forth certain balance sheet and cash flow data for the periods indicated. These tables should be read in conjunction with the discussion that follows:
(amounts in millions)
January 31,
Cash, cash equivalents and marketable securities
Working capital
Fiscal Year Ended
January 31,
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
The increase in working capital at January 31, 2026, as compared to January 31, 2025, and January 31, 2024, was primarily due to the increases in cash, cash equivalents and current marketable securities and inventory, partially offset by the timing of disbursements.
During the last three years, we have satisfied our cash requirements primarily through our cash flow from operating activities, and through the sales and maturities of marketable securities. Our primary uses of cash have been to fund business operations, purchase inventory and rental product, repurchase our common shares, open new stores and expand and improve our distribution network.
Cash Flows from Operating Activities
For all periods, our major source of cash from operations was merchandise sales and our primary outflow of cash from operations was for the payment of operational costs. The increase in cash flows from operations for fiscal 2026 compared to fiscal 2025 was primarily due to higher net income in fiscal 2026. The decrease in cash flows from operations for fiscal 2025 compared to fiscal 2024 was primarily due to higher inventory purchases in fiscal 2025 and the timing of disbursements, partially offset by higher net income in fiscal 2025.
Cash Flows from Investing Activities
For all periods, cash used in investing activities was primarily related to the purchases of marketable securities and property and equipment, partially offset by the sales and maturities of marketable securities. Cash paid for property and equipment for fiscal 2026, 2025 and 2024 was $260.2 million, $182.6 million and $199.6 million, respectively, which was primarily used to expand our store base and fulfillment center network in all fiscal years, as well as expand our home office in fiscal 2026 to support our growing business.
Cash Flows from Financing Activities
Cash used in financing activities in fiscal 2026 was primarily related to $153.9 million of repurchases of our common shares under our share repurchase program. Cash used in financing activities in fiscal 2025 was primarily related to $52.3 million of repurchases of our common shares under our share repurchase program. Cash used in financing activities in fiscal 2024 was primarily related to repurchases of our common shares from employees to meet payroll tax withholding requirements on vested share-based awards.
Credit Facilities
See Note 8, "Debt," in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for certain financial information regarding the Company's debt.
Capital and Operating Expenditures
During fiscal 2027, we plan to open approximately 57 new Company-owned retail locations, expand or relocate certain existing retail locations, expand our fulfillment center network, invest in logistics capabilities, expand our home office to support our growing business, invest in new products, markets and brands, purchase inventory and rental product for our operating segments at levels appropriate to maintain our planned sales volumes, upgrade our systems, improve and expand our digital capabilities and invest in omni-channel marketing at appropriate levels. We may also repurchase our common shares. We believe that our new brand initiatives, new store openings, merchandise expansion programs, international growth opportunities and our marketing, social media, website and mobile initiatives are significant contributors to our sales growth and plan to continue our investment in these initiatives for all brands. We anticipate our capital expenditures during fiscal 2027 to be approximately $475 million which has increased from prior estimates primarily due to the purchase of our Nuuly fulfillment center in Raymore, Missouri in March 2026 that we previously leased. All fiscal 2027 capital expenditures are expected to be financed by cash flow from operating activities and existing cash, cash equivalents and marketable securities. We believe that our new store investments generally have the potential to generate positive cash flow within a year. We may also enter into one or more acquisitions or transactions related to the expansion of our brand offerings, including additional franchise agreements. We believe that our existing cash, cash equivalents and marketable securities, availability under our current credit facility and future cash flows provided by operations will be sufficient to fund these initiatives.
Share Repurchases
See Note 12, “Shareholders’ Equity,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for certain financial information regarding the Company’s share repurchases.
Contractual Obligations
The following table summarizes our contractual obligations as of January 31, 2026:
Payments Due by Period
(in thousands)
Description
Total
Obligations
Less Than
One
Year
More Than
One
Year
Operating leases (1)
Purchase commitments (2)
Tax credit investment (3)
Construction contracts (4)
Tax contingencies (5)
Total contractual obligations
Excluded from the amounts above are $92,989 of operating lease payments related to the Nuuly fulfillment center in Raymore, Missouri, which we purchased in March 2026. Refer to Note 9, “Leases,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
Refer to Note 15, “Commitments and Contingencies,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
Refer to Note 10, "Income Taxes," in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
Refer to Note 15, “Commitments and Contingencies,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
Excluded from the table above are tax contingencies of $2,028 because we cannot reasonably estimate in which future periods these amounts will ultimately be settled. As a result, the $2,028 liability was classified as a non-current liability in the Company's Consolidated Balance Sheets as of January 31, 2026.
Commercial Commitments
The following table summarizes our commercial commitments as of January 31, 2026:
Amount of Commitment Per Period
(in thousands)
Description
Total
Amounts
Committed
Less Than
One
Year
More Than
One
Year
Trade letters of credit (1)
Stand-by letters of credit (2)
Total commercial commitments
Consists primarily of outstanding letter of credit commitments in connection with import inventory purchases. Refer to Note 15, “Commitments and Contingencies,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
Consists primarily of stand-by letters of credit for customs, construction, lease guarantees and insurance. Refer to Note 8, “Debt,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
Other Matters
Recent Accounting Pronouncements
See Note 2, “Summary of Significant Accounting Policies —Recent Accounting Pronouncements ,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for a description of recently adopted and issued accounting pronouncements.
Seasonality
Our business experiences seasonal fluctuations in net sales and net income, with a more significant portion of net sales typically realized in the second half of each year predominantly due to the year-end holiday period. Historically, and consistent with the retail industry, the seasonality also impacts our working capital requirements, particularly with regard to inventory.
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk
We are exposed to the following types of market risks—fluctuations in the purchase price of merchandise, as well as other goods and services, the value of foreign currencies in relation to the U.S. dollar and changes in interest rates. Due to our inventory turnover rate and our historical ability to pass through the impact of any generalized changes in our cost of goods to our customers through pricing adjustments, commodity and other product risks are not expected to be material. We purchase the majority of our merchandise in U.S. dollars, including a majority of the goods for our stores located in Canada and a portion of the goods for our stores located in Europe.
Our exposure to market risk for changes in foreign currencies is due to our financial statements being presented in U.S. dollars and our international subsidiaries transacting in currencies other than U.S. dollars. Fluctuations in exchange rates in effect during or at the end of the reporting period may affect the value of the reported amounts of revenues, expenses, assets and liabilities. As we expand our international operations, the potential impact of currency fluctuations increases.
Our exposure to market risk for changes in interest rates relates to our cash, cash equivalents and marketable securities and the Credit Facility. As of January 31, 2026, and 2025, our cash, cash equivalents and marketable securities consisted primarily of cash on hand and in banks, money market accounts, corporate, municipal and pre-refunded municipal bonds rated "BBB" or better, commercial paper and federally insured or guaranteed investment vehicles such as certificates of deposit, United States treasury securities and federal government agencies and mutual funds. Due to the short average maturity and conservative nature of our investment portfolio, we believe a 100 basis point change in interest rates would not have a material effect on the Consolidated Financial Statements. As the interest rates on a material portion of our cash, cash equivalents and marketable securities are variable, a change in interest rates earned on the cash, cash equivalents and marketable securities would impact interest income along with cash flows, but would not impact the fair market value of the related underlying instruments.
We are exposed to market risks relating to changes in interest rates on outstanding borrowings under our Credit Facility because these borrowings bear interest at variable rates. A 100 basis point change in our applicable interest rate would not have a material impact to interest expense for the year ended January 31, 2026.
Item 8. Financial Statemen ts and Supplementary Data
The information required by this Item is incorporated by reference from Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality and from our Consolidated Financial Statements and related notes thereto.
