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Urban Outfitters (URBN, Financials) surged over 18% in U.S. premarket trading Thursday after posting better-than-expected Q1 results and receiving an upgrade from JPMorgan.
Revenue rose 6.5% year over year to $1.33 billion for the quarter ended April 30. Net income grew 75% from the prior-year period. Comparable sales increased 5% overall, led by a 7% rise at Anthropologie, 3% at Free People, and 2% at the Urban Outfitters brand.
Gross margin expanded 240 basis points to 36.8%, while operating margin rose 305 basis points to 9.6%, reflecting improved merchandise margins and lower markdowns.
JPMorgan upgraded the stock to Overweight from Neutral and said it sees a multi-year upside for earnings. The bank raised its FY25 earnings per share forecast to $5.04 and FY26 to $5.93, both above Street consensus.
The investment bank's optimism stems from what it calls a 5-pronged growth flywheel, highlighting strength in Anthropologie and Free People, expansion in Nuuly and FP Movement, and brand recovery efforts at Urban Outfitters.
Management said Q2-to-date trends show comps roughly in line with Q1, with Free People accelerating. The retailer ended the quarter with $9 per share in cash and no debt, creating room for buybacks.
JPMorgan's valuation model now implies a 13x multiple on FY26 earnings, in line with the company's three-year pre-pandemic average.
Investors may want to track margin durability and same-store sales momentum, especially as Urban Outfitters builds on brand-specific growth efforts and a stronger balance sheet.
See URBN financials: Track URBN insider trades: This article first appeared on GuruFocus.