To those of you who know me I might not be a Fashionista – but I know a good looking stock when I see it. In a column for Heard on the Street in this weekend’s WSJ Meg Tanaka turned me on to the fast growing segment within retailer Urban Outfitters (URBN) that is driving the stock – and will continue to drive it higher going forward (“Nuuly Steals Rental Fashion Scene”).

Most investors are somewhat familiar with Urban Outfitters as a clothing retailer with its namesake brand as well as Anthropologie and Free People. I’ve long been aware of the stock and may have even owned at one time or another in the past. But there’s something new and exciting going on under the surface – and it’s just getting started.

Urban Outfitters has a rental clothing segment called Nuuly that is finally making the business work. Rent the Runway (RENT) pioneered the segment and Stitch Fix (SFIX) is another player. But Nuuly appears to be the emerging winner in the space.

Revenue jumped about 60% in their first quarter ended April 30, 2025 to $124 million from $78 million in the year ago quarter and is on track to pass $500 billion this year on its way to $1 billion according to URBN Chief Technology Officer and President David Hayne.

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Skeptics will say that I’m too late – the stock has doubled in the last nine months as investors took notice of Nuuly. While the stock may be overextended in the short term, the fundamentals suggest that Nuuly is just getting started. It’s a common fallacy to think that you have to catch the initial move to make money in a stock.

Of course when you buy URBN you’re not just buying Nuuly; you’re buying the retail business too. But there’s nothing to worry about there as it’s doing just fine and the stock is not expensive. URBN earned $4.06/share in 2024 – up from $3.23 in 2023. 1Q25 EPS increased 78% to $1.16 from 65 cents a year ago. URBN should earn nearly $5/share this year. URBN closed Friday at $77.53 for a forward multiple of ~16x. Management seems to think the stock is cheap since it bought back 3.3 million shares for $152 million in the first quarter after buying back only 1.2 million shares for $52 million the previous 12 months. Overall comps were +3.4% in 2024 and +4.8% in 1Q25. While Urban Outfitters is struggling, Anthropologie and Free People look strong.

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