<PAGE>

    As filed with the Securities and Exchange Commission on March 14, 2002
                                                    Registration No. 333-
================================================================================
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 -------------

                                   FORM S-3
                            REGISTRATION STATEMENT
                                     Under
                          THE SECURITIES ACT OF 1933

                                 -------------

                            URBAN OUTFITTERS, INC.
            (Exact name of Registrant as specified in its charter)
                                 -------------

<TABLE>
<S>                                                           <C>
                        Pennsylvania                                                 23-2003332
               (State or other jurisdiction of                          (I.R.S. Employer Identification No.)
               incorporation or organization)

                                                                                 Glen A. Bodzy, Esq.
                     1809 Walnut Street                                          1809 Walnut Street
                   Philadelphia, PA 19103                                      Philadelphia, PA 19103
                       (215) 564-2313                                              (215) 564-2313
(Address, including zip code, and telephone number, including (Name, address, including zip code, and telephone number,
   area code, of Registrant's principal executive offices)           including area code, of agent for service)
</TABLE>


                                 -------------

                       Copies of all communications to:

<TABLE>
<S>                                                           <C>

       Walter J. Mostek, Jr., Esq.                         Justin P. Klein, Esq.
         Robert C. Juelke, Esq.                  Ballard Spahr Andrews & Ingersoll, LLP
       Drinker Biddle & Reath LLP                    1735 Market Street, 51st Floor
            One Logan Square                             Philadelphia, PA 19103
          18th & Cherry Streets                               215-665-8500
         Philadelphia, PA 19103
              215-988-2700
</TABLE>

                                 -------------

   Approximate date of commencement of the proposed sale to the public:  As
soon as practicable after this Registration Statement becomes effective.
   If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
   If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
   If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
[_] __________________
   If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] __________________
   If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

                                 -------------

                        CALCULATION OF REGISTRATION FEE

================================================================================

<TABLE>
<CAPTION>
                                                    Proposed Maximum  Proposed Maximum
                                     Amount to be  Offering Price per     Aggregate        Amount of
Title of Securities to be Registered Registered(1)      Share(2)      Offering Price(2) Registration Fee
--------------------------------------------------------------------------------------------------------
<S>                                  <C>           <C>                <C>               <C>
      Common Shares, par value
        $0.0001 per share...........   2,200,000         $23.67          $52,074,000         $4,791
</TABLE>

================================================================================
(1)Includes 200,000 shares which the Underwriters have the option to purchase
   to cover over-allotments, if any.
(2)Estimated solely for the purpose of calculating the registration fee
   pursuant to Rule 457(c) under the Securities Act of 1933 and based upon the
   average of the high and low prices of the Registrant's common shares
   reported on the Nasdaq National Market on March 7, 2002.

                                 -------------

   The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.

================================================================================


<PAGE>

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

                  SUBJECT TO COMPLETION, DATED MARCH 14, 2002

                               2,000,000 Shares

                                    [Logo]

                            Urban Outfitters, Inc.

                                 Common Shares

                                 -------------

   We are selling 1,550,000 common shares and the selling shareholders are
selling 450,000 common shares. We will not receive any of the proceeds from the
sale of the shares by the selling shareholders, except to the extent that the
selling shareholders sell shares in this offering received by exercising stock
options, in which case we will receive the aggregate exercise price of the
exercised options.

   Our common shares are listed on the Nasdaq National Market under the symbol
"URBN." The last reported sale price on March 12, 2002 was $24.75 per share.

   The underwriters have an option to purchase a maximum of 200,000 additional
shares from us and the selling shareholders to cover over-allotments of shares.

   Investing in our common shares involves risks. See "Risk Factors" on page 7.


<TABLE>
<CAPTION>
                                   Underwriting         Proceeds to         Proceeds to
                     Price to      Discounts and           Urban              Selling
                      Public        Commissions         Outfitters          Shareholders
                     --------      -------------        -----------         ------------
           <S>       <C>           <C>                  <C>                 <C>
           Per Share    $                $                   $                   $
           Total....    $                $                   $                   $
</TABLE>


   Delivery of the common shares will be made on or about      , 2002.

   Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

  Credit Suisse First Boston                              UBS Warburg

                          U.S. Bancorp Piper Jaffray

Wedbush Morgan Securities Inc.               Investec PMG Capital

                  The date of this prospectus is      , 2002.


<PAGE>

                             [Inside Front Cover]

                    [Graphics to be supplied by amendment]


<PAGE>

                                 -------------

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                        Page
                                                        ----
                    <S>                                 <C>
                    PROSPECTUS SUMMARY.................   1
                    RISK FACTORS.......................   7
                    USE OF PROCEEDS....................  12
                    COMMON SHARE PRICE RANGES AND
                      DIVIDENDS........................  12
                    CAPITALIZATION.....................  13
                    SELECTED CONSOLIDATED FINANCIAL AND
                      OPERATING DATA...................  14
                    MANAGEMENT'S DISCUSSION AND
                      ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS........  16
                    BUSINESS...........................  23
                    MANAGEMENT.........................  31
                    PRINCIPAL AND SELLING SHAREHOLDERS.  33
                    CERTAIN RELATIONSHIPS AND RELATED
                      PARTY TRANSACTIONS...............  35
</TABLE>


<TABLE>
<CAPTION>
                                                      Page
                                                      ----
                      <S>                             <C>
                      DESCRIPTION OF CAPITAL STOCK...  35
                      CERTAIN U.S. FEDERAL TAX
                        CONSIDERATIONS FOR NON-U.S.
                        HOLDERS......................  38
                      UNDERWRITING...................  41
                      NOTICE TO CANADIAN RESIDENTS...  44
                      LEGAL MATTERS..................  45
                      EXPERTS........................  45
                      WHERE YOU CAN FIND MORE
                        INFORMATION..................  45
                      INCORPORATION OF DOCUMENTS BY
                        REFERENCE....................  46
                      INDEX TO CONSOLIDATED FINANCIAL
                        STATEMENTS................... F-1
</TABLE>


                                 -------------

   You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

                                       i


<PAGE>

                          FORWARD-LOOKING STATEMENTS

   This prospectus contains forward-looking statements that involve a number of
risks and uncertainties. A number of factors could cause our actual results,
performance, achievements or industry results to be materially different from
any future results, performance or achievements expressed or implied by these
forward-looking statements. These factors include, but are not limited to:

   . difficulty in predicting and responding to shifts in fashion trends;

   . industry competition;

   . the impact of losing one or more key senior managers or failing to attract
     and retain additional key personnel;

   . unavailability of suitable retail space for expansion on terms acceptable
     to us;

   . seasonal fluctuations in sales;

   . disruption in the flow of merchandise from our vendors, especially those
     located overseas; and

   . other factors referenced in this prospectus, including those set forth
     under the caption "Risk Factors."

   In addition, these forward-looking statements necessarily depend upon
assumptions, estimates and dates that may be incorrect or imprecise and involve
known and unknown risks, uncertainties and other factors. Accordingly, any
forward-looking statements included in this prospectus do not purport to be
predictions of future events or circumstances and may not be realized.
Forward-looking statements can be identified by, among other things, the use of
forward-looking terms such as "believes," "expects," "may," "will," "should,"
"seeks," "pro forma," "anticipates," "intends" or the negative of any of these
terms, or comparable terminology, or by discussions of strategy or intentions.
Given these uncertainties, we caution investors not to place undue reliance on
these forward-looking statements. We disclaim any obligation to update any of
these factors or to publicly announce any revisions to the forward-looking
statements contained in this prospectus to reflect future events or
developments.

                                      ii


<PAGE>

                              PROSPECTUS SUMMARY

   This summary highlights information contained elsewhere in this prospectus.
This summary may not contain all of the information that you should consider
before deciding to invest in our common shares. We urge you to read this entire
prospectus carefully, including the SEC filings that we have incorporated by
reference into this prospectus, the "Risk Factors" section and the consolidated
financial statements and the notes to those statements included elsewhere in
this prospectus. Unless otherwise specifically stated, information in this
prospectus assumes the underwriters do not exercise their over-allotment option
to purchase additional shares in this offering.

                            Urban Outfitters, Inc.

   We are an innovative lifestyle merchandising company that operates specialty
retail stores under two distinct brands, Urban Outfitters and Anthropologie, as
well as the Free People wholesale division. We have over 30 years of experience
creating and managing retail stores that offer highly differentiated
collections of fashion apparel, accessories and home goods in inviting and
dynamic store settings. Our core strategy of providing unified store
environments that establish emotional bonds with the customer is used at both
Urban Outfitters and Anthropologie. In addition to our retail stores, we offer
our products and market our brands directly to the consumer through the
urbn.com and anthropologie.com web sites and the Anthropologie catalog. We have
achieved compounded annual sales growth of 19% over the past five years,
resulting in sales of $349.0 million for the fiscal year ended January 31, 2002.

   Urban Outfitters.  Urban Outfitters targets young adults aged 18 to 30
through its unique merchandise mix and compelling store environment. The
product offering includes women's and men's fashion apparel, footwear and
accessories, as well as an eclectic mix of apartment wares and gifts. Apartment
wares range from rugs, pillows and shower curtains to books, candles and
novelties. Stores average approximately 10,000 square feet of selling space,
typically carry 30,000 to 35,000 stock keeping units, or SKUs, and are located
in large metropolitan areas and select university communities. We expect to
open our first enclosed mall store in the second quarter of this year. As of
March 1, 2002, we operated 49 Urban Outfitters stores in the United States,
Canada, the United Kingdom and Ireland, as well as the urbn.com web site. Urban
Outfitters' sales accounted for approximately 54% of total sales for the fiscal
year ended January 31, 2002.

   Anthropologie.  Anthropologie tailors its merchandise and inviting store
environment to sophisticated and contemporary women aged 30 to 45. Our unique
and eclectic product assortment includes women's casual apparel and
accessories, home furnishings and a diverse array of gifts and decorative
items. The home furnishings range from furniture, rugs, lighting and antiques
to table top items, bedding and gifts. Stores average approximately 8,500
square feet of selling space, typically carry 20,000 to 25,000 SKUs and are
located in specialty retail centers, upscale street locations and enclosed
malls. As of March 1, 2002, we operated 32 Anthropologie stores in the United
States, as well as the anthropologie.com web site and the Anthropologie
catalog. Anthropologie's sales accounted for approximately 41% of total sales
for the fiscal year ended January 31, 2002.

   Free People.  Free People, our wholesale division, designs, develops and
markets young women's casual apparel. Our range of tops, bottoms, sweaters and
dresses are sold worldwide through approximately 1,100 better department and
specialty stores, including Bloomingdale's, Nordstrom and Urban Outfitters. In
order to further develop and support the Free People brand, we plan to open a
limited number of Free People retail stores over the next several years. Free
People's sales accounted for approximately 5% of total sales for the fiscal
year ended January 31, 2002.

                                      1


<PAGE>

Our Competitive Strengths

   We offer a unique shopping experience.  We use creative store design,
dynamic visual merchandising and striking store displays to create distinctive
store environments. These elements, along with our unique cross-merchandising
approach, present our products in a lifestyle context and form a bond between
our customers and our stores. We deliver new merchandise to our stores several
times a week to create excitement among our target customers and to encourage
them to visit our stores on a regular basis. We believe this unique shopping
experience results in customers spending more time in our stores.

   We offer a distinct and eclectic product mix.  We attract our target
customers to our stores by offering an eclectic mix of products in a single
shopping experience. Both our Urban Outfitters and Anthropologie stores offer
products from a broad group of merchandise categories, targeted to specific
customers. This unique product category mix, including apparel, furniture, home
accessories and novelties, creates a lifestyle approach to merchandising that
we believe distinguishes us from other specialty retailers and results in
strong customer loyalty.

   We have a flexible merchandise strategy.  Our differentiating merchandise
strategy combines products from our internally developed brands, the Free
People brand and national brands. By offering a number of different brands, our
customers associate Urban Outfitters or Anthropologie with a collection of
merchandise that suits their individual tastes and preferences, rather than any
particular brand. Consequently, as fashion trends change, we are able to
continually adjust our product mix to appeal to our customers. In addition,
having multiple sources for products allows us to quickly respond to fashion
developments as we can often source national brands more quickly than our
internally developed products.

   We have versatile store formats.  Urban Outfitters and Anthropologie stores
have been successful in a variety of locations. We currently operate profitable
stores in street locations, specialty retail centers and enclosed shopping
malls in diverse geographic locations. In addition, our stores include a
variety of layouts, such as multi-level sites and unconventional retail spaces.
Our flexibility with respect to store location and layout allows us to optimize
our real estate portfolio and operate stores near our target customers.

   We have a highly experienced management team.  Our senior management has
extensive experience in the retail industry. Richard A. Hayne, the Chairman of
our Board of Directors and our President, co-founded the company in 1970. In
addition, Glen T. Senk has been President of Anthropologie for eight years and
has over 21 years of retail and direct-to-consumer experience. Two key
additions to our management team in 2001 were Tedford G. Marlow, President of
the Urban Outfitters retail division, who has over 26 years of experience in
the retail industry, and David C. Frankel, President of Free People, who has
over 15 years of experience in the apparel industry. The addition of these new
members to our management team will better enable us to execute our core
strategy.

Our Growth Strategy

   Continue expanding our store base.  Over the last five years, we have
expanded the Urban Outfitters store base from 24 to 49 stores and the
Anthropologie store base from eight to 32 stores. We expect to open 12 to
14 additional stores during the current fiscal year and believe there are
substantial opportunities thereafter to open additional stores throughout the
United States. We plan to open our first Urban Outfitters enclosed mall store
in the second quarter of this year and additional enclosed mall stores in the
future. We will also continue to open Urban Outfitters stores in large
metropolitan areas and select university communities. Given the success of
Anthropologie stores in diverse geographic locations, we believe significant
opportunity for expansion exists. We plan to continue opening new Anthropologie
stores in specialty retail centers, upscale street locations and enclosed
shopping malls.

                                      2


<PAGE>

   Continue to grow our comparable store sales.  We have several ongoing
initiatives to drive comparable store sales growth including (i) leveraging our
growing sales base and production capabilities to further improve our
internally developed products, (ii) shortening our product procurement and
distribution cycles to accelerate the flow of fresh merchandise into our
stores, (iii) improving our distribution and allocation systems to better
customize product mix and inventory levels for our stores based on fashion,
size and climate preferences and (iv) enhancing in-store customer service and
selling capabilities at both our Urban Outfitters and Anthropologie stores. We
believe the execution of these initiatives by our recently expanded management
team will enhance our ability to further grow comparable store sales.

   Improve our operating margin.  Improving our operating margin is a key
objective. We plan to improve gross margins by (i) gradually increasing the
penetration of our higher-margin private label merchandise, (ii) leveraging our
enhanced production efficiencies and sourcing capabilities as we continue to
grow and (iii) improving store-specific merchandise assortments to reduce
markdowns. We expect to lower occupancy expenses through more stringent site
approval criteria, further controlling construction costs and migrating to
slightly smaller formats for our stores. We also believe that as we continue to
grow our store base and generate positive comparable store sales, we will
leverage our management, operations and distribution infrastructure.

                                 -------------

                        Our Principal Executive Offices

   We were incorporated in Pennsylvania in 1976, and our principal executive
offices are located at 1809 Walnut Street, Philadelphia, Pennsylvania 19103.
Our telephone number is (215) 564-2313. We maintain web sites for the sale of
merchandise at www.urbn.com and www.anthropologie.com. Information on our web
sites does not constitute part of this prospectus.

                                      3


<PAGE>

                                 The Offering


<TABLE>
<S>                                                 <C>
Common shares offered by us........................ 1,550,000 shares

Common shares offered by the selling shareholders.. 450,000 shares

Over-allotment option granted by us and the selling
  shareholders..................................... 200,000 shares

Common shares to be outstanding after the offering,
  not including the over-allotment option.......... 19,027,086 shares

Use of proceeds.................................... We plan to use the net proceeds received from the
                                                    common shares offered by us primarily for opening
                                                    new stores and for general corporate purposes.

                                                    We will not receive any proceeds from the sale of
                                                    shares by the selling shareholders in this offering,
                                                    except to the extent that a selling shareholder sells
                                                    shares in this offering received by exercising stock
                                                    options, in which case we will receive the aggregate
                                                    exercise price of those options.

Nasdaq National Market symbol...................... "URBN"
</TABLE>


   The total number of common shares to be outstanding after this offering
includes 94,000 shares that are expected to be issued to selling shareholders
upon the exercise of stock options in connection with their participation in
this offering.

   The total number of common shares to be outstanding after this offering does
not reflect:

   . 1,690,200 shares that may be issued upon the exercise of additional
     outstanding stock options;

   . 682,500 shares that we have reserved for future issuance pursuant to our
     2000 stock incentive plan; and

   . 201,200 shares that we have reserved for future issuance pursuant to our
     1997 stock option plan.

                                      4


<PAGE>

               Summary Consolidated Financial and Operating Data

   The following table sets forth summary consolidated income statement, sales,
operating and balance sheet data as of and for the periods indicated. The
summary consolidated actual balance sheet data at January 31, 2002 and the
income statement data for each of the three fiscal years presented below are
derived from our audited consolidated financial statements. You should read
this information in conjunction with "Selected Consolidated Financial and
Operating Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
related notes included elsewhere in this prospectus.


<TABLE>
<CAPTION>
                                                                  Fiscal Year Ended January 31,
                                                            --------------------------------------
                                                               2002         2001          2000
                                                            -----------  -----------   -----------
                                                                   (in thousands, except share
                                                                     amounts and store data)
<S>                                                         <C>          <C>           <C>
Income Statement Data:
Net sales.................................................. $   348,958  $   295,333   $   278,113
Gross profit...............................................     113,647       95,331       104,654
Income from operations.....................................      25,498       17,878        37,565
Net income.................................................      15,007       10,495        18,680(1)
Net income per common share--basic......................... $      0.87  $      0.61   $      1.07
Weighted average common shares outstanding--basic..........  17,268,615   17,257,186    17,531,971
Net income per common share--diluted....................... $      0.86  $      0.61   $      1.05
Weighted average common shares outstanding--diluted........  17,438,457   17,274,830    17,844,356
Sales Data:
Urban Outfitters store sales............................... $   184,998  $   160,151   $   169,067
Anthropologie store sales..................................     120,878       92,908        69,748
                                                            -----------  -----------   -----------
   Total store sales.......................................     305,876      253,059       238,815
Direct-to-consumer sales...................................      24,815       21,665        16,967
                                                            -----------  -----------   -----------
   Total retail segment sales..............................     330,691      274,724       255,782
Free People sales..........................................      18,267       20,609        22,331
                                                            -----------  -----------   -----------
   Total sales............................................. $   348,958  $   295,333   $   278,113
                                                            ===========  ===========   ===========
Operating and Other Data:
Number of stores at period end:
   Urban Outfitters........................................          49           42            37
   Anthropologie...........................................          31           26            20
Same store sales growth(2).................................         2.8%        (7.4)%        10.3%
Sales per selling square foot(3)........................... $       443  $       439   $       507
Capital expenditures.......................................      22,309       36,877        38,149
</TABLE>

---------------------
(1)Includes a $4.4 million charge to reserve for the company's minority
   investment in MXG Media, Inc. Income tax expense for the fiscal year ended
   January 31, 2000 does not include a tax benefit related to this charge.
(2)Same store sales figures include stores that have been in operation for at
   least twelve full months at the beginning of the period for which such data
   is presented.
(3)Average sales per selling square foot is based upon total store sales for
   the period divided by the average of the beginning and ending net selling
   square footage (which excludes back office and storage space, fitting rooms
   and staircases).

                                      5


<PAGE>


<TABLE>
<CAPTION>
                                                      As of January 31, 2002
                                                     ------------------------
                                                              As Adjusted for
                                                      Actual   the Offering
                                                     -------- ---------------
                                                          (in thousands)
   <S>                                               <C>      <C>
   Balance Sheet Data:
   Working capital.................................. $ 41,319    $ 77,834
   Total assets.....................................  195,102     231,617
   Total liabilities................................   49,214      49,214
   Long-term debt, excluding current maturities.....       --          --
   Total shareholders' equity.......................  145,888     182,403
</TABLE>


                                      6


<PAGE>

                                 RISK FACTORS

   You should carefully consider the following risks, as well as the other
information contained in this prospectus, before investing in our common
shares. If any of the following risks actually occur, our business could be
harmed. In that case, the trading price of our common shares could decline, and
you might lose all or part of your investment. You should refer to the other
information set forth in this prospectus and our consolidated financial
statements and the related notes included elsewhere in this prospectus.

                  Risks Related to Our Business and Industry

Our business is dependent upon us being able to predict fashion trends,
customer preferences and other fashion-related factors.

   Customer tastes and fashion trends are volatile and tend to change rapidly.
Our success depends in part on management's ability to effectively predict and
respond to changing fashion tastes and consumer demands, and to translate
market trends into appropriate, saleable product offerings far in advance. If
we are unable to successfully predict or respond to changing styles or trends
and misjudge the market for our products or any new product lines, our sales
will be lower and we may be faced with a substantial amount of unsold inventory
or missed opportunities. In response, we may be forced to rely on additional
markdowns or promotional sales to dispose of excess, slow-moving inventory,
which may have a material adverse effect on our business, financial condition
and results of operations. Compared to our retail segments, our wholesale
business is more sensitive to changes in fashion trends because of longer lead
times in the design and manufacture of its apparel.

We may not be successful in expanding our business and opening new retail
stores.

   Our growth strategy depends on our ability to open and operate new retail
stores on a profitable basis. Our operating complexity and management
responsibilities will increase as we continue to grow, and we may face
challenges in managing our future growth. Such growth will require that we
continue to expand and improve our operations, including our distribution
infrastructure, and expand, train and manage our employee base. In addition, we
may be unable to hire a sufficient number of qualified personnel to work in our
new stores or to successfully integrate the stores into our business.

   Our expansion prospects also depend on a number of other factors, many of
which are beyond our control, including, among other things:

   . economic conditions;

   . competition;

   . consumer preferences;

   . the availability of financing for capital expenditures and working capital
     requirements; and

   . the availability of suitable sites for new store locations on acceptable
     lease terms.

   There can be no assurance that we will be able to achieve our store
expansion goals. Even if we succeed in opening new stores as planned, we cannot
assure you that our newly opened stores will achieve revenue or profitability
levels comparable to those of our existing stores in the time periods estimated
by us, or at all. If our stores located outside the United States fail to
achieve, or are unable to sustain, acceptable revenue and profitability levels,
we may incur significant costs associated with closing those stores.

                                      7


<PAGE>

The specialty retail and wholesale apparel businesses are sensitive to economic
conditions and consumer spending.

   The specialty retail and wholesale apparel businesses historically have been
subject to cyclical variations. Consumer purchases of discretionary retail
items and specialty retail products, including our products and those sold in
our stores, may decline during recessionary periods and also may decline at
other times when disposable income is lower. A prolonged economic downturn
could have a material adverse impact on our business, financial condition and
results of operations.

Existing and increased competition in the specialty retail and wholesale
apparel businesses may reduce our net revenues, profits and market share.

   The specialty retail and wholesale apparel businesses are highly
competitive. Our retail segment competes against a wide variety of smaller,
independent specialty stores as well as department stores, national specialty
chains and catalog and Internet-based retailers. In addition, some of our
suppliers offer products directly to consumers. Our wholesale business competes
with numerous companies, many of whose products have wider distribution than
ours. Many of our competitors are considerably larger and have substantially
greater financial, marketing and other resources than we have. We cannot assure
you that we will continue to be able to compete successfully against existing
or future competitors. Our expansion into markets served by our competitors and
entry of new competitors or expansion of existing competitors into our markets
could have a material adverse effect on our business, financial condition and
results of operations.

We depend on key personnel and may not be able to retain or replace these
employees or recruit additional qualified personnel, which would harm our
business.

   We believe that we have benefited substantially from the leadership and
experience of our senior executives, including our Chairman, President and
co-founder, Richard A. Hayne, and the President of Anthropologie, Inc., Glen T.
Senk. The loss of the services of any of our senior executives could have a
material adverse effect on our business and prospects, as we may not be able to
find suitable management personnel to replace departing executives on a timely
basis. We do not have an employment agreement with Mr. Hayne, Mr. Senk or any
of our other key personnel.

   In addition, as our business expands, we believe that our future success
will depend greatly on our continued ability to attract and retain highly
skilled and qualified personnel. There is a high level of competition for
personnel in the retail industry. Our inability to meet our staffing
requirements in the future at costs that are favorable to us, or at all, could
impair our ability to increase revenue and could otherwise harm our business.

We could be materially and adversely affected if any of our distribution
centers are shut down.

   We operate three distribution facilities worldwide to support our retail and
wholesale business segments in the United States, Western Europe and Canada,
and for fulfillment of catalog and web site orders. We have also engaged a
third-party to operate an additional distribution facility to service our
stores in the western United States. The majority of merchandise purchased by
our retail and wholesale business segments is shipped directly to our
distribution center in Lancaster County, Pennsylvania. If any of our
distribution centers, especially our primary Lancaster County, Pennsylvania
facility, were to shut down for any reason, the other distribution centers may
not be able to support the resulting additional distribution demands. As a
result, we could incur significantly higher costs and longer lead times
associated with distributing our products to our stores during the time it
takes for us to reopen or replace the center.

Our expansion into enclosed shopping malls may not be successful.

   Our retail stores have often been located in unconventional retail spaces
and in free-standing buildings. We are seeking to expand the range of possible
new store locations by opening Urban Outfitters stores in enclosed

                                      8


<PAGE>

shopping malls. We cannot assure you that these mall stores will be accepted by
our target customers or that they will achieve revenue or profitability levels
comparable to those of our existing stores.

   The success of all of our mall stores will depend, in part, on the ability
of the malls' anchor tenants, such as large department stores, and other
tenants and area attractions to generate consumer traffic in the vicinity of
our stores and the continuing popularity of malls as shopping destinations.
Sales volume and mall traffic may be adversely affected by economic downturns
in a particular area, the closing of anchor tenants or competition from
non-mall retailers and other malls where we do not have stores.

We rely significantly on foreign sources of production.

   We receive apparel and other merchandise from foreign sources, both
purchased directly in foreign markets and indirectly through domestic vendors
with foreign sources. To the extent that our vendors are located overseas or
rely on overseas sources for a large portion of their products, any event
causing a disruption of imports, including the imposition of import
restrictions, could adversely affect our business. The flow of merchandise from
our vendors could also be adversely affected by financial or political
instability in any of the countries in which the goods we purchase are
manufactured, if the instability affects the production or export of
merchandise from those countries. Trade restrictions in the form of tariffs or
quotas, or both, applicable to the products we sell could also affect the
importation of those products and could increase the cost and reduce the supply
of products available to us, In addition, decreases in the value of the U.S.
dollar against foreign currencies could increase the cost of products we
purchase from overseas vendors.

Our operating results fluctuate from period to period.

   Our business experiences seasonal fluctuations in net sales and operating
income, with a significant portion of operating income typically realized
during the five-month period from August 1 to December 31 of each year (the
back-to-school and holiday periods). Any decrease in sales or margins during
this period, or in the availability of working capital needed in the months
preceding this period, could have a material adverse effect on our business,
financial condition and results of operations.

   Seasonal fluctuations also affect our inventory levels, as we usually order
merchandise in advance of peak selling periods and sometimes before new fashion
trends are confirmed by customer purchases. We must carry a significant amount
of inventory, especially before the back-to-school and holiday selling periods.
If we are not successful in selling our inventory during this period, we may be
forced to rely on markdowns or promotional sales to dispose of the inventory or
we may not be able to sell the inventory at all, which could have a material
adverse effect on our business, financial condition and results of operations.

War, acts of terrorism, or the threat of either may negatively impact
availability of merchandise and otherwise adversely impact our business.

   In the event of war or acts of terrorism, or if either are threatened, our
ability to obtain merchandise available for sale in our stores may be
negatively impacted. A substantial portion of our merchandise is imported from
other countries. If imported goods become difficult or impossible to bring into
the United States, and if we cannot obtain such merchandise from other sources
at similar costs, our sales and profit margins may be adversely affected. In
the event that commercial transportation is curtailed or substantially delayed,
our business may be adversely impacted, as we may have difficulty shipping
merchandise to our distribution centers and stores, as well as fulfilling
catalog and web site orders.

   On September 11, 2001, in response to terrorist attacks on the United
States, a majority of our retail stores either did not open or were closed
early. Seven of our stores located in Manhattan were closed from between two

                                      9


<PAGE>

to four days following the terrorist attacks, depending on the store's
location. These closings adversely affected our sales during the third quarter
of the fiscal year ended January 31, 2002. In the event of war or additional
acts of terrorism, or the threat of either, we may be required to suspend
operations in some or all of our stores, which could have a material adverse
impact on our business, financial condition and results of operations.

We may be unable to protect our trademarks and other intellectual property
rights.

   We believe that our trademarks and service marks are important to our
success and our competitive position due to their name recognition with our
customers. We devote substantial resources to the establishment and protection
of our trademarks and service marks on a worldwide basis, and have established
a separate subsidiary whose primary purpose is to maintain and manage our
current and future trademarks and service marks. We are not aware of any claims
of infringement or challenges to our right to use any of our trademarks and
service marks in the United States. Nevertheless, there can be no assurance
that the actions we have taken to establish and protect our trademarks and
service marks will be adequate to prevent imitation of our products by others
or to prevent others from seeking to block sales of our products as a violation
of the trademarks, service marks and proprietary rights of others. Also, others
may assert rights in, or ownership of, trademarks and other proprietary rights
of ours and we may not be able to successfully resolve these types of conflicts
to our satisfaction. In addition, the laws of certain foreign countries may not
protect proprietary rights to the same extent as do the laws of the United
States.

                        Risks Related to this Offering

Provisions in our charter documents might deter acquisition bids for us.

   Our amended and restated articles of incorporation and amended and restated
bylaws contain provisions that, among other things:

   . authorize our board of directors to issue preferred shares ranking senior
     to our common shares without any action on the part of the shareholders;

   . establish advance notice procedures for shareholder proposals, including
     nominations of directors, to be considered at shareholders' meetings;

   . restrict the ability of shareholders to modify the number of authorized
     directors; and

   . restrict the ability of shareholders to call special meetings of
     shareholders.

   In addition, Section 1725 of the Pennsylvania Business Corporation Law
authorizes a majority of our board of directors, in certain circumstances, to
fill vacancies on the board resulting from an increase in the authorized number
of directors or from vacancies. These provisions could make it more difficult
for a third-party to acquire us, even if doing so would benefit our
shareholders.

Our President has significant control of our company and can make decisions
that could adversely affect our share price and may prevent a change of control.

   Following this offering, our President and Chairman, Richard A. Hayne, will
beneficially own approximately 36.1% of our outstanding common shares (35.3% if
the underwriters exercise their over-allotment option in full). As a result,
Mr. Hayne will be able to substantially impact all matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions. This influence may have the effect of
delaying, preventing or deterring a change in control of our company and could
deprive our shareholders of an opportunity to receive a premium for their
common shares as part of any sale or acquisition.

Shares eligible for public sale after this offering could adversely affect our
share price.

   As of February 28, 2002, we had 17,383,086 common shares outstanding. All of
the common shares being sold in this offering will be freely tradable without
restriction or further registration under the Securities Act of

                                      10


<PAGE>

1933, as amended, unless the shares are subject to a lock-up agreement or are
held by one of our "affiliates," as that term is defined under Rule 144 under
the Securities Act. We, our executive officers and directors, including each of
the selling shareholders, have agreed to not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any common shares or
securities convertible into or exchangeable or exercisable for any common
shares or enter into a transaction that would have the same effect, without, in
each case, the prior written consent of Credit Suisse First Boston Corporation
for a period of 90 days after the date of this prospectus. After the lock-up
agreements pertaining to this offering expire, subject to some exceptions,
8,189,777 common shares, including 572,400 shares underlying vested stock
options, that were subject to the lock-up agreements will be eligible for sale.
Those shares that are held by our affiliates will remain subject to the resale
limitations of Rule 144 under the Securities Act.

   We cannot predict the effect, if any, that market sales of common shares or
the availability of common shares for sale will have on the market price of our
common shares from time to time. The sale of a substantial number of shares
held by the existing shareholders, whether pursuant to a subsequent public
offering or otherwise, or the perception that these sales could occur, could
adversely affect the market price of our common shares and could materially
impair our future ability to raise capital through an offering of equity
securities.

Our share price may be volatile and could decline substantially.

   The stock market has, from time to time, experienced extreme price and
volume fluctuations. Many factors may cause the market price for our common
shares to decline following this offering, including:

   . periodic variations in the actual or anticipated financial results of our
     businesses or other companies in the retail industry or markets served by
     us;

   . downward revisions in securities analysts' estimates;

   . material announcements by us or our competitors;

   . public sales of a substantial number of common shares following this
     offering; and

   . adverse changes in general market conditions or economic trends.

   Many factors can affect our business, financial condition and results of
operations and this makes the prediction of our financial results on a
quarterly basis difficult. These factors include the timing of new store
openings, net sales contributed by new stores, increases or decreases in
comparable store sales, timing of certain holidays, changes in our merchandise,
general economic, industry and weather conditions that affect consumer
spending, and actions of competitors. If our quarterly results are below the
expectations of securities market analysts and investors, the price of our
common shares may be adversely affected.

   In the past, companies that have experienced volatility in the market price
of their shares have been the subject of securities class action litigation. If
we become involved in a securities class action litigation in the future, it
could result in substantial costs and diversion of management attention and
resources, thus harming our business.

We do not expect to pay cash dividends in the foreseeable future.

   Since our initial public offering, we have not declared or paid cash
dividends on our common shares and do not expect to pay cash dividends for the
foreseeable future. We currently intend to retain all future earnings for use
in the operation of our business and to fund future growth. In addition, the
terms of our line of credit facility prohibit us from paying cash dividends. If
this prohibition is removed, our ability to pay any future cash dividends would
depend upon our results of operations, financial condition, cash requirements,
the availability of a surplus and other factors.

                                      11


<PAGE>

                                USE OF PROCEEDS

   We will receive net proceeds from this offering of approximately $35.5
million, after deducting underwriting discounts and commissions and estimated
offering expenses payable by us. In addition, some of the selling shareholders
will participate in this offering by exercising stock options and, as a result,
we will receive the exercise price of each option exercised. We expect that an
aggregate of 94,000 shares underlying these options will be sold in this
offering, generating $1.0 million in proceeds to us. We intend to use the net
proceeds of this offering, including any additional proceeds we receive from
the underwriters' exercise of their over-allotment option, primarily for
opening new stores and for general corporate purposes. Until the net proceeds
are spent for such purposes, they will be invested in short-term, investment
grade, interest-bearing securities.

   We will not receive any proceeds from the sale of common shares by the
selling shareholders, except to the extent of stock options exercised in
connection with sales in this offering as described above.

                    COMMON SHARE PRICE RANGES AND DIVIDENDS

   Our common shares are traded on the Nasdaq National Market under the symbol
"URBN." The following table sets forth for the periods indicated below the
reported high and low sale prices for our common shares as reported on the
Nasdaq National Market.


<TABLE>
<CAPTION>
                                                              High   Low
                                                             ------ ------
      <S>                                                    <C>    <C>

      Fiscal Year Ended January 31, 2001:
      Quarter ended April 30, 2000.......................... $15.13 $10.25
      Quarter ended July 31, 2000...........................  12.48   8.56
      Quarter ended October 31, 2000........................  11.00   7.50
      Quarter ended January 31, 2001........................   9.75   6.44

      Fiscal Year Ended January 31, 2002:
      Quarter ended April 30, 2001.......................... $13.78 $ 8.52
      Quarter ended July 31, 2001...........................  16.20  10.31
      Quarter ended October 31, 2001........................  17.25  10.07
      Quarter ended January 31, 2002........................  26.64  12.54

      Fiscal Year Ending January 31, 2003:
      Quarter ending April 30, 2002 (through March 12, 2002) $27.50 $21.57
</TABLE>


   We have not paid any cash dividends since our initial public offering and do
not anticipate paying cash dividends in the foreseeable future. In addition,
our line of credit facility prohibits us from paying cash dividends.

                                      12


<PAGE>

                                CAPITALIZATION

   The following table sets forth our capitalization as of January 31, 2002:

   . on an actual basis; and

   . on an as adjusted basis to reflect the application of the net proceeds
     from the sale by us of 1,550,000 common shares in this offering at an
     assumed offering price of $24.75 per share, which was the closing price of
     our common shares on the Nasdaq National Market on March 12, 2002, and the
     exercise by certain of the selling shareholders of stock options to
     purchase an aggregate of 94,000 common shares to be sold in this offering,
     generating additional proceeds to us of $1.0 million, excluding any tax
     benefit to us resulting from the exercise.

   You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Use of
Proceeds" and our consolidated financial statements and the related notes
included elsewhere in this prospectus.


<TABLE>
<CAPTION>
                                                                       January 31, 2002
                                                                      ------------------
                                                                                   As
                                                                       Actual   Adjusted
                                                                      --------  --------
                                                                        (in thousands)
<S>                                                                   <C>       <C>
Cash and cash equivalents............................................ $ 28,251  $ 64,766
                                                                      ========  ========
Total long-term debt................................................. $     --  $     --
                                                                      --------  --------
Shareholders' equity.................................................
   Preferred shares; $.0001 par value, 10,000,000 shares authorized,
     none issued.....................................................       --        --
   Common shares; $.0001 par value, 50,000,000 shares authorized,
     17,352,886 and 18,996,886 issued and outstanding, respectively..        2         2
   Additional paid-in capital........................................   17,872    54,387
   Retained earnings.................................................  129,116   129,116
   Accumulated other comprehensive loss..............................   (1,102)   (1,102)
                                                                      --------  --------
     Total shareholders' equity......................................  145,888   182,403
                                                                      --------  --------
       Total capitalization.......................................... $145,888  $182,403
                                                                      ========  ========
</TABLE>


                                      13


<PAGE>

              SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

   The following table sets forth selected consolidated income statement,
sales, operating and balance sheet data as of and for the periods indicated.
The selected consolidated balance sheet and income statement data set forth
below is derived from our audited consolidated financial statements. You should
read this information in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated
financial statements and the related notes included elsewhere in this
prospectus.


<TABLE>
<CAPTION>
                                                     Fiscal Year Ended January 31,
                                 -------------------------------------------------------------------
                                    2002         2001          2000            1999         1998
                                 -----------  -----------   -----------     -----------  -----------
                                          (in thousands, except share amounts and store data)
<S>                              <C>          <C>           <C>             <C>          <C>
Income Statement Data:
Net sales....................... $   348,958  $   295,333   $   278,113     $   209,865  $   173,260
Costs of sales..................     235,311      200,002       173,459         131,055      113,170
                                 -----------  -----------   -----------     -----------  -----------
Gross profit....................     113,647       95,331       104,654          78,810       60,090
Selling, general and
  administrative expenses.......      88,149       77,453        67,089          53,693       38,028
                                 -----------  -----------   -----------     -----------  -----------
Income from operations..........      25,498       17,878        37,565          25,117       22,062
Interest income.................         318          481         1,791           2,126        1,772
Other expenses, net.............        (594)        (572)       (4,507)(1)        (531)        (209)
                                 -----------  -----------   -----------     -----------  -----------
Income before income taxes......      25,222       17,787        34,849          26,712       23,625
Income tax expense..............      10,215        7,292        16,169          10,952        9,745
                                 -----------  -----------   -----------     -----------  -----------
Net income...................... $    15,007  $    10,495   $    18,680     $    15,760  $    13,880
                                 ===========  ===========   ===========     ===========  ===========
Net income per common
  share--basic.................. $      0.87  $      0.61   $      1.07     $      0.89  $      0.79
Weighted average common
  shares outstanding--basic.....  17,268,615   17,257,186    17,531,971      17,702,922   17,576,203
Net income per common
  share--diluted................ $      0.86  $      0.61   $      1.05     $      0.88  $      0.78
Weighted average common
  shares outstanding--diluted...  17,438,457   17,274,830    17,844,356      17,929,109   17,843,873

Sales Data:
Urban Outfitters store sales.... $   184,998  $   160,151   $   169,067     $   141,410  $   111,538
Anthropologie store sales.......     120,878       92,908        69,748          42,068       31,239
                                 -----------  -----------   -----------     -----------  -----------
   Total store sales............     305,876      253,059       238,815         183,478      142,777
Direct-to-consumer sales........      24,815       21,665        16,967           6,452           --
                                 -----------  -----------   -----------     -----------  -----------
   Total retail segment sales...     330,691      274,724       255,782         189,930      142,777
Free People sales...............      18,267       20,609        22,331          19,935       30,483
                                 -----------  -----------   -----------     -----------  -----------
   Total sales.................. $   348,958  $   295,333   $   278,113     $   209,865  $   173,260
                                 ===========  ===========   ===========     ===========  ===========

Operating and Other Data:
Number of stores at period end:
   Urban Outfitters.............          49           42            37              32           26
   Anthropologie................          31           26            20              14            9
Same store sales growth(2)......         2.8%        (7.4)%        10.3%           10.8%        (1.4)%
Sales per selling square foot(3) $       443  $       439   $       507     $       487  $       438
Capital expenditures............      22,309       36,877        38,149          21,521        6,272
</TABLE>


                                      14


<PAGE>


<TABLE>
<CAPTION>
                                                         Fiscal Year Ended January 31,
                                                  --------------------------------------------
                                                    2002     2001     2000     1999     1998
                                                  -------- -------- -------- -------- --------
                                                                 (in thousands)
<S>                                               <C>      <C>      <C>      <C>      <C>
Balance Sheet Data (at end of period):
Working capital.................................. $ 41,319 $ 31,655 $ 38,006 $ 47,342 $ 52,133
Total assets.....................................  195,102  168,716  153,501  133,363  107,424
Total liabilities................................   49,214   39,104   32,585   28,069   16,766
Long-term debt, excluding current maturities.....       --       --       --       --       --
Total shareholders' equity.......................  145,888  129,612  120,916  105,294   90,658
</TABLE>

---------------------
(1)Includes a $4.4 million charge to reserve for the company's minority
   investment in MXG Media, Inc. Income tax expense for the fiscal year ended
   January 31, 2000 does not include a tax benefit related to this charge.
(2)Same store sales figures include stores that have been in operation for at
   least twelve full months at the beginning of the period for which such data
   is presented.
(3)Average sales per selling square foot is based upon total store sales for
   the period divided by the average of the beginning and ending net selling
   square footage (which excludes back office and storage space, fitting rooms
   and staircases).

                                      15


<PAGE>


        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

   The following discussion of our historical results of operations and of our
liquidity and capital resources should be read in conjunction with our
consolidated financial statements and their related notes included elsewhere in
this prospectus.

General

   Our fiscal year ends on January 31. All references in this discussion to our
fiscal years refer to the fiscal years ended on January 31 in those years. For
example, our fiscal 2002 ended on January 31, 2002. The comparable store net
sales data presented in this discussion is calculated based on the net sales of
all stores open at least twelve full months at the beginning of the period for
which such data is presented.

   We operate two business segments--a lifestyle merchandising retailing
segment and a wholesale apparel business that we refer to as Free People. The
retailing segment operates through retail stores and direct-to-consumer,
including a catalog and two web sites. The two retail concepts are Urban
Outfitters, which we refer to as Urban Retail, and Anthropologie. Urban Retail
had 49 stores open at January 31, 2002 and 42 at January 31, 2001.
Anthropologie had 31 stores open at January 31, 2002 and 26 at January 31,
2001. We have plans to open approximately 12 to 14 stores during this fiscal
year, of which one had opened as of March 12, 2002.

   We have wholly-owned subsidiaries that operate Urban Retail stores in London
and Glasgow, in Dublin and in Montreal and Toronto, which are included in the
store numbers given above. The results of operations and financial position for
these stores are included in our retail operations segment results. We may open
additional stores outside the United States, though none are planned in this
fiscal year.

Critical Accounting Policies and Estimates

   Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. These generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net sales and expenses during the
reporting period. Actual results could differ from those estimates.

   Our significant accounting policies are described in Note 2 to our
consolidated financial statements included elsewhere in this prospectus. 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 and results 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.

   Inventories.  We value our inventories, which consist primarily of general
consumer merchandise held for sale, at the lower of cost or market. The cost is
determined on the first-in, first-out method and includes the cost of
merchandise and freight. A periodic review of inventory quantities on hand is
performed in order to determine if inventory is properly stated at the lower of
cost or market. Factors related to current inventories such as future 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 values. A provision is recorded to reduce
the cost of inventories to the estimated net realizable values, if required.
Any significant unanticipated changes in the factors noted above could have a
significant impact on the value of our inventories and our reported operating
results.

   Long-Lived Assets.  Our long-lived assets consist principally of store
leasehold improvements and are included in the "Property and Equipment" line
item in our consolidated balance sheets included in this prospectus. These
long-lived assets are recorded at cost and are amortized using the
straight-line method over the lesser of the applicable store lease term or the
estimated useful life of the leasehold improvements. The typical initial lease
term for our stores is ten years.

                                      16


<PAGE>

   In assessing potential impairment of these assets, we will periodically
evaluate the historical and forecasted operating results and cash flows on a
store-by-store basis. Newly-opened stores may take time to generate positive
operating and cash flow results. Factors such as store type (e.g., mall versus
free-standing), store location (e.g., urban area versus college campus or
suburb), current marketplace awareness of the Urban Outfitters and
Anthropologie brands, local customer demographic data and current fashion
trends are all considered in determining the time frame required for a store to
achieve positive financial results. If economic conditions are substantially
different from our expectations, the carrying value of certain of our
long-lived assets may become impaired.

   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 jurisdictions in which we operate. This process involves us
estimating our actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items, such as depreciation
of property and equipment and valuation of inventories, for tax and accounting
purposes. These differences result in deferred tax assets and liabilities,
which are included within our consolidated balance sheet. We must then assess
the likelihood that our deferred tax assets will be recovered from future
taxable income. Actual results could differ from this assessment if adequate
taxable income is not generated in future periods. To the extent we believe
that recovery is not more likely than not, we must establish valuation
allowances. To the extent we establish valuation allowances or increase the
allowances in a period, we must include an expense within the tax provision in
the statement of operations.

   We have valuation allowances of $1.7 million as of January 31, 2002, due to
uncertainties related to our ability to utilize the net operating loss carry
forwards of certain foreign subsidiaries and capital loss carry forwards
related to our prior investments in MXG Media, Inc. In the future, if enough
evidence of our ability to generate sufficient future taxable income in these
foreign jurisdictions or realize off-setting capital gains becomes apparent, we
would be required to reduce our valuation allowances, resulting in a reduction
in income tax expense in the consolidated statement of operations. On a
quarterly basis, management evaluates and assesses the realizability of
deferred tax assets and adjusts valuation allowances if required.

Results of Operations

   The following table sets forth for the periods indicated the percentage of
our net sales represented by certain income statement data and the change in
certain income statement data from period to period.


<TABLE>
<CAPTION>
                                                                          Fiscal Year Ended January 31,
                                                                          ----------------------------
                                                                            2002         2001    2000
                                                                           -----        -----    -----
<S>                                                                       <C>          <C>      <C>
As a Percentage of Net Sales:
Net sales................................................................ 100.0%        100.0%  100.0%
Cost of sales, including certain buying, distribution and occupancy costs  67.4          67.7    62.4
                                                                           -----        -----    -----
   Gross profit..........................................................  32.6          32.3    37.6
Selling, general and administrative expenses.............................  25.3          26.2    24.1
                                                                           -----        -----    -----
   Income from operations................................................   7.3           6.1    13.5
Other income (expense), net..............................................  (0.1)           --    (1.0)
                                                                           -----        -----    -----
   Income before income taxes............................................   7.2           6.1    12.5
Income tax expense.......................................................   2.9           2.5     5.8
                                                                           -----        -----    -----
   Net income............................................................   4.3%          3.6%    6.7%
                                                                           =====        =====    =====
Period over Period Change:
Net sales................................................................  18.2%          6.2%   32.5%
Gross profit.............................................................  19.2%         (8.9)%  32.8%
Income from operations...................................................  42.6%        (52.4)%  49.6%
Net income...............................................................  43.0%        (43.8)%  18.5%
</TABLE>



                                      17


<PAGE>

Fiscal 2002 Compared to Fiscal 2001

   Net sales in fiscal 2002 increased by 18.2% to $349.0 million from $295.3
million in the prior fiscal year. The $53.7 million increase was attributable
to a $56.0 million or 20.4% increase in retail segment sales, offset in part by
a $2.3 million or 11.4% decline in Free People's wholesale sales, excluding
sales to Urban Retail and Anthropologie. Noncomparable and new store net sales
increases of $46.3 million, comparable store sales increases of $6.5 million or
2.8%, and direct-to-consumer sales increases of $3.2 million or 14.5% accounted
for the retail segment increase. Comparable store sale increases were comprised
of 0.5% for Urban Retail and 6.8% for Anthropologie.

   The increase in net sales attributable to noncomparable and new stores was
caused by the opening of 12 new stores in fiscal 2002 and 11 new stores in
fiscal 2001 (net of one store closing). Increases in the number of transactions
in comparable stores and an increase in average sales prices resulting from a
lower proportion of markdowns accounted for the comparable store sales dollar
increase in fiscal 2002. In addition, direct-to-consumer sales increased as a
result of an increase in customer response rates to the Anthropologie catalog
and web site and the Urban Retail web site. The decline in Free People
wholesale sales in the first half of the year was due to a lackluster response
to our spring and summer 2001 fashion offerings combined with production
problems associated with a factory we no longer utilize. Additionally, a weaker
wholesale market environment in the latter half of fiscal 2002 compared to
fiscal 2001 resulted in decreased trade show attendance as well as a decline in
our fall and holiday 2001 regular price merchandise reorders. The reduction in
Free People in-season wholesale sales was offset in part by an increase in
off-price sales to liquidate prior season merchandise.

   Gross profit margins increased to 32.6% of sales in fiscal 2002 compared to
32.3% of sales in fiscal 2001. Decreased markdowns in the retail segment were
sufficient to offset the effects of an increase in occupancy costs of 1.0% of
sales, arising primarily from noncomparable and new stores, and the reduction
in Free People's gross margin of 0.8% of sales, caused by the off-price
liquidation of excess inventories. Total inventories at January 31, 2002
increased by 18.1%, including an increase in comparable store inventories of
9.3%, primarily due to an increase in the average cost per unit and an increase
in the number of units per store to support sales trends.

   Selling, general and administrative expenses as a percentage of sales
decreased to 25.3% for fiscal 2002 versus 26.2% for fiscal 2001. An increase in
direct-to-consumer response rates helped leverage catalog and web site
production costs for direct-to-consumer marketing activities and was the
primary reason for our operating expense percentage improvement of 0.9% of
sales, despite an 8% decrease in catalog circulation during fiscal 2002. We
also experienced comparable store efficiencies primarily related to the
generation of incremental sales without incremental payroll costs that, when
combined with the direct-to-consumer operating cost leveraging, more than
offset the impact of the less efficient noncomparable and new stores.

   Our effective tax rate decreased to 40.5% in fiscal 2002 from 41.0% in
fiscal 2001 primarily due to a reduction in state and local tax rates. See Note
8 of Notes to our consolidated financial statements, included elsewhere in this
prospectus, for a reconciliation of the statutory federal income tax rate to
our effective tax rate.

Fiscal 2001 Compared to Fiscal 2000

   Net sales in fiscal 2001 increased by 6.2% to $295.3 million from $278.1
million in the prior fiscal year. The $17.2 million increase was primarily
attributable to an $18.9 million or 7.4% increase in retail segment sales,
offset in part by a $1.7 million or 7.7% decrease in Free People's wholesale
sales, excluding sales to Urban Retail and Anthropologie. Noncomparable and new
store net sales increased by $29.4 million. In addition, direct-to-consumer net
sales increased by $4.7 million due to increased customer demand from the
Anthropologie catalog and web site resulting from a 44% increase in catalog
circulation and the introduction of the Urban Retail web site in 2001. These
increases more than offset a decrease of $15.2 million or 7.4% in comparable
store net sales, comprised of a 9.2% decrease for Urban Retail and a 3.1%
decrease for Anthropologie.

                                      18


<PAGE>

   The increase in net sales attributable to noncomparable and new stores was
caused by the opening of 11 new stores in fiscal 2001 (net of one store
closing) and 12 new stores in fiscal 2000. In fiscal 2001, we experienced a
decrease in comparable store sales primarily as a result of a lackluster
response to our product offerings. Consequently, we experienced lower average
sales prices, primarily resulting from a higher proportion of markdowns. The
Free People wholesale sales decrease was due to a reduction in purchases by
certain catalog customers.

   Gross profit margins decreased to 32.3% of sales in fiscal 2001 from 37.6%
of sales in fiscal 2000. Retail clearance markdowns to move seasonal
merchandise reduced gross margins as a percentage of sales by 2.4% for the
year. The impact on occupancy costs as a percentage of sales due to the
negative comparable store sales results and increased percentage occupancy
costs of noncomparable and new stores accounted for the majority of the
remaining margin decline. Total inventories at January 31, 2001 increased by
29.5%, principally attributable to new store requirements. Comparable store
inventory levels were flat.

   Selling, general and administrative expenses increased to 26.2% of sales in
fiscal 2001 from 24.1% of sales in fiscal 2000 due principally to noncomparable
and new stores with lower average sales volumes which, consequently, have
higher proportionate expenses than comparable stores. The decrease in
comparable store sales in fiscal 2001 also caused selling, general and
administrative expenses for these stores to increase when measured as a
percentage of sales. In addition, Anthropologie direct-to-consumer operations
experienced an increase in operating expense percentages due to the
deleveraging of catalog production costs caused by reduced customer response
rates and increased catalog circulation. These increases in selling, general
and administrative expenses as a percentage of sales were partially offset by a
reduction in catalog fulfillment costs due to the elimination of third-party
service fulfillment providers in July 1999. We also incurred start up costs for
the design, production and administration of the Urban Retail e-commerce web
site that was launched in May 2000.

   Other income (expense) for fiscal 2000 includes a net charge to earnings of
$4.4 million to reserve for our portion of operating losses related to our
minority investment in MXG Media, Inc. Income tax expense for fiscal 2000 does
not include a tax benefit related to this reserve which, in part, has caused an
increase in our effective income tax rate.

Liquidity and Capital Resources

   During the last three years, we have satisfied our cash requirements through
cash flow from operations, accumulated cash and the sales of marketable
securities. Our primary uses of cash have been to open new stores, purchase
inventories and purchase our common shares. We have also continued to invest in
direct-to-consumer efforts and in our United Kingdom and Ireland subsidiaries.
In addition to the above sources of cash, sources of cash included the net
proceeds from the exercise of certain employee stock options in fiscal 2002 and
fiscal 2000. We expect to incur additional capital expenditures in support of
our store expansion program. The proceeds of this offering, together with
accumulated cash, future cash from operations and available credit under our
line of credit facility, assuming renewal or replacement, are expected to fund
such expansion-related uses of cash for at least the next three years.

   We entered into a new $25 million line of credit facility with one of our
banks on September 12, 2001. This new credit facility, which replaced our
former $16.2 million discretionary line of credit with the bank, is a one-year
committed line of credit to fund working capital requirements and letters of
credit. The new line of credit contains sublimits for letters of credit and
European subsidiary borrowings. Cash advances bear interest at LIBOR plus 1.25%
to 1.75% based on our achievement of prescribed adjusted debt ratios. The
agreement subjects us to various restrictive covenants, including maintenance
of certain financial ratios and covenants such as fixed charge coverage,
adjusted debt and minimum tangible net worth and limits our capital
expenditures and share repurchases while prohibiting the payments of cash
dividends on our common shares. At January 31, 2002, we were in compliance with
all covenants under this facility. There were no short-term or long-term
borrowings outstanding at January 31, 2002 or at January 31, 2001. Outstanding
letters of credit totaled $9.4 million and $8.0 million at January 31, 2002 and
January 31, 2001, respectively. We plan to renew the current line of credit on
or

                                      19


<PAGE>

before its expiration on September 11, 2002, however, there can be no assurance
that we will be able to renew or replace the line of credit.

   Based on fiscal 2002 operating trends and the operating model that
management has planned for fiscal 2003, we do not believe it will be necessary
to borrow short-term or long-term funds. In the event, however, that there is a
serious decline in sales for any reason or a significant increase in store
expansion plans, we may be required to use our available line of credit for
cash borrowings to fund operations. There can be no assurance that, based upon
existing covenants or financial covenants contained in any renewed or
replacement line of credit, that such borrowings would be available.

   We have entered into agreements that create contractual obligations and
commercial commitments. These obligations and commitments will have an impact
on future liquidity and the availability of capital resources. The tables noted
below present a summary of these obligations and commitments:

Contractual Obligations:


<TABLE>
<CAPTION>
                                                         Payments Due by Period
                                                             (in thousands)
                                               -------------------------------------------
Description                           Total    Less Than   One to     Four to     After
-----------                        Obligations One Year  Three Years Five Years Five Years
<S>                                <C>         <C>       <C>         <C>        <C>
Operating leases(1)...............  $320,793    $35,696    $71,310    $64,841    $148,946
Capital leases(2).................       678        183        440         55          --
                                    --------    -------    -------    -------    --------
Total contractual cash obligations  $321,471    $35,879    $71,750    $64,896    $148,946
                                    ========    =======    =======    =======    ========
</TABLE>

---------------------
(1)Includes store operating leases, which generally provide for payment of
   direct operating costs in addition to rent. These obligation amounts include
   future minimum lease payments and exclude such direct operating costs.
(2)At January 31, 2002, we had entered into a capital lease for computer
   equipment with a cost of approximately $660, which will be recorded in the
   first quarter of fiscal 2003 upon receipt of the related equipment in
   accordance with the contract.

Commercial Commitments(1):


<TABLE>
<CAPTION>
                                                 Amount of Commitment Per Period
                                                         (in thousands)
                                           -------------------------------------------
Description                  Total Amounts Less Than   One to     Four to     After
-----------                    Committed   One Year  Three Years Five Years Five Years
<S>                          <C>           <C>       <C>         <C>        <C>
Line of credit(2)...........    $9,400      $9,400       $--        $--        $--
Standby letters of credit...       163         163        --         --         --
                                ------      ------      ----        ---        ---
Total commercial commitments    $9,563      $9,563       $--        $--        $--
                                ======      ======      ====        ===        ===
</TABLE>

---------------------
(1)Excludes purchase orders for merchandise and supplies in the normal course
   of business which are liquidated within 12 months.
(2)Consists solely of outstanding letter of credit commitments.

Other Matters

   Recent Accounting Pronouncements.  In August 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"), which establishes a single accounting model, based on the framework
established in SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets

                                      20


<PAGE>

to be Disposed Of," and resolves significant implementation issues related to
SFAS No. 121. SFAS No. 144 superceded SFAS No. 121 and Accounting Principles
Board Opinion No. 30, "Reporting the Results of Operations--Reporting the
Effects of a Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." The adoption of SFAS No.
144 on February 1, 2002 did not have an impact on our financial condition or
results of operations.

   In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which was
required to be adopted in fiscal 2002. We have a short-term foreign currency
forward exchange contract to manage exposures related to our Canadian dollar
denominated investments and anticipated cash flow that we renew quarterly. The
amounts of the contracts and related gains and losses have not been material.
The adoption of SFAS No. 133 on February 1, 2001 did not have a significant
effect on our financial condition or results of operations.

   MXG Media, Inc.  As of January 31, 2000, we had invested approximately $2.0
million in Series B Convertible Preferred Stock and $2.4 million in convertible
debentures of MXG Media, Inc. ("MXG"). MXG incurred losses from its inception,
and, in accordance with the equity method of accounting, we recorded charges to
earnings of $4.4 million for our portion of operating losses related to the
minority interest in MXG during fiscal 2000. These charges in fiscal 2000 fully
reserved for our investment, and we made no additional investments in fiscal
2001 in MXG. On September 13, 2000, MXG ceased operations and filed a petition
for relief under Chapter 7 of the United States Bankruptcy Code. MXG had been
unsuccessful in attempts to raise additional capital. We do not expect to
recover any material portion of our investment in MXG.

Quantitative and Qualitative Discussions about Market Risk

   Our operations are exposed to market risks primarily as a result of changes
in interest rates. Our exposure to market risk for changes in interest rates
relates to our cash and cash equivalents. As of January 31, 2002, our cash and
cash equivalents consisted primarily of funds invested in money market
accounts, which bear interest at a variable rate, and short-term corporate
demand notes. Due to the average maturity and conservative nature of our
investment portfolio, we believe a sudden change in interest rates would not
have a material effect on the value of our investment portfolio. As the
interest rates on predominantly all of our cash equivalents are variable, a
change in interest rates earned on the cash and cash equivalents would impact
interest income and expense along with cash flows, but would not impact the
fair market value of the related underlying instruments.

Seasonality and Quarterly Results

   While we have been profitable in each of our last 48 operating quarters, our
operating results are subject to seasonal fluctuations. Our highest sales
levels have historically occurred during the five-month period from August 1 to
December 31 of each year (the back-to-school and holiday periods). Sales
generated during these periods have traditionally had a significant impact on
our results of operations. Any decreases in sales for these periods or in the
availability of working capital needed in the months preceding these periods
could have a material adverse effect on our results of operations. Our results
of operations in any one fiscal quarter are not necessarily indicative of the
results of operations that can be expected for any other fiscal quarter or for
the full fiscal year.

   Our results of operations may also fluctuate from quarter to quarter as a
result of the amount and timing of expenses incurred in connection with, and
sales contributed by, new stores, store expansions and the integration of new
stores into our operations or by the size and timing of catalog mailings and
web site traffic for our direct-to-consumer operations. Fluctuations in the
bookings and shipments of wholesale merchandise between quarters can also have
positive or negative effects on earnings during the quarters.

                                      21


<PAGE>

   The following tables, which are unaudited, set forth our net sales, gross
profit, net income and income per share for each quarter during the last two
fiscal years and the amount of such net sales and net income, respectively, as
a percentage of annual net sales and annual net income.


<TABLE>
<CAPTION>
                                              Fiscal 2002 Quarter Ended
                                    --------------------------------------------
                                    April 30,     July 31,  Oct. 31,   Jan. 31,
                                      2001          2001      2001       2002
                                    ---------     --------  --------  --------
                                    (dollars in thousands, except per share data
    <S>                             <C>           <C>       <C>       <C>
    Net sales......................  $71,834      $80,395   $92,859   $103,870
    Gross profit...................   21,560       25,944    31,244     34,899
    Net income.....................    1,151        3,157     4,928      5,771
    Net income per share--basic....  $  0.07      $  0.18   $  0.29   $   0.33
    Net income per share--diluted..  $  0.07      $  0.18   $  0.28   $   0.33

    As a Percentage of Fiscal Year:
    Net sales......................       20%          23%       27%        30%
    Net income.....................        8%          21%       33%        38%

                                              Fiscal 2001 Quarter Ended
                                    --------------------------------------------
                                    April 30,     July 31,  Oct. 31,   Jan. 31,
                                      2000          2000      2000       2001
                                    ---------     --------  --------  --------
                                    (dollars in thousands, except per share data
    Net sales......................  $65,950      $66,728   $77,091   $ 85,564
    Gross profit...................   23,266       19,847    24,534     27,684
    Net income.....................    2,990        1,737     2,361      3,407
    Net income per share--basic....  $  0.17      $  0.10   $  0.14   $   0.20
    Net income per share--diluted..  $  0.17      $  0.10   $  0.14   $   0.20

    As a Percentage of Fiscal Year:
    Net sales......................       22%          23%       26%        29%
    Net income.....................       28%          17%       23%        32%
</TABLE>


                                      22


<PAGE>

 
                                  BUSINESS

General

   We are an innovative lifestyle merchandising company that operates specialty
retail stores under two distinct brands, Urban Outfitters and Anthropologie, as
well as the Free People wholesale division. We have over 30 years of experience
creating and managing retail stores that offer highly differentiated
collections of fashion apparel, accessories and home goods in inviting and
dynamic store settings. Our core strategy of providing unified store
environments that establish emotional bonds with the customer is used at both
Urban Outfitters and Anthropologie. In addition to our retail stores, we offer
our products and market our brands directly to the consumer through the
urbn.com and anthropologie.com web sites and the Anthropologie catalog. We have
achieved compounded annual sales growth of 19% over the past five years,
resulting in sales of $349.0 million for the fiscal year ended January 31, 2002.

   We opened our first store in 1970 near the University of Pennsylvania campus
in Philadelphia. We were incorporated in Pennsylvania in 1976, and opened our
second store in Harvard Square, Cambridge, Massachusetts in 1980. The first
Anthropologie store opened in a suburb of Philadelphia in October 1992.

Retail Segment

   Urban Outfitters.  Urban Outfitters targets young adults aged 18 to 30
through its unique merchandise mix and compelling store environment. We have
established a reputation with these young adults, who are culturally
sophisticated, self-expressive and concerned with acceptance by their peer
group. The product offering includes women's and men's fashion apparel,
footwear and accessories, as well as an eclectic mix of apartment wares and
gifts. Apartment wares range from rugs, pillows and shower curtains to books,
candles and novelties. Stores average approximately 10,000 square feet of
selling space, typically carry 30,000 to 35,000 stock keeping units, or SKUs,
are located in large metropolitan areas and select university communities and
accommodate their customers' propensity not only to shop, but also to
congregate with their peers. We expect to open our first enclosed mall store in
the second quarter of this year. As of March 1, 2002, we operated 49 Urban
Outfitters stores in the United States, Canada, the United Kingdom and Ireland,
as well as the urbn.com web site. Urban Outfitters' sales accounted for
approximately 54% of total sales for the fiscal year ended January 31, 2002.

   Anthropologie.  Anthropologie tailors its merchandise and inviting store
environment to sophisticated and contemporary women aged 30 to 45.
Anthropologie's target customers are, for the most part, focused on family,
home and career. Our unique and eclectic product assortment includes women's
casual apparel and accessories, home furnishings and a diverse array of gifts
and decorative items. The home furnishings range from furniture, rugs, lighting
and antiques to table top items, bedding and gifts. Stores average
approximately 8,500 square feet of selling space, typically carry 20,000 to
25,000 SKUs and are located in specialty retail centers, upscale street
locations and enclosed malls. As of March 1, 2002, we operated 32 Anthropologie
stores in the United States, as well as the anthropologie.com web site and the
Anthropologie catalog. Anthropologie's sales accounted for approximately 41% of
total sales for the fiscal year ended January 31, 2002.

Wholesale Segment

   Free People.  Free People, our wholesale division, designs, develops and
markets young women's casual apparel. Our range of tops, bottoms, sweaters and
dresses are sold worldwide through approximately 1,100 better department and
specialty stores, including Bloomingdale's, Nordstrom and Urban Outfitters. In
order to further develop and support the Free People brand, we plan to open a
limited number of Free People retail stores over the next several years. Free
People's sales accounted for approximately 5% of total sales for the fiscal
year ended January 31, 2002.

Our Competitive Strengths

   We offer a unique shopping experience.  We use creative store design,
dynamic visual merchandising and striking store displays to create distinctive
store environments. These elements, along with our unique

                                      23


<PAGE>

cross-merchandising approach, present our products in a lifestyle context and
form a bond between our customers and our stores. We deliver new merchandise to
our stores several times a week to create excitement among our target customers
and to encourage them to visit our stores on a regular basis. We believe this
unique shopping experience results in customers spending more time in our
stores.

   We offer a distinct and eclectic product mix.  We attract our target
customers to our stores by offering an eclectic mix of products in a single
shopping experience. Both our Urban Outfitters and Anthropologie stores offer
products from a broad group of merchandise categories, targeted to specific
customers. This unique product category mix, including apparel, furniture, home
accessories and novelties, creates a lifestyle approach to merchandising that
we believe distinguishes us from other specialty retailers and results in
strong customer loyalty.

   We have a flexible merchandise strategy.  Our differentiating merchandise
strategy combines products from our internally developed brands, the Free
People brand and national brands. By offering a number of different brands, our
customers associate Urban Outfitters or Anthropologie with a collection of
merchandise that suits their individual tastes and preferences, rather than any
particular brand. Consequently, as fashion trends change, we are able to
continually adjust our product mix to appeal to our customers. In addition,
having multiple sources for products allows us to quickly respond to fashion
developments as we can often source national brands more quickly than our
internally developed products.

   We have versatile store formats.  Urban Outfitters and Anthropologie stores
have been successful in a variety of locations. We currently operate profitable
stores in street locations, specialty retail centers and enclosed shopping
malls in diverse geographic locations. In addition, our stores include a
variety of layouts, such as multi-level sites and unconventional retail spaces.
Our flexibility with respect to store location and layout allows us to optimize
our real estate portfolio and operate stores near our target customers.

   We have a highly experienced management team.  Our senior management has
extensive experience in the retail industry. Richard A. Hayne, the Chairman of
our Board of Directors and our President, co-founded the company in 1970. In
addition, Glen T. Senk has been President of Anthropologie for eight years and
has over 21 years of retail and direct-to-consumer experience. Two key
additions to our management team in 2001 were Tedford G. Marlow, President of
the Urban Outfitters retail division, who has over 26 years of experience in
the retail industry, and David C. Frankel, President of Free People, who has
over 15 years of experience in the apparel industry. The addition of these new
members to our management team will better enable us to execute our core
strategy.

Our Growth Strategy

   Continue expanding our store base.  Over the last five years, we have
expanded the Urban Outfitters store base from 24 to 49 stores and the
Anthropologie store base from eight to 32 stores. We expect to open 12 to
14 additional stores during the current fiscal year and believe there are
substantial opportunities thereafter to open additional stores throughout the
United States. We plan to open our first Urban Outfitters enclosed mall store
in the second quarter of this year and additional enclosed mall stores in the
future. We will also continue to open Urban Outfitters stores in large
metropolitan areas and select university communities. Given the success of
Anthropologie stores in diverse geographic locations, we believe significant
opportunity for expansion exists. We plan to continue opening new Anthropologie
stores in specialty retail centers, upscale street locations and enclosed
shopping malls.

   Continue to grow our comparable store sales.  We have several ongoing
initiatives to drive comparable store sales growth, including (i) leveraging
our growing sales base and production capabilities to further improve our
internally developed products, (ii) shortening our product procurement and
distribution cycles to accelerate the flow of fresh merchandise into our
stores, (iii) improving our distribution and allocation systems to better
customize product mix and inventory levels for our stores based on fashion,
size and climate preferences and (iv) enhancing in-store customer service and
selling capabilities at both our Urban Outfitters and Anthropologie stores. We
believe the execution of these initiatives by our recently expanded management
team will enhance our ability to further grow comparable store sales.

                                      24


<PAGE>

   Improve our operating margin.  Improving our operating margin is a key
objective. We plan to improve gross margins by (i) gradually increasing the
penetration of our higher-margin private label merchandise, (ii) leveraging our
enhanced production efficiencies and sourcing capabilities as we continue to
grow and (iii) improving store-specific merchandise assortments to reduce
markdowns. We expect to lower occupancy expenses through more stringent site
approval criteria, further controlling construction costs and migrating to
slightly smaller formats for our stores. We also believe that as we continue to
grow our store base and generate positive comparable store sales, we will
leverage our management, operations and distribution infrastructure.

Store Environment

   We create a unified environment in our stores that establishes an emotional
bond with the customer. Every element of the environment is tailored to the
aesthetic preferences of our target customers. Through creative design, the
existing retail space is modified to incorporate a mosaic of fixtures, finishes
and revealed architectural details. In our stores, merchandise is integrated
into a variety of creative vignettes and displays designed to offer our
customers an entire look at a distinct lifestyle. This dynamic visual
merchandising and display technique provides the connection among the
grandscale store design, the merchandise and the customer. Essential components
of the ambience of each store include playing music that appeals to our target
customers, using unique signage and employing a staff that understands and
identifies with the target customer.

   Creating an individualized and tailored shopping experience for each
customer is especially important in our Anthropologie stores. By providing an
inviting and pleasant shopping atmosphere and an attentive sales staff,
including in-store customer care managers, we strive to create a sense of
community in our Anthropologie stores that encourages our target customers to
linger and spend time exploring our stores and product offerings.

   Our Urban Outfitters stores average approximately 10,000 selling square feet
and are often located in unconventional retail spaces, including a former movie
theater, bank and stock exchange. Anthropologie stores average approximately
8,500 selling square feet and are typically placed in unique and
non-traditional retail locations, although five of our Anthropologie stores are
located in more traditional specialty centers. We also have two Anthropologie
stores in traditional enclosed shopping malls.

Buying Operations

   Maintaining a constant flow of fresh, fashionable merchandise for our retail
segment is critically important to the on-going performance of the stores and
the direct-to-consumer operations. We maintain our own buying organizations
that select and develop products to satisfy our target customers and that
provide us with the appropriate amount of products at the correct time.
Merchandise managers supervise several buyers and assistant buyers. These
buyers stay in touch with the evolving tastes of their target customers by
constantly shopping at the major trade markets, attending national and regional
trade shows and staying current with mass media influences, including music,
video, film and magazines. Merchandise managers and buyers may earn a
significant portion of their compensation based on their individual
contribution to gross profit.

Merchandise

   Our Urban Outfitters stores and the urbn.com web site offer a wide array of
eclectic merchandise, including women's and men's fashion apparel, footwear and
accessories, and apartment wares and gifts. Product offerings at our
Anthropologie stores, the anthropologie.com web site and the Anthropologie
catalog include women's casual apparel and accessories, as well as home
furnishings and an eclectic array of gifts and decorative accessories for the
home, garden, bed and bath. Our merchandise is continuously updated to appeal
to our target customers' changing tastes and is supplied by a large number of
domestic and foreign vendors, with new shipments of merchandise arriving at our
stores several times a week. The wide breadth of merchandise offered by our
retail segment includes national brands, as well as exclusive private label
merchandise developed and

                                      25


<PAGE>

designed by Free People, Urban Outfitters and Anthropologie. This selection
allows us to offer fashionable merchandise and to differentiate our product mix
from that of traditional department stores, as well as that of other specialty
and direct-to-consumer retailers. Private label merchandise generally yields
higher gross profit margins than brand name merchandise, and helps to keep our
product offerings fresh and unique.

   The ever-changing mix of products available to our customers allows us to
adapt our merchandise to prevailing fashion trends, and, together with the
inviting atmosphere of our stores, encourages our core customers to visit our
stores frequently.

   We seek to select price points for our merchandise that are consistent with
the spending patterns of our target customers. As such, our stores carry
merchandise at a wide array of price points that may vary considerably within
product categories.

Store Operations

   We have organized our retail store operations into geographic areas or
districts, each with a district manager. District managers are responsible for
several stores and monitor and supervise individual store managers. Each store
manager is responsible for overseeing the daily operations of one of our
stores. In addition to a store manager, the staff of a typical store includes a
visual manager, several departmental managers and a full- and part-time sales
staff. The staff of a typical Anthropologie store also includes a customer care
manager who helps tailor the shopping experience to the needs of
Anthropologie's target customers.

   An essential requirement for the success of our stores is our ability to
attract, train and retain talented, highly motivated store managers, visual
managers and other key employees. In addition to management training programs
for both newly hired and existing employees, we have a number of retention
programs that offer qualitative and quantitative performance-based incentives
to district-level managers, store-level managers and full-time sales associates.

Catalog and Web Sites

   In March 1998, Anthropologie introduced a direct-to-consumer catalog
offering selected merchandise that is also available in our Anthropologie
stores. During the fiscal year ended January 31, 2002, catalog circulation was
approximately 9.8 million. We believe that the Anthropologie catalog has helped
us establish a reputation with Anthropologie's target customers and has
increased the number of customers who shop in our Anthropologie stores. We plan
to modestly increase the level of catalog circulation over the next few years.

   Both Urban Outfitters and Anthropologie operate Internet web sites that
accept orders directly from consumers. The Anthropologie web site,
anthropologie.com, debuted in December 1998. The Urban Outfitters web site,
urbn.com, was launched in May 2000. Each of these sites captures the spirit of
the retail stores by offering a similar array of apparel, accessories,
household and gift merchandise. As with the Anthropologie catalog, we believe
that our retail web sites increase our reputation and brand recognition with
our target customers and help support the strength of our retail store
operations.

Free People

   Free People, our wholesale division, was established in 1984 to develop, in
conjunction with Urban Outfitters, private label apparel lines of young women's
casual wear that could be effectively sold at attractive pricing in the Urban
Outfitters stores. In order to achieve minimum production lots, Free People
began selling to other retailers throughout the United States. Free People's
range of tops, bottoms, sweaters and dresses are sold worldwide through
approximately 1,100 better department and specialty stores, including
Bloomingdale's, Nordstrom and Urban Outfitters. Free People currently sells its
merchandise primarily under the Free People label, as well as the bdg (formerly
Bulldog) label. Monitoring the styles and products that are popular with our
wholesale customers gives us insight into current fashion trends that help us
better serve our retail customers.

                                      26


<PAGE>

   Free People presently maintains sales and showroom facilities in New York
City and Los Angeles, although we ultimately hope to open a limited number of
Free People stores in enclosed shopping malls or specialty centers. We believe
these stores will help us establish and raise consumer awareness of the Free
People brand, and may ultimately help us in distributing our Free People
products in department stores using a shop-within-shops sales model. We feel
that the shop-within-shops model will allow for a more complete merchandising
of our Free People products and will give us greater freedom in differentiating
the presentation of our products, further strengthening brand image.

   In addition to selling its merchandise to specialty retailers, Free People
also provides production and design services to our retail segment. Free People
has its own senior and creative management staff, but shares support services
with the retail segment.

Marketing and Promotion

   We believe that highly visible store locations, creative store design, broad
merchandise selection and visual presentation are key enticements for customers
to enter and explore our stores and buy merchandise. Consequently, we rely on
these factors, as well as the brand recognition created by our direct marketing
activities, to draw customers into our stores, rather than on traditional forms
of advertising such as print, radio and television media. Marketing activities
for each of our retail concepts include special event promotions and a variety
of public relations activities designed to create community awareness of our
stores and products.

Suppliers

   To serve our target customers and to recognize changes in fashion trends and
seasonality, we purchase merchandise from numerous foreign and domestic
vendors. During our most recently completed fiscal year, we did business with
approximately 1,900 vendors. No single vendor accounted for more than 10% of
merchandise purchased during that time. While certain of our vendors have
limited financial resources and production capabilities, we do not believe that
the loss of any one vendor would have a material effect on our business.

Company Operations

   Distribution.  The majority of merchandise purchased by both our retail and
our wholesale businesses is shipped directly to our distribution center in
Lancaster County, Pennsylvania. We own the facility, which has an advanced
computerized materials handling system, and is approximately 60 miles from our
home offices in Philadelphia. The current 191,000 square foot structure is
expected to provide the majority of United States distribution and
direct-to-consumer fulfillment capability, at least through fiscal 2004.

   We utilize a distribution facility in Reno, Nevada operated by a
third-party. This facility services our stores in the western United States at
a favorable freight cost per unit, and provides a faster turnaround from
selected vendors. Future expansion of distribution capabilities in the western
United States is anticipated due to our growing retail store network. In
addition, we utilize a portion of the Toronto Urban Outfitters store as a
distribution facility in Canada, and have a distribution center in Essex,
England to service our current and near-term needs for stores in the United
Kingdom and Ireland.

   Management Information Systems.  Very early in our growth, we recognized the
need for high-quality information in order to manage merchandise
planning/buying, inventory management and control functions. We invested in a
retail software package that we believe meets our processing and reporting
requirements and will continue to do so in the foreseeable future. We utilize
point-of-sale register systems connected by a frame relay network to our home
offices. These systems provide for register efficiencies, timely customer
checkout and instant back office access to register information, as well as for
nightly polling of sales and inventory, transmittal of data and price changes.
Our direct-to-consumer operations, including the Anthropologie catalog and two
retail web sites, maintain separate software systems which manage the
merchandise and customer information for the

                                      27


<PAGE>

in-house call center order processing and fulfillment functions. To manage its
needs, Free People uses a separate software system for customer service, order
entry and allocations, production planning and inventory management. We have
contracted with a nationally-recognized company to provide disaster-recovery
services with respect to our key systems.

Competition

   The specialty retail and direct-to-consumer businesses and the wholesale
apparel business are highly competitive. Our retail stores compete on the basis
of, among other things, the location of our stores, the breadth, quality,
style, and availability of merchandise, the level of customer service offered
and merchandise price. Although we feel the eclectic mix of products offered in
our retail stores helps differentiate us, it also means that both Urban
Outfitters and Anthropologie stores compete against a wide variety of smaller,
independent specialty stores as well as department stores and national
specialty chains. Our Anthropologie stores also face competition from small
boutiques that offer an individualized shopping experience similar to the one
we provide to our target customers.

   Along with certain retail segment factors noted above, other key competitive
factors for our direct-to-consumer operations include the success or
effectiveness of customer mailing lists, response rates, catalog presentation,
merchandise delivery and web site design and availability. Our
direct-to-consumer operations compete against numerous catalogs and web sites,
which may have greater circulation and web traffic.

   Free People competes with numerous wholesale companies based on the quality,
fashion and price of our wholesale product offerings. Many of our wholesale
business competitors' products have wider distribution than ours. In addition,
certain of our retail and wholesale competitors have greater name recognition
and financial and other resources than we do.

Employees

   We employ approximately 3,000 people, approximately 53% of whom are
full-time employees. The number of part-time employees fluctuates depending on
seasonal needs. Of our total employees, 3% work at Free People and the
remaining 97% work in the retail segment. None of our employees is covered by a
collective bargaining agreement, and we believe that our relations with our
employees are excellent.

Properties

   Our United States based home offices are located in Philadelphia,
Pennsylvania and occupy approximately 26,000 square feet at 1809 Walnut Street,
immediately adjacent to the Anthropologie store at 1801 Walnut Street, and
approximately 22,000 square feet at 235 South 17th Street. The
direct-to-consumer order processing call center is also located in
Philadelphia. Our home office in the United Kingdom is located in London and
occupies approximately 2,000 square feet of space below the store at 36-38
Kensington High Street. Our home offices and call center facilities are leased
properties with varying lease term expirations through 2011.

   All of the Urban Outfitters and Anthropologie stores are leased. Our retail
stores are typically leased for a term of ten years with renewal options for an
additional five to ten years. The following table shows the location of each of
our existing retail stores, listed generally in the order that they were
opened. Total estimated selling square feet under lease at January 31, 2002,
including stores not yet opened, by Urban Outfitters and Anthropologie was
approximately 503,000 and 291,000, respectively. The average store selling
square feet is approximately 10,000 for Urban Outfitters and approximately
8,500 for Anthropologie. Selling square feet can sometimes change due to floor
moves, use of staircases, cash register configuration and other factors.

                                      28


<PAGE>

Urban Outfitters Stores


<TABLE>
<CAPTION>
North America                                                                          Europe
<S>                         <C>                            <C>                         <C>

Philadelphia, PA            Pasadena, CA                   Lawrence, KS                London, England
110 South 36th Street       139 W. Colorado Blvd.          1013 Massachusetts Street   36-38 High Street

Cambridge, MA               Chicago, IL                    East Lansing, MI            Dublin, Ireland
11 J.F. Kennedy Street      935 N. Rush Street             119 E. Grand River Avenue   4 Cecilia Street &
                                                                                       7th Fownes Street
Philadelphia, PA            Portland, OR                   Miami, FL
1627 Walnut Street          2320 N.W. Westover Road        5701 SW 72nd Street, #146   Glasgow, Scotland
                                                                                       157 Buchanan Street
New York, NY                Austin, TX                     Seattle, WA
628 Broadway                2406 Guadalupe Street          1507 5th Avenue

Washington, DC              Tempe, AZ                      Tucson, AZ
3111 M Street, N.W.         545 South Mill Avenue          901 E. University Boulevard

New York, NY                Houston, TX                    Santa Barbara, CA
374 Avenue of Americas      2501 University Boulevard      624 State Street

Madison, WI                 Montreal, Quebec               New York, NY
604 State Street            1246 Ste. Catherine Street, W. 72nd & Broadway

Ann Arbor, MI               Toronto, Ontario               Evanston, IL
231 S. State Street         235 Yonge Street               921 Church Street

Boston, MA                  Miami Beach, FL                Providence, RI
361 Newbury Street          653 Collins Avenue             285 Thayer Street

Minneapolis, MN             Boulder, CO                    Dallas, TX
3006 Hennepin Avenue, S.    934 Pearl Street               5307 E. Mockingbird Lane

Seattle, WA                 Bloomington, IN                New Haven, CT
401 Broadway, East          530 E. Kirkwood Avenue         29-45 Broadway

Berkeley, CA                San Diego, CA                  Cincinnati, OH
2590 Bancroft Way           665 Fifth Avenue               43 Broadway

Santa Monica, CA            Columbus, OH                   New York, NY
1440 Third Street Promenade 1782 N. High Street            526 Avenue of the Americas

San Francisco, CA           New York, NY                   Tampa, FL
80 Powell Street            162 2nd Avenue                 1600 E. 8th Avenue, Suite
                                                           A-121
Costa Mesa, CA              Los Angeles, CA
2930 Bristol Street         7650 Melrose Avenue

Chicago, IL                 Burlington, VT
2352 N. Clark Street        81 Church Street

</TABLE>


                                      29


<PAGE>

Anthropologie Stores


<TABLE>
<S>                                <C>                       <C>

Wayne, PA                          Boston, MA                Scottsdale, AZ
201 W. Lancaster Avenue            799 Boylston Street       15210 N. Scottsdale Road

Rockville, MD                      Birmingham, MI            Cincinnati, OH
11500 Rockville Pike               214 West Maple Road       2643 Edmonson Road

Westport, CT                       Santa Barbara, CA         West Palm Beach, FL
1365 Post Road, East               901 State Street          700 South Rosemary Avenue

Greenvale, NY                      Chestnut Hill, MA         Miami Beach, FL
9 Northern Blvd.                   300 Boylston Street       1108 Lincoln Road

New York, NY (SoHo)                New York, NY              Minneapolis, MN
375 West Broadway                  85 Fifth Avenue           4999 France Avenue South

Santa Monica, CA                   Atlanta, GA               Houston, TX
1402 Third Street Promenade        3393 Peachtree Road, N.E. 4066 Westheimer Road

Newport Beach, CA                  Philadelphia, PA          Kansas City, MO
823 Newport Center Drive           1801 Walnut Street        531 Nichols Road

Chicago, IL                        Seattle, WA               Columbus, OH
1120 N. State Street               1509 Fifth Avenue         4235 The Strand

Highland Park, IL                  Tampa, FL                 Salt Lake City, UT
1780 Green Bay Road                705 S. Dakota Avenue      116 South Rio Grande Street

Beverly Hills, CA                  Greenwich, CT             Woodcliff Lake, NJ (opened 2/1/02)
320 N. Beverly Drive               480 Putnam Avenue         379 Chestnut Ridge Road

Seattle, WA                        San Francisco, CA
2520 N.E. University Village, #120 880 Market Street
</TABLE>


   We own a 191,000 square foot distribution center in Lancaster County,
Pennsylvania. We utilize a distribution facility in Reno, Nevada operated by a
third-party.

   Free People operates showrooms in New York City and Los Angeles, which are
leased through 2004 and 2007, respectively.

   We take a flexible approach to new store openings that allows us to optimize
our real estate portfolio and operate stores near our target customers. The
aggregate pre-opening expenses we incur at each new store for leasehold
improvements, furniture, fixtures and equipment, together with our initial
working capital investment, vary based on the size, location and configuration
of the store.

Trademarks and Service Marks

   We are the registered owner in the United States of certain service marks
and trademarks, including "Urban Outfitters," "Anthropologie," "Urban Renewal,"
"Free People," "Co-Operative," "Ecote," "Slant," "Fink," "Lisa L.," "Lip
Gloss," "Shag," "365 Days" and "Stapleford." Each mark is renewable
indefinitely, contingent upon continued use at the time of renewal. In
addition, we currently have pending registration applications with the U.S.
Patent and Trademark Office covering certain other marks. We also own marks
that have been registered in foreign countries, and have applications for marks
pending in additional foreign countries as well.

   We regard our marks as important to our business due to their name
recognition with our customers. In order to more effectively protect them from
infringement and to defend against claims of infringement, we established a
separate subsidiary whose primary purpose is to maintain and manage existing
and future marks, thereby increasing their value to our operating companies. We
are not aware of any claims of infringement or challenges to our right to use
any of our marks in the United States.

Legal Proceedings

   We are party to various legal proceedings arising from normal business
activities. We believe that the ultimate resolution of these matters will not
have a material adverse effect on our financial condition or results of
operations.

                                      30


<PAGE>

                                  MANAGEMENT

Directors and Executive Officers

   The following table sets forth the name, age and position of each of our
directors and executive officers:


<TABLE>
<CAPTION>
   Name                  Age Position
   ----                  --- --------
   <S>                   <C> <C>
   Richard A. Hayne      54  Chairman of the Board of Directors and President
   Stephen A. Feldman    54  Chief Financial Officer
   Glen A. Bodzy         49  General Counsel and Secretary
   Kenneth R. Bull       39  Treasurer
   Glen T. Senk          45  President, Anthropologie, Inc.
   Tedford G. Marlow     50  President, Urban Outfitters Retail Division
   David C. Frankel      35  President, Free People
   Scott A. Belair       54  Director
   Harry S. Cherken, Jr. 52  Director
   Kenneth K. Cleeland   61  Director
   Joel S. Lawson III    54  Director
   Burton M. Sapiro      75  Director
</TABLE>


   Mr. Hayne co-founded Urban Outfitters in 1970 and has been Chairman of the
Board of Directors and President since our incorporation in 1976.

   Mr. Feldman became Chief Financial Officer of Urban Outfitters in June 1998
and also served as Treasurer from June 1998 to May 1999. From January 1996 to
June 1998, Mr. Feldman served as Executive Vice President and Chief Financial
Officer of One Price Clothing Stores, a national chain of off-price retail
women's and children's specialty stores. Previously, for the period from
January 1995 to January 1996, Mr. Feldman served as Chief Financial Officer and
Treasurer of One Price Clothing Stores.

   Mr. Bodzy joined Urban Outfitters as its General Counsel in December 1997
and was appointed Secretary in February 1999. Prior to joining the company, Mr.
Bodzy was Vice President, General Counsel and Secretary of Service Merchandise
Company, Inc. where he was responsible for legal affairs, the store development
program and various other corporate areas.

   Mr. Bull joined Urban Outfitters in April 1999 and was appointed Treasurer
in May 1999. Prior to joining the company, for the period from January 1995 to
April 1999, Mr. Bull held the positions of Vice President, Finance and
Controller for Asian American Partners d/b/a Eagle's Eye, a wholesaler and
retailer of women's and children's better apparel.

   Mr. Senk has served as President of Anthropologie, Inc. since April 1994.
Prior to joining the company, Mr. Senk was Senior Vice President and General
Merchandise Manager of Williams-Sonoma, Inc. and Chief Executive of the Habitat
International Merchandise and Marketing Group in London, England.

   Mr. Marlow has served as President of the Urban Outfitters Retail Division
since joining the company in July 2001. Prior to joining the company, for the
period from September 2000 to July 2001, Mr. Marlow served as Executive Vice
President of Merchandising, Product Development, Production and Marketing at
Chicos FAS, Inc. Previously, he was Senior Vice President at Saks Fifth Avenue
from November 1998 to September 2000, where he was responsible for all Saks
Fifth Avenue private brand product development. From January 1995 to November
1998, Mr. Marlow served as President and Chief Executive Officer of Henri
Bendel, a division of The Limited, Inc.

                                      31


<PAGE>

   Mr. Frankel has served as President of Free People since May 2001. Prior to
joining the company, for the period from January 1999 to January 2001, Mr.
Frankel served as President of CK Apparel Corp., the licensee for Calvin Klein
Menswear in the United States. From August 1996 to January 1999, Mr. Frankel
was the Executive Vice President of St. John's Knits, Inc., where he oversaw
multiple product divisions, new business development, international business
and certain administrative functions

   Mr. Belair co-founded Urban Outfitters in 1970 and has been a director since
its incorporation in 1976. He has served as Principal of The ZAC Group, a
financial consulting services firm, during the last eleven years. Previously,
he was a managing director of Drexel Burnham Lambert Incorporated. Mr. Belair
is a director and President of Balfour MacLaine Corporation.

   Mr. Cherken, a director since 1989, has been a partner in the law firm of
Drinker Biddle & Reath LLP in Philadelphia, Pennsylvania since 1984 and served
as a Managing Partner of that firm from February 1996 to January 2000.

   Mr. Cleeland, a director since 1998, served as Chief Financial Officer and
Treasurer of Urban Outfitters from 1987 until May 1998. Previously, he was the
Chief Financial Officer of MBI Business Center, Inc. and President of MBIF
Leasing. He was also the Chief Financial Officer and Vice President of J.G.
Hook, Inc. Mr. Cleeland has been the Principal of Wye Associates, a business
consulting firm, since May 1998.

   Mr. Lawson, a director since 1985, has, since November 2001, been Executive
Director of M&A International Inc., a global organization of merger and
acquisition advisory firms. From 1980 until November 2001, Mr. Lawson was Chief
Executive Officer of Howard, Lawson & Co., a Philadelphia-based investment
banking and corporate finance firm. Howard, Lawson & Co. became an indirect,
wholly-owned subsidiary of FleetBoston Financial Corporation on March 1, 2001.

   Mr. Sapiro, a director since 1989, has been a retail marketing consultant
since his retirement in 1985. Previously, he was Senior Vice President/General
Merchandise Manager and a member of the Executive Committee of both Macy's New
York and Gimbels Philadelphia/Gimbels East. He was also a director of Macy's
New York.

   Messrs. Cleeland and Sapiro have advised us that they do not plan to seek
re-election to our Board of Directors after their terms of office expire at our
next annual meeting. We are seeking to replace these directors.

                                      32


<PAGE>

                      PRINCIPAL AND SELLING SHAREHOLDERS

Principal Shareholders

   The following table provides summary information regarding the beneficial
ownership of our outstanding common shares as of February 28, 2002 for:

   . our chief executive officer and each of our other executive officers;
   . each of our directors;
   . all of our directors and executive officers as a group; and
   . each person or group who beneficially owns more than 5% of our common
     shares.

   Beneficial ownership of shares is determined under the rules of the
Securities and Exchange Commission and generally includes any shares over which
a person exercises sole or shared voting or investment power. Except as
indicated by footnote, and subject to applicable community property laws, each
person identified in the table possesses sole voting and investment power with
respect to all common shares held by him. Common shares subject to options
currently exercisable or exercisable within 60 days of February 28, 2002 and
not subject to repurchase on that date are deemed outstanding for calculating
the percentage of outstanding shares of the person holding these options, but
are not deemed outstanding for calculating the percentage of any other person.

   The address for each director and executive officer is 1809 Walnut Street,
Philadelphia, Pennsylvania 19103.


<TABLE>
<CAPTION>
                                                          Amount of  Percent
                                                          Beneficial   of
                                                          Ownership   Total
                                                          ---------- -------
    <S>                                                   <C>        <C>
    Richard A. Hayne(1).................................. 7,221,944   41.6%
    Scott A. Belair(2)...................................   682,000    3.9%
    Glen T. Senk(3)......................................   330,641    1.9%
    Kenneth K. Cleeland(4)...............................   145,996      *
    Joel S. Lawson III(5)................................    85,800      *
    Harry S. Cherken, Jr.(6).............................    80,000      *
    Burton M. Sapiro(7)..................................    40,000      *
    Glen A. Bodzy(8).....................................    24,598      *
    Stephen A. Feldman(9)................................    22,098      *
    Kenneth R. Bull(10)..................................     6,700      *
    Tedford G. Marlow(11)................................         0      *
    David C. Frankel(12).................................         0      *
    All directors and executive officers as a group
      (12 persons)(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12) 8,639,777   47.9%
</TABLE>

---------------------
*Less than 1%.
(1)Includes 533,334 shares owned by the Irrevocable Trust of Richard A. Hayne,
   533,334 shares owned by the Irrevocable Trust of Elizabeth Van Vleck, 38,300
   shares owned by the Hayne Foundation and 2,994 shares allocated under the
   company's 401(k) Savings Plan (formerly the Profit-Sharing Fund). Excludes
   144,498 shares beneficially owned by Mr. Hayne's spouse, as to which he
   disclaims beneficial ownership.
(2)Includes 72,000 shares subject to presently exercisable options. Excludes
   333,334 shares owned by Trust U/A/D April 16, 1993 by Scott A. Belair as
   grantor and Steven D. Burton as Trustee, as to which Mr. Belair disclaims
   beneficial ownership. Also excludes 10,000 shares subject to options that
   are not currently exercisable.
(3)Includes 330,000 shares subject to presently exercisable options and 641
   shares allocated under the company's 401(k) Savings Plan (formerly the
   Profit-Sharing Fund). Excludes 120,000 shares subject to options that are
   not currently exercisable.
(4)Includes 30,000 shares subject to presently exercisable options. Excludes
   10,000 shares subject to options that are not currently exercisable.

                                      33


<PAGE>

(5)Includes 72,000 shares subject to presently exercisable options and 1,800
   shares held by a trust of which Mr. Lawson is a trustee. Excludes 10,000
   shares subject to options that are not currently exercisable.
(6)Includes 72,000 shares subject to presently exercisable options. Excludes
   10,000 shares subject to options that are not currently exercisable.
(7)Includes 40,000 shares subject to presently exercisable options. Excludes
   10,000 shares subject to options that are not currently exercisable.
(8)Includes 24,000 shares subject to presently exercisable options and 98
   shares allocated under the company's 401(k) Savings Plan (formerly the
   Profit-Sharing Fund). Excludes 36,000 shares subject to options that are not
   currently exercisable.
(9)Includes 20,000 shares subject to presently exercisable options and 98
   shares allocated under the company's 401(k) Savings Plan (formerly the
   Profit-Sharing Fund). Excludes 80,000 shares subject to options that are not
   currently exercisable.
(10)Includes 4,400 shares subject to presently exercisable options and 2,000
    shares subject to options that become exercisable within 60 days. Excludes
    5,600 shares subject to options that are not currently exercisable.
(11)Excludes 250,000 shares subject to options that are not currently
    exercisable.
(12)Excludes 200,000 shares subject to options that are not currently
    exercisable.

Selling Shareholders

   The following table sets forth certain information with respect to the
common shares held by each selling shareholder as of February 28, 2002 and as
adjusted to reflect the total number of shares to be sold this offering.


<TABLE>
<CAPTION>
                                     Beneficial Ownership              Beneficial Ownership
                                      Prior to Offering                   After Offering
-                                    -------------------  Shares Being -------------------
Name:                                  Shares     Percent  Offered(1)    Shares     Percent
-----                                 ---------   ------- ------------  ---------   -------
<S>                                  <C>          <C>     <C>          <C>          <C>
Directors and Executive Officers(2):
   Richard A. Hayne(3).............. 7,221,944     41.6%    356,000(4) 6,865,944     36.1%
   Glen T. Senk(5)..................   330,641      1.9%     50,000      280,641      1.5%
   Joel S. Lawson III(6)............    85,800        *      22,000       63,800        *
   Harry S. Cherken, Jr.(7).........    80,000        *      12,000       68,000        *
   Burton M. Sapiro(8)..............    40,000        *      10,000       30,000        *
</TABLE>

---------------------
 * Less than 1%.
(1)If the underwriters exercise their over-allotment option in full, Mr. Hayne
   will sell an additional 110,000 shares and Mr. Senk will sell an additional
   40,000 shares.
(2)After this offering, our directors and executive officers as a group will
   beneficially own 8,189,777 shares, representing approximately 41.8% of our
   then outstanding common shares.
(3)Includes 533,334 shares owned by the Irrevocable Trust of Richard A. Hayne,
   533,334 shares owned by the Irrevocable Trust of Elizabeth Van Vleck, 38,300
   shares owned by the Hayne Foundation and 2,994 shares allocated under the
   company's 401(k) Savings Plan (formerly the Profit-Sharing Fund). Excludes
   144,498 shares beneficially owned by Mr. Hayne's spouse, as to which he
   disclaims beneficial ownership.
(4)May include shares owned by trusts of which Richard A. Hayne is a trustee.
(5)Includes 330,000 shares subject to presently exercisable options and 641
   shares allocated under the company's 401(k) Savings Plan (formerly the
   Profit-Sharing Fund). Excludes 120,000 shares subject to options that are
   not currently exercisable.
(6)Includes 72,000 shares subject to presently exercisable options and 1,800
   shares held by a trust of which Mr. Lawson is a trustee. Excludes 10,000
   shares subject to options that are not currently exercisable.
(7)Includes 72,000 shares subject to presently exercisable options. Excludes
   10,000 shares subject to options that are not currently exercisable.
(8)Includes 40,000 shares subject to presently exercisable options. Excludes
   10,000 shares subject to options that are not currently exercisable.

                                      34


<PAGE>

             CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

   Burton M. Sapiro, one of our directors, entered into an agreement with us
pursuant to which Mr. Sapiro agreed to provide us with up to 36 days of
retail-marketing consulting services per year. In consideration for such
services, Mr. Sapiro was paid a daily fee of $1,100 and is reimbursed for his
expenses. The agreement was approved by our disinterested directors. The total
amount paid to Mr. Sapiro in the fiscal year ended January 31, 2002 pursuant to
these arrangements, exclusive of directors' fees but including expenses, was
$36,253. Mr. Sapiro is not expected to provide consulting services to the
company during the current fiscal year.

   Harry S. Cherken, Jr., one of our directors, is a partner in the law firm of
Drinker Biddle & Reath LLP, which is our counsel in this offering, has provided
legal services to us during the last three fiscal years and is expected to
continue to do so in the future. Drinker Biddle & Reath LLP has received
customary compensation for these services and will receive customary
compensation for its services in connection with this offering.

   The McDevitt Company, a real estate company, has acted as a broker in
substantially all of our new real estate transactions during the last three
years. We have not paid any compensation to The McDevitt Company, but we have
been advised that it has received commissions from other parties to such
transactions. Wade L. McDevitt is the brother-in-law of Scott Belair, one of
our directors, and is president and the sole shareholder of The McDevitt
Company.

                         DESCRIPTION OF CAPITAL STOCK

   Our authorized capital stock consists of 50,000,000 common shares, par value
$.0001 per share, and 10,000,000 preferred shares, par value $.0001 per share.
As of February 28, 2002, 17,383,086 common shares and no preferred shares were
outstanding. The following summary description, which includes all of the
material terms of our capital stock, is qualified in its entirety by reference
to our amended and restated articles of incorporation and our amended and
restated bylaws, each of which are filed as exhibits to our registration
statement on Form S-1 (File No. 33-69378), filed with the Securities and
Exchange Commission on September 24, 1993.

Common Shares

   The holders of common shares are entitled to one vote per share for each
share held of record on all matters submitted to a vote of shareholders.
Subject to preferential rights with respect to any class or series of preferred
shares that may be issued, holders of common shares are entitled to receive
equally such dividends as may be declared by the board of directors on the
common shares out of funds legally available therefor, and in the event of our
liquidation, dissolution or winding-up, holders of common shares are entitled
to share equally in all of our remaining assets and funds. The holders of
common shares have no preemptive rights or rights to convert common shares into
any other securities and are not subject to future calls or assessments. All of
the outstanding common shares are, and the common shares offered hereby will
be, when issued, fully paid and nonassessable. Our common shares are listed on
the Nasdaq National Market under the symbol "URBN."

Preferred Shares

   The board of directors, without any further vote or action by the
shareholders, has the authority to issue preferred shares in one or more
classes or series and to fix from time to time the number of shares to be
included in each such class or series and the designations, preferences,
qualifications, limitations, restrictions and special or relative rights of the
shares of each such class or series. Our ability to issue preferred shares,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could adversely affect the voting power of holders of
common shares and could have the effect of making it more difficult for a
third-party to acquire, or of discouraging a third-party from acquiring,
control of our company. We have no present plans to issue any preferred shares.

                                      35


<PAGE>

Pennsylvania Business Corporation Law

   The Pennsylvania business corporation law expressly permits directors of a
corporation to consider the interest of constituencies other than shareholders,
such as employees, suppliers, customers and the community, in discharging their
duties. Further, the Pennsylvania business corporation law expressly provides
that directors do not violate their fiduciary duty solely by relying on
shareholders' rights plans or other anti-takeover provisions of the business
corporation law.

   The effect of these provisions may be to deter hostile takeovers at a price
higher than the prevailing market price for common shares. In some
circumstances, certain shareholders may consider this anti-takeover provision
to have a disadvantageous effect. Tender offers or other non-open market
acquisitions of shares are frequently made at prices above the prevailing
market price of a company's shares. In addition, acquisitions of shares by
persons attempting to acquire control through market purchases may cause the
market price of the common shares to reach levels that are higher than would
otherwise be the case. These anti-takeover provisions may discourage any or all
of such acquisitions, particularly those of less than all of the common shares,
and may thereby prevent certain holders of common shares from having an
opportunity to sell their shares at a temporarily higher market price.

   The Pennsylvania business corporation law contains four additional
provisions that would have applied to us had our shareholders not opted out of
these provisions. Our shareholders amended our articles of incorporation on
September 20, 1993 to opt out of (1) the "control transactions" provision,
which provides for mandatory shareholder notice of the acquisition of 20% of
the voting power of a Pennsylvania corporation and provides shareholders with
the opportunity to demand "fair value" for their shares upon acquisition of
such voting power, (2) the "business combination" provision, which limits a
corporation from engaging in any merger or business combination with an
interested shareholder unless certain conditions have been met, (3) the
"control share" provision, which limits the voting power of shareholders owning
20% or more of a corporation's voting stock, and (4) the "disgorgement"
provision, which permits a corporation to recover profits resulting from the
sale of shares in certain situations, including those where an individual or
group attempts to acquire at least 20% of the corporation's voting shares.

Advance Notice Requirements for Shareholder Proposals and Director Nominations

   Our amended and restated bylaws establish an advance notice procedure for
shareholders to propose nominations of candidates for election as directors, or
to bring other business before any meeting of our shareholders. The amended and
restated bylaws provide that only persons who are nominated by, or at the
direction of, the chairman, the president or the board of directors, or by a
shareholder who has given timely written notice to the secretary of the company
prior to the meeting at which directors are to be elected, will be eligible for
election as directors. The bylaws also provide that at any meeting of
shareholders only such business may be conducted as has been brought before the
meeting by, or at the direction of, the chairman, the president or the board of
directors or by a shareholder who has given timely written notice to the
secretary of the company of such shareholder's intention to bring such business
before such meeting. Generally, for notice of shareholder nominations or
business to be brought before an annual meeting to be timely under the amended
and restated bylaws, such notice must be received by us not less than 70 days
nor more than 90 days prior to the first anniversary of the previous year's
annual meeting (or, in the case of a special meeting, not earlier than the 90th
day before such meeting and not later than the later of (i) the 70th day prior
to such meeting or (ii) the 10th day after public announcement of the date of
such meeting is first made). Under the amended and restated bylaws, a
shareholder's notice must also contain certain information specified in the
bylaws.

Limitation of Liability of Directors and Officers and Indemnification

   Our amended and restated bylaws provide that none of our directors shall be
personally liable to the company or our shareholders except to the extent
provided by law. The effect of this provision is to limit our

                                      36


<PAGE>

ability and the ability of our shareholders to recover monetary damages against
a director for breach of certain fiduciary duties as a director (including
breaches resulting from grossly negligent conduct). This provision does not,
however, exonerate the directors from liability (i) pursuant to any criminal
statute, or (ii) for the payment of taxes pursuant to federal, state or local
law. Our amended and restated bylaws provide for indemnification of our
officers and directors to the fullest extent permitted by applicable law.

Transfer Agent and Registrar

   The transfer agent and registrar for the common shares is StockTrans, Inc.,
Ardmore, Pennsylvania.

                                      37


<PAGE>

                  CERTAIN U.S. FEDERAL TAX CONSIDERATIONS FOR
                               NON-U.S. HOLDERS

   The following is a general discussion of certain U.S. federal income and
estate tax consequences of the acquisition, ownership and disposition of our
common shares purchased pursuant to this offering by a beneficial owner who,
for U.S. federal income tax purposes, is not a U.S. person as we define that
term below. A beneficial owner of our common shares who is not a U.S. person is
referred to below as a "non-U.S. holder." We assume in this discussion that you
will hold our common shares issued pursuant to this offering as a capital asset
(generally, property held for investment). We do not discuss all aspects of
U.S. federal taxation that may be important to you in light of your individual
investment circumstances, such as special tax rules that may apply to you, for
example, if you are a dealer in securities, financial institution, bank,
insurance company, tax-exempt organization or U.S. expatriate. We also do not
discuss the federal tax treatment of beneficial owners that are partnerships or
other entities treated as partnerships or flow-through entities for U.S.
federal income tax purposes. Our discussion is based on current provisions of
the Internal Revenue Code of 1986, as amended, Treasury regulations, judicial
opinions, published positions of the U.S. Internal Revenue Service (the "IRS")
and other applicable authorities, all as in effect on the date of this
prospectus and all of which are subject to differing interpretations or change,
possibly with retroactive effect. We have not sought, and will not seek, any
ruling from the IRS or opinion of counsel with respect to the tax consequences
discussed in this prospectus, and there is no assurance that the IRS will not
take a position contrary to the tax consequences discussed below or that any
position taken by the IRS will not be sustained. We urge you to consult your
tax advisor about the U.S. federal tax consequences of acquiring, holding and
disposing of our common shares, as well as any tax consequences that may arise
under the laws of any foreign, state, local or other taxing jurisdiction.

   For purposes of this discussion, a U.S. person means any one of the
following:

   . a citizen or resident of the U.S.;

   . a corporation (including any entity treated as a corporation for U.S. tax
     purposes) or partnership (including any entity treated as a partnership
     for U.S. tax purposes) created or organized in the U.S. or under the laws
     of the U.S. or of any political subdivision of the U.S.;

   . an estate the income of which is subject to U.S. federal income taxation
     regardless of its source; or

   . a trust, the administration of which is subject to the primary supervision
     of a U.S. court, and one or more U.S. persons have the authority to
     control all substantial decisions of the trust, or, any other trust that
     was in existence on August 20, 1996, that was treated as a U.S. person
     prior to such date, and that has elected to continue to be so treated.

Dividends

   Distributions paid on our common shares will constitute dividends for U.S.
federal income tax purposes to the extent paid from our current and accumulated
earnings and profits, as determined under U.S. federal income tax principles.
Distributions in excess of earnings and profits will constitute a return of
capital that is applied against and reduces your adjusted tax basis in our
common shares, and then as gain from a sale of the shares. Dividends paid to a
non-U.S. holder will generally be subject to withholding of U.S. federal income
tax at the rate of 30%. Non-U.S. holders should consult any applicable income
tax treaties that may provide for a reduction of, or exemption from,
withholding taxes. If the dividend is effectively connected with the non-U.S.
holder's conduct of a trade or business in the U.S. and, if a tax treaty
applies, attributable to a U.S. permanent establishment maintained by the
non-U.S. holder, the dividend will not be subject to any withholding tax
(provided certain certification requirements are met, as described below) but
will be subject to U.S. federal income tax imposed on net income on the same
basis that applies to U.S. persons generally, and, for corporate holders under
certain circumstances, to the U.S. branch profits tax.

   To claim the benefit of a tax treaty or an exemption from withholding
because the income is effectively connected with the conduct of a trade or
business in the U.S., a non-U.S. holder must provide a properly executed

                                      38


<PAGE>

IRS Form W-8BEN for treaty benefits or W-8ECI for effectively connected income,
before the payment of dividends. These forms must be periodically updated.
Non-U.S. holders may obtain a refund of any excess amounts withheld by timely
filing an appropriate claim for refund.

Gain on Disposition

   A non-U.S. holder will generally not be subject to U.S. federal income tax,
including by way of withholding, on gain recognized on a sale or other
disposition of our common shares unless any one of the following is true:

   . the gain is effectively connected with the non-U.S. holder's conduct of a
     trade or business in the U.S. and, if a tax treaty applies, attributable
     to a U.S. permanent establishment maintained by such non-U.S. holder;

   . the non-U.S. holder is a nonresident alien individual present in the U.S.
     for 183 or more days in the taxable year of the disposition and certain
     other requirements are met; or

   . our common shares constitute a United States real property interest by
     reason of our status as a "United States real property holding
     corporation", or a "USRPHC," for U.S. federal income tax purposes at any
     time during the shorter of (i) the period during which you hold our common
     shares or (ii) the 5-year period ending on the date you dispose of our
     common shares.

   We believe that we are not currently and will not become a USRPHC. However,
because the determination of whether we are a USRPHC depends on the fair market
value of our United States real property interests relative to the fair market
value of our other business assets, there can be no assurance that we will not
become a USRPHC in the future. Even if we were to become a USRPHC, however, so
long as our common shares are regularly traded on an established securities
market, they will be treated as United States real property interests only in
the hands of a non-U.S. holder who owns, or has owned within the five years
preceding their sale or disposition, more than 5 percent of our common shares.

   Unless an applicable treaty provides otherwise, gain described in the first
bullet point above will be subject to the U.S. federal income tax imposed on
net income on the same basis that applies to U.S. persons generally, and, for
corporate holders under certain circumstances, the branch profits tax, but will
generally not be subject to withholding. Gains described in the second bullet
point above, to the extent not offset by U.S. source capital losses, will be
subject to a flat 30% U.S. federal income tax. Non-U.S. holders should consult
any applicable income tax treaties that may provide for different rules.

U.S. Federal Estate Taxes

   Our common shares owned or treated as owned by an individual who at the time
of death is a non-U.S. holder will be included in his or her estate for U.S.
federal estate tax purposes, unless an applicable estate tax treaty provides
otherwise.

Information Reporting and Backup Withholding

   Under U.S. Treasury regulations, we must report annually to the IRS and to
each non-U.S. holder the amount of dividends paid to such non-U.S. holder and
the tax withheld with respect to those dividends. These information reporting
requirements apply even if withholding was not required because the dividends
were effectively connected dividends or withholding was reduced or eliminated
by an applicable tax treaty. Pursuant to an applicable tax treaty, that
information may also be made available to the tax authorities in the country in
which the non-U.S. holder resides.

   Backup withholding will generally not apply to payments of dividends made by
us or our paying agents, in their capacities as such, to a non-U.S. holder of
our common shares if the holder has provided its taxpayer identification number
or the required certification that it is not a U.S. person as described above.
Information reporting may still apply with respect to such dividends even if
such certification is provided.

                                      39


<PAGE>

Notwithstanding the foregoing, backup withholding may apply if either we or our
paying agent has actual knowledge, or reason to know, that the holder is a U.S.
person. The backup withholding percentage is currently 30% and will decrease to
29% in 2004 and 2005, and 28% thereafter until 2011, when the percentage will
return to 31% unless amended by Congress.

   Payments of the proceeds from a disposition effected outside the U.S. by a
non-U.S. holder of our common shares made by or through a foreign office of a
broker generally will not be subject to information reporting or backup
withholding. However, information reporting (but not backup withholding) will
apply to such a payment if the broker is a U.S. person, a controlled foreign
corporation for U.S. federal income tax purposes, a foreign person 50% or more
of whose gross income is effectively connected with a U.S. trade or business
for a specified three-year period or a foreign partnership with certain
connections with the U.S., unless the broker has documentary evidence in its
records that the beneficial owner is a non-U.S. holder and specified conditions
are met or an exemption is otherwise established.

   Payment of the proceeds from a disposition by a non-U.S. holder of common
shares made by or through the U.S. office of a broker is generally subject to
information reporting and backup withholding unless the non-U.S. holder
certifies as to its non-U.S. holder status under penalties of perjury or
otherwise establishes an exemption from information reporting and backup
withholding.

   Backup withholding is not an additional tax. Any amounts that we withhold
under the backup withholding rules will be refunded or credited against the
non-U.S. holder's U.S. federal income tax liability if certain required
information is furnished to the IRS. Non-U.S. holders should consult their own
tax advisors regarding application of backup withholding in their particular
circumstance and the availability of and procedure for obtaining an exemption
from backup withholding under current Treasury regulations.

                                      40


<PAGE>

                                 UNDERWRITING

   Under the terms and subject to the conditions contained in an underwriting
agreement dated         , 2002, we and the selling shareholders have agreed to
sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, UBS Warburg LLC, U.S. Bancorp Piper Jaffray Inc., Wedbush Morgan
Securities Inc. and Investec PMG Capital Corp. are acting as representatives,
the following respective numbers of common shares:


<TABLE>
<CAPTION>
                                                             Number of
                      Underwriter                             Shares
                      -----------                            ---------
         <S>                                                 <C>
         Credit Suisse First Boston Corporation.............
         UBS Warburg LLC....................................
         U.S. Bancorp Piper Jaffray Inc.....................
         Wedbush Morgan Securities Inc......................
         Investec PMG Capital Corp..........................
                                                             ---------
            Total........................................... 2,000,000
                                                             =========
</TABLE>


   The underwriting agreement provides that the underwriters are obligated to
purchase all of the common shares in the offering if any are purchased, other
than those shares covered by the over-allotment option described below. The
underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.

   We and the selling shareholders have granted to the underwriters a 30-day
option to purchase on a pro rata basis up to 50,000 additional shares from us
and an aggregate of 150,000 additional outstanding shares from the selling
shareholders at the public offering price less the underwriting discounts and
commissions. The option may be exercised only to cover any over-allotments of
common shares.

   The underwriters propose to offer the common shares initially at the public
offering price on the cover page of this prospectus and to selling group
members at that price less a selling concession of $     per share. The
underwriters and selling group members may allow a discount of $     per share
on sales to other broker/dealers. After the public offering the underwriters
may change the public offering price and concession and discount to
broker/dealers.

   The following table summarizes the compensation and estimated expenses we
and the selling shareholders will pay:


<TABLE>
<CAPTION>
                                            Per Share                       Total
                                  ----------------------------- -----------------------------
                                     Without          With         Without          With
                                  Over-allotment Over-allotment Over-allotment Over-allotment
                                  -------------- -------------- -------------- --------------
<S>                               <C>            <C>            <C>            <C>
Underwriting Discounts and
  Commissions paid by us.........       $              $              $              $
Expenses payable by us...........       $              $              $              $
Underwriting Discounts and
  Commissions paid by the selling
  shareholders...................       $              $              $              $
Expenses payable by the selling
  shareholders...................       $0             $0             $0             $0
</TABLE>


                                      41


<PAGE>

   We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), relating to, any of our common shares or
securities convertible into or exchangeable or exercisable for any of our
common shares, or publicly disclose the intention to make any offer, sale,
pledge, disposition or filing, without the prior written consent of Credit
Suisse First Boston Corporation for a period of 90 days after the date of this
prospectus, except grants of employee stock options pursuant to the terms of a
plan in effect on the date hereof or issuances of common shares pursuant to the
exercise of such options or the exercise of any other employee stock options
outstanding on the date hereof.

   Our executive officers and directors and each of the selling shareholders
have agreed that they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any of our common shares or
securities convertible into or exchangeable or exercisable for any of our
common shares, enter into a transaction that would have the same effect, or
enter into any swap, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of our common shares,
whether any of these transactions are to be settled by delivery of our common
shares or other securities, in cash or otherwise, or publicly disclose the
intention to make any offer, sale, pledge or disposition, or to enter into any
transaction, swap, hedge or other arrangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of 90
days after the date of this prospectus.

   We and the selling shareholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments that
the underwriters may be required to make in that respect.

   The common shares are listed on the Nasdaq National Market under the symbol
"URBN."

   In connection with this offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions,
penalty bids and passive market making in accordance with Regulation M under
the Securities Exchange Act of 1934 (the "Exchange Act").

   . Stabilizing transactions permit bids to purchase the underlying security
     so long as the stabilizing bids do not exceed a specified maximum.

   . Over-allotment involves sales by the underwriters of shares in excess of
     the number of shares the underwriters are obligated to purchase, which
     creates a syndicate short position. The short position may be either a
     covered short position or a naked short position. In a covered short
     position, the number of shares over-allotted by the underwriters is not
     greater than the number of shares that they may purchase in the
     over-allotment option. In a naked short position, the number of shares
     involved is greater than the number of shares in the over-allotment
     option. The underwriters may close out any short position by either
     exercising their over-allotment option and/or purchasing shares in the
     open market.

   . Syndicate covering transactions involve purchases of the common shares in
     the open market after the distribution has been completed in order to
     cover syndicate short positions. In determining the source of shares to
     close out the short position, the underwriters will consider, among other
     things, the price of shares available for purchase in the open market as
     compared to the price at which they may purchase shares through the
     over-allotment option. If the underwriters sell more shares than could be
     covered by the over-allotment option, a naked short position, the position
     can only be closed out by buying shares in the open market. A naked short
     position is more likely to be created if the underwriters are concerned
     that there could be downward pressure on the price of the shares in the
     open market after pricing that could adversely affect investors who
     purchase in the offering.

   . Penalty bids permit the representatives to reclaim a selling concession
     from a syndicate member when the common shares originally sold by the
     syndicate member is purchased in a stabilizing or syndicate covering
     transaction to cover syndicate short positions.

                                      42


<PAGE>

   . In passive market making, market makers in the common shares who are
     underwriters or prospective underwriters may, subject to limitations, make
     bids for or purchases of our common shares until the time, if any, at
     which a stabilizing bid is made.

   These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of our
common shares or preventing or retarding a decline in the market price of the
common shares. As a result the price of our common shares may be higher than
the price that might otherwise exist in the open market. These transactions may
be effected on the Nasdaq National Market or otherwise and, if commenced, may
be discontinued at any time.

   A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters
and selling group members for sale to their online brokerage account holders.
Internet distributions will be allocated by the underwriters and selling group
members that will make Internet distributions on the same basis as other
allocations.

                                      43


<PAGE>

                         NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

   The distribution of the common shares in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
shareholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common shares are made. Any resale
of the common shares in Canada must be made under applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the common shares.

Representations of Purchasers

   By purchasing common shares in Canada and accepting a purchase confirmation
a purchaser is representing to us, the selling shareholders and the dealer from
whom the purchase confirmation is received that:

   . the purchaser is entitled under applicable provincial securities laws to
     purchase the common shares without the benefit of a prospectus qualified
     under those securities laws;

   . where required by law, that the purchaser is purchasing as principal and
     not as agent; and

   . the purchaser has reviewed the text above under Resale Restrictions.

Rights of Action--Ontario Purchasers Only

   Under Ontario securities legislation, a purchaser who purchases a security
offered by this prospectus during the period of distribution will have a
statutory right of action for damages, or while still the owner of shares, for
rescission against us and the selling shareholders in the event that this
prospectus contains a misrepresentation. A purchaser will be deemed to have
relied on the misrepresentation. The right of action for damages is exercisable
not later than the earlier of 180 days from the date the purchaser first had
knowledge of the facts giving rise to the cause of action and three years from
the date on which payment is made for the shares. The right of action for
rescission is exercisable not later than 180 days from the date on which
payment is made for the shares. If a purchaser elects to exercise the right of
action for rescission, the purchaser will have no right of action for damages
against us or the selling shareholders. In no case will the amount recoverable
in any action exceed the price at which the shares were offered to the
purchaser and if the purchaser is shown to have purchased the securities with
knowledge of the misrepresentation, we and the selling shareholders will have
no liability. In the case of an action for damages, we and the selling
shareholders will not be liable for all or any portion of the damages that are
proven not to represent the depreciation in value of the shares as a result of
the misrepresentation relied upon. These rights are in addition to, and without
derogation from, any other rights or remedies available at law to an Ontario
purchaser. The foregoing is a summary of the rights available to an Ontario
purchaser. Ontario purchasers should refer to the complete text of the relevant
statutory provisions.

Enforcement of Legal Rights

   All of our directors and officers as well as the experts named herein and
the selling shareholders may be located outside of Canada and, as a result, it
may not be possible for Canadian purchasers to effect service of process within
Canada upon us or those persons. All or a substantial portion of our assets and
the assets of those persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against us or those persons in
Canada or to enforce a judgment obtained in Canadian courts against us or those
persons outside of Canada.

Taxation and Eligibility for Investment

   Canadian purchasers of common shares should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
shares in their particular circumstances and about the eligibility of the
common shares for investment by the purchaser under relevant Canadian
legislation.

                                      44


<PAGE>

                                 LEGAL MATTERS

   The validity of the common shares offered by us and the selling shareholders
will be passed upon for us and the selling shareholders by Drinker Biddle &
Reath LLP, One Logan Square, 18th and Cherry Streets, Philadelphia,
Pennsylvania 19103. Various legal matters relating to the common shares will be
passed upon for the underwriters by Ballard Spahr Andrews & Ingersoll, LLP,
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103. One of our
directors, Harry S. Cherken, Jr. is a partner in the law firm of Drinker Biddle
& Reath LLP and, as of the date of this prospectus, owns 8,000 common shares
and holds options to purchase 72,000 shares that are presently exercisable.

                                    EXPERTS

   The consolidated financial statements included in this prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.

   The consolidated financial statements for the fiscal year ended January 31,
1999 incorporated in this prospectus by reference from our annual report on
Form 10-K for the fiscal year ended January 31, 2001 have been so incorporated
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

                      WHERE YOU CAN FIND MORE INFORMATION

   We are subject to the reporting requirements of the Securities Exchange Act
of 1934, and we file reports and other information with the Securities and
Exchange Commission. We have also filed with the Securities and Exchange
Commission a registration statement on Form S-3 under the Securities Act
relating to the offer and sale of common shares under this prospectus. This
prospectus, filed as a part of the registration statement, does not contain all
of the information set forth in the registration statement or the exhibits and
schedules to the registration statement as permitted by the rules and
regulations of the Securities and Exchange Commission. You should read these
exhibits for a more complete description of the matters involved. Our reports,
the registration statement and the exhibits and schedules to the registration
statement filed with the Securities and Exchange Commission may be inspected,
without charge, and copies may be obtained at prescribed rates, at the public
reference facility maintained by the Securities and Exchange Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Securities and Exchange Commission located at 233
Broadway, New York, New York 10279 and CitiCorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60621-2511. The public may obtain
information regarding the Securities and Exchange Commission's public reference
facility by calling 1-800-SEC-0330. Our reports, the registration statement and
other information filed by us with the Securities and Exchange Commission are
also available at the Securities and Exchange Commission's Website on the
Internet at http://www.sec.gov. Our common shares are listed on the Nasdaq
National Market under the symbol "URBN."

                                      45


<PAGE>

                    INCORPORATION OF DOCUMENTS BY REFERENCE

   The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you directly to those documents. The
information incorporated by reference into this prospectus is considered to be
part of this prospectus. In addition, information we file with the Securities
and Exchange Commission in the future will automatically update and supersede
information contained in this prospectus and any accompanying prospectus
supplement. We incorporate by reference our annual report on Form 10-K for the
fiscal year ended January 31, 2001 and our quarterly reports on Form 10-Q for
the quarters ended April 30, 2001, July 31, 2001 and October 31, 2001, each of
which is filed under SEC File No. 0-16999, the description of our common shares
contained in our registration statement on Form 8-A filed with the Securities
and Exchange Commission on November 2, 1993 under Section 12 of the Securities
Exchange Act of 1934, including any amendments or reports filed for the purpose
of updating such description, and any future filings made with the Securities
and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until we sell all of the securities we are
offering.

   We will provide free copies of any of these documents if you write or
telephone us at 1809 Walnut Street, Philadelphia, PA 19103, Attention: Glen
Bodzy, (215) 564-2313.

                                      46


<PAGE>

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                            URBAN OUTFITTERS, INC.


<TABLE>
<CAPTION>
                                                                                                      Page
                                                                                                      ----
<S>                                                                                                   <C>

Report of Independent Public Accountants............................................................. F-2

Consolidated Balance Sheets at January 31, 2002 and January 31, 2001................................. F-3

Consolidated Statements of Income for the fiscal years ended January 31, 2002, 2001 and 2000......... F-4

Consolidated Statements of Shareholders' Equity for the fiscal years ended January 31, 2002, 2001 and
  2000............................................................................................... F-5

Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2002, 2001 and 2000..... F-6

Notes to Consolidated Financial Statements........................................................... F-7

</TABLE>


                                      F-1


<PAGE>


                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Urban Outfitters, Inc.:

   We have audited the accompanying consolidated balance sheets of Urban
Outfitters, Inc. (a Pennsylvania corporation) and subsidiaries as of January
31, 2002 and 2001, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended January 31, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Urban
Outfitters, Inc. and subsidiaries as of January 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended January 31, 2002, in conformity with accounting principles
generally accepted in the United States.

                                          /S/  ARTHUR ANDERSEN LLP

Philadelphia, Pennsylvania
March 6, 2002


                                      F-2


<PAGE>

                            URBAN OUTFITTERS, INC.

                          CONSOLIDATED BALANCE SHEETS
                (in thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                                                      January 31,
                                                                                  ------------------
                                                                                    2002      2001
                                                                                  --------  --------
<S>                                                                               <C>       <C>
                                     ASSETS
Current assets:
   Cash and cash equivalents..................................................... $ 28,251  $ 16,286
   Marketable securities.........................................................       32       314
   Accounts receivable, net of allowances of $562 and $500, respectively.........    4,129     3,444
   Inventories...................................................................   41,086    34,786
   Prepaid expenses and other current assets.....................................    5,870     7,302
   Deferred taxes................................................................    2,781     2,841
                                                                                  --------  --------
       Total current assets......................................................   82,149    64,973
Property and equipment, net......................................................  105,505    97,901
Deferred income taxes and other assets...........................................    7,448     5,842
                                                                                  --------  --------
                                                                                  $195,102  $168,716
                                                                                  ========  ========
                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable.............................................................. $ 20,838  $ 19,387
   Accrued compensation..........................................................    3,928     1,775
   Accrued expenses and other current liabilities................................   16,064    12,156
                                                                                  --------  --------
       Total current liabilities.................................................   40,830    33,318
Deferred rent....................................................................    8,384     5,786
                                                                                  --------  --------
       Total liabilities.........................................................   49,214    39,104
                                                                                  --------  --------
Commitments and contingencies (see Note 11)
Shareholders' equity:
   Preferred shares; $.0001 par value, 10,000,000 authorized, none issued........       --        --
   Common shares; $.0001 par value, 50,000,000 shares authorized, 17,352,886 and
     17,253,486 issued and outstanding, respectively.............................        2         2
   Additional paid-in capital....................................................   17,872    16,268
   Retained earnings.............................................................  129,116   114,109
   Accumulated other comprehensive loss..........................................   (1,102)     (767)
                                                                                  --------  --------
       Total shareholders' equity................................................  145,888   129,612
                                                                                  --------  --------
                                                                                  $195,102  $168,716
                                                                                  ========  ========
</TABLE>


       The accompanying notes are an integral part of these statements.

                                      F-3


<PAGE>

                            URBAN OUTFITTERS, INC.

                       CONSOLIDATED STATEMENTS OF INCOME
                (in thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                                         Fiscal Year Ended January 31
                                                                    -------------------------------------
                                                                       2002         2001         2000
                                                                    -----------  -----------  -----------
<S>                                                                 <C>          <C>          <C>
Net sales.......................................................... $   348,958  $   295,333  $   278,113
Cost of sales, including certain buying, distribution and occupancy
  costs............................................................     235,311      200,002      173,459
                                                                    -----------  -----------  -----------
   Gross profit....................................................     113,647       95,331      104,654
Selling, general and administrative expenses.......................      88,149       77,453       67,089
                                                                    -----------  -----------  -----------
   Income from operations..........................................      25,498       17,878       37,565
Interest income....................................................         318          481        1,791
Other expenses, net................................................        (594)        (572)      (4,507)
                                                                    -----------  -----------  -----------
   Income before income taxes......................................      25,222       17,787       34,849
Income tax expense.................................................      10,215        7,292       16,169
                                                                    -----------  -----------  -----------
       Net income.................................................. $    15,007  $    10,495  $    18,680
                                                                    ===========  ===========  ===========

Net income per common share:
   Basic........................................................... $      0.87  $      0.61  $      1.07
                                                                    ===========  ===========  ===========
   Diluted......................................................... $      0.86  $      0.61  $      1.05
                                                                    ===========  ===========  ===========

Weighted average common shares outstanding:
   Basic...........................................................  17,268,615   17,257,186   17,531,971
                                                                    ===========  ===========  ===========
   Diluted.........................................................  17,438,457   17,274,830   17,844,356
                                                                    ===========  ===========  ===========
</TABLE>



       The accompanying notes are an integral part of these statements.

                                      F-4


<PAGE>

                            URBAN OUTFITTERS, INC.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                       (in thousands, except share data)


<TABLE>
<CAPTION>
                                             Common Shares                        Accumulated
                                           ----------------- Additional              Other
                             Comprehensive Number of    Par   Paid-in   Retained Comprehensive
                             Income (Loss)  Shares     Value  Capital   Earnings Income (Loss)  Total
                             ------------- ----------  ----- ---------- -------- ------------- --------
<S>                          <C>           <C>         <C>   <C>        <C>      <C>           <C>
Balances at January 31, 1999               17,639,754   $ 2   $20,825   $ 84,934    $  (467)   $105,294
Net income..................    $18,680            --    --        --     18,680         --      18,680
Foreign currency translation         87            --    --        --         --         87          87
                                -------
Comprehensive income........    $18,767
                                =======
Exercise of stock options...                  366,032    --     3,947         --         --       3,947
Tax effect of exercises.....                       --    --     1,623         --         --       1,623
Purchases and retirement of
  common shares.............                 (647,600)   --    (8,715)        --         --      (8,715)
                                           ----------   ---   -------   --------    -------    --------
Balances at January 31, 2000               17,358,186     2    17,680    103,614       (380)    120,916
Net income..................    $10,495            --    --        --     10,495         --      10,495
Foreign currency translation       (362)           --    --        --         --       (362)       (362)
Unrealized losses on
  marketable securities, net        (25)           --    --        --         --        (25)        (25)
                                -------
Comprehensive income........    $10,108
                                =======
Purchases and retirement of
  common shares.............                 (104,700)   --    (1,412)        --         --      (1,412)
                                           ----------   ---   -------   --------    -------    --------
Balances at January 31, 2001               17,253,486     2    16,268    114,109       (767)    129,612
Net income..................    $15,007            --    --        --     15,007         --      15,007
Foreign currency translation       (360)           --    --        --         --       (360)       (360)
Unrealized losses on
  marketable securities, net         25            --    --        --         --         25          25
                                -------
Comprehensive income........    $14,672
                                =======
Exercise of stock options...                   99,400    --     1,281         --         --       1,281
Tax effect of exercises.....                       --    --       323         --         --         323
                                           ----------   ---   -------   --------    -------    --------
Balances at January 31, 2002               17,352,886   $ 2   $17,872   $129,116    $(1,102)   $145,888
                                           ==========   ===   =======   ========    =======    ========
</TABLE>


       The accompanying notes are an integral part of these statements.

                                      F-5


<PAGE>

                            URBAN OUTFITTERS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)


<TABLE>
<CAPTION>
                                                                               Fiscal Year Ended January 31,
                                                                               ----------------------------
                                                                                 2002      2001      2000
                                                                               --------  --------  --------
<S>                                                                            <C>       <C>       <C>
Cash flows from operating activities:
   Net income................................................................. $ 15,007  $ 10,495  $ 18,680
   Adjustments to reconcile net income to net cash provided by operating
     activities:
       Depreciation and amortization..........................................   15,462    11,997     8,667
       Provision for losses of MXG Media, Inc.................................       --        --     4,354
       Provision for deferred income taxes....................................   (1,274)      199    (3,702)
       Tax benefit of stock option exercises..................................      323        --     1,623
       Reserve for (recovery of) bad debts....................................       62       (18)      (85)
       Changes in assets and liabilities:
          (Increase) decrease in receivables..................................     (753)    1,399        84
          Increase in inventories.............................................   (6,348)   (7,918)   (4,987)
          Decrease (increase) in prepaid expenses and other assets............    1,120       207    (3,266)
          Increase in payables, accrued expenses and other liabilities........    9,141     6,519     4,516
                                                                               --------  --------  --------
   Net cash provided by operating activities..................................   32,740    22,880    25,884
                                                                               --------  --------  --------
Cash flows from investing activities:
   Capital expenditures.......................................................  (22,309)  (36,877)  (38,149)
   Purchases of marketable securities available-for-sale......................       --      (600)   (6,872)
   Sales of marketable securities available-for-sale..........................      307    19,930     5,411
   Purchases of marketable securities held-to-maturity........................       --        --    (5,287)
   Maturities of marketable securities held-to-maturity.......................       --        --    11,856
   Advances to MXG Media, Inc.................................................       --        --    (8,150)
   Repayment of advances by MXG Media, Inc....................................       --        --     7,550
                                                                               --------  --------  --------
   Net cash used in investing activities......................................  (22,002)  (17,547)  (33,641)
                                                                               --------  --------  --------
Cash flows from financing activities:.........................................
   Exercise of stock options..................................................    1,281        --     3,947
   Purchases and retirement of common stock...................................       --    (1,412)   (8,715)
                                                                               --------  --------  --------
   Net cash provided by (used in) financing activities........................    1,281    (1,412)   (4,768)
                                                                               --------  --------  --------
Effect of exchange rate changes on cash and cash equivalents..................      (54)     (362)       87
                                                                               --------  --------  --------
Increase (decrease) in cash and cash equivalents..............................   11,965     3,559   (12,438)
Cash and cash equivalents at beginning of period..............................   16,286    12,727    25,165
                                                                               --------  --------  --------
Cash and cash equivalents at end of period.................................... $ 28,251  $ 16,286  $ 12,727
                                                                               ========  ========  ========
Supplemental cash flow information:
Cash paid during the year for:
   Interest................................................................... $     --  $      9  $      7
                                                                               ========  ========  ========
   Income taxes............................................................... $  9,417  $  6,930  $ 18,423
                                                                               ========  ========  ========
</TABLE>


       The accompanying notes are an integral part of these statements.

                                      F-6


<PAGE>

                            URBAN OUTFITTERS, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (in thousands, except share and per share data)

1.  Nature of Business

   Urban Outfitters, Inc. (the "Company" or "Urban Outfitters"), which was
founded in 1970 and originally operated by a predecessor partnership, was
incorporated in the state of Pennsylvania in 1976. The principal business
activity of the Company is the operation of a general consumer product retail
business through retail stores, a catalog and two web sites. As of January 31,
2002 and 2001, the Company operated 80 and 68 stores, respectively. Stores
located in the United States totaled 75 as of January 31, 2002 and 64 as of
January 31, 2001, while operations in Europe and Canada included 5 and 4 stores
as of the same respective dates. In addition, the Company engages in the
wholesale distribution of apparel to approximately 1,100 better specialty
retailers worldwide.

2.  Summary of Significant Accounting Policies

  Fiscal Year-End

   The Company operates on a fiscal year ending January 31 of each year. All
references to fiscal years of the Company refer to the fiscal years ended on
January 31 in those years. For example, the Company's "Fiscal 2002" ended on
January 31, 2002.

  Principles of Consolidation

   The consolidated financial statements include the accounts of Urban
Outfitters, Inc. and its wholly-owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated in consolidation.

  Use of Estimates

   The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of net sales and expenses
during the reporting period. Actual results could differ from those estimates.

  Cash and Cash Equivalents

   Cash and cash equivalents are defined as cash and highly liquid investments
with original maturities of less than three months. At January 31, 2002, cash
and cash equivalents included cash on hand, cash in banks, money market
accounts and short-term corporate demand notes and municipal bonds.

  Marketable Securities

   The Company's debt securities are classified as either held-to-maturity or
available-for-sale. Held-to-maturity securities represent those securities that
the Company has both the intent and ability to hold to maturity and are carried
at amortized cost. Interest on these securities as well as amortization of
discounts and premiums is included in interest income. Available-for-sale
securities represent those securities that do not meet the classification of
held-to-maturity, are not actively traded and are carried at amortized cost,
which approximates fair value or are carried at fair value. Unrealized gains
and losses on these securities are excluded from earnings and are reported as a
separate component of shareholders' equity, net of applicable taxes, until
realized. Unrealized gains and losses, net of the related deferred taxes, have
not been material. When available-for-sale

                                      F-7


<PAGE>

                            URBAN OUTFITTERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

securities are sold, the cost of the securities is specifically identified and
is used to determine the realized gain or loss. These amounts have not been
material. Marketable securities at January 31, 2002 and January 31, 2001 were
$32 and $314, respectively.

  Inventories

   Inventories, which consist primarily of general consumer merchandise held
for sale, are valued at the lower of cost or market. The cost is determined on
the first-in, first-out method and includes the cost of merchandise and freight.

  Property and Equipment

   Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over 39 years for buildings, 5 years
for furniture and fixtures, the lesser of the lease term or useful life for
leasehold improvements and 3 to 10 years for other operating equipment.

   The Company reviews long-lived assets for possible impairment whenever
events or changes in circumstances indicate the carrying amount may not be
recoverable. This determination includes evaluation of factors such as future
asset utilization and future net undiscounted cash flows expected to result
from the use of the assets. Management believes there has been no impairment of
the Company's long-lived assets as of January 31, 2002.

  Deferred Rent

   Rent expense on leases is recorded on a straight-line basis over the lease
period. The excess of rent expense over the actual cash paid is recorded as
deferred rent.

  Revenue Recognition

   Revenue is recognized at the point-of-sale for retail store sales or when
merchandise is shipped to customers for wholesale and direct-to-consumer sales,
net of estimated customer returns. Deposits for custom orders are recorded as a
liability and recognized as a sale upon delivery of the merchandise to the
customer. These custom orders, typically for upholstered furniture, have not
been material. Gift card sales to customers are initially recorded as
liabilities and recognized as sales upon redemption for merchandise.

  Shipping and Handling Fees and Costs

   The Company includes shipping and handling revenues in net sales and
shipping and handling costs in cost of sales. The Company's shipping and
handling revenues consist of amounts billed to customers for shipping and
handling merchandise. Shipping and handling costs include shipping supplies,
related labor costs and third-party shipping costs.

  Advertising

   The Company expenses the costs of advertising when the advertising occurs,
except for direct-to-consumer advertising, which is capitalized and amortized
over its expected period of future benefit. Advertising costs reported as
prepaid expenses were $1,063 and $1,100 as of January 31, 2002 and 2001,
respectively. Advertising expenses were $8,141, $9,171 and $6,309 for Fiscal
2002, 2001 and 2000, respectively.

                                      F-8


<PAGE>

                            URBAN OUTFITTERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Start-up Costs

   The Company expenses as incurred all start-up and organization costs,
including travel, training, recruiting, salaries and other operating costs.

  Web Site Development Costs

   The Company capitalizes applicable costs incurred during the application and
infrastructure development stage and expenses costs incurred during the
planning and operating stage. During Fiscal 2002 and 2001, the Company did not
capitalize any internal-use software development costs because substantially
all costs were incurred during the planning stage, and costs incurred during
the application and infrastructure development stage were not material. The
Company expended an immaterial amount for these costs in Fiscal 2000 which were
expensed as incurred.

  Income Taxes

   The Company applies Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," which principally utilizes a balance sheet
approach to provide for income taxes. Under this method, deferred tax assets
and liabilities are recognized for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities. The Company files a consolidated Federal income tax return.

  Net Income Per Share

   Basic earnings per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by dividing net income
available to common shareholders by the weighted average number of common
shares outstanding, after giving effect to the potential dilution from the
exercise of securities, such as stock options, into shares of common stock as
if those securities were exercised (see Note 10).

  Accounting for Stock-Based Compensation

   The Company accounts for stock-based compensation under the provisions of
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees." In 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, "Accounting for Stock-Based Compensation," which established a
fair value based method of accounting for stock-based compensation plans. The
Company has adopted the disclosure requirements of SFAS No. 123 (see Note 9).

  Accumulated Other Comprehensive Income (Loss)

   Comprehensive income is comprised of two subsets--net income and other
comprehensive income (loss). Amounts in accumulated other comprehensive income
(loss) relate to foreign currency translation adjustments and unrealized losses
on marketable securities. The foreign currency translation adjustments are not
adjusted for income taxes since these adjustments relate to indefinite
investments in non-U.S. subsidiaries. At January 31, 2002, accumulated other
comprehensive income (loss) consists of foreign currency translation
adjustments.

  Foreign Currency Translation

   The financial statements of the Company's foreign operations are translated
into U.S. dollars. Assets and liabilities are translated at current exchange
rates while income and expense accounts are translated at the average rates in
effect during the year. Translation adjustments are not included in determining
net income, but

                                      F-9


<PAGE>

                            URBAN OUTFITTERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

are included in accumulated other comprehensive income (loss) within
shareholders' equity. Transaction gains and losses are included in operating
results and were not material in Fiscal 2002, 2001 or 2000.

  Fair Value of Financial Instruments

   The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities.
Management believes that the carrying value of these assets and liabilities are
representative of their respective fair values due to the short-term nature of
those instruments (see also "Marketable Securities" section above).

  Concentration of Credit Risk

   Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash, cash equivalents, accounts
receivable and investments. The Company manages the credit risk associated with
cash equivalents and investments by investing with high-quality institutions
and, by policy, limiting the amount of credit exposure to any one institution.
Receivables with third party credit cards are processed by financial
institutions, which are monitored for financial stability. The Company
periodically evaluates the financial condition of its wholesale segment
customers. The Company's allowance for doubtful accounts reflects current
market conditions and management's assessment regarding the collectability of
its receivables. The Company maintains cash accounts that, at times, may exceed
federally insured limits. The Company has not experienced any losses from
maintaining cash accounts in excess of such limits. Management believes that it
is not exposed to any significant risks on its cash accounts.

  Derivative Instruments and Hedging Activities

   In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which was required to be adopted in Fiscal
2002. The Company currently enters into short-term foreign currency forward
exchange contracts to manage exposures related to its Canadian dollar
denominated investments and anticipated cash flow. The amounts of these
contracts and related gains and losses have not been material. The adoption of
SFAS No. 133 on February 1, 2001 did not have a significant effect on the
financial position or results of operations of the Company.

  New Accounting Pronouncements

   In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which establishes a single accounting model,
based on the framework established in SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and resolves significant implementation issues related to SFAS No. 121. SFAS
No. 144 supercedes SFAS No. 121 and APB Opinion No. 30, "Reporting the Results
of Operations -- Reporting the Effects of a Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." The Company is required to adopt SFAS No. 144 for the fiscal
year ending January 31, 2003, however, early application is permitted. The
adoption of SFAS No. 144 on February 1, 2002 had no impact on the financial
position or results of operations of the Company.

  Reclassifications

   Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.

3.  Inventories

   Inventories are summarized as follows:


<TABLE>
<CAPTION>
                                                   January 31,
                                                 ---------------
                                                  2002    2001
                                                 ------- -------
                <S>                              <C>     <C>
                Work-in-process................. $   406 $   592
                Finished goods..................  40,680  34,194
                                                 ------- -------
                   Total........................ $41,086 $34,786
                                                 ======= =======
</TABLE>


                                     F-10


<PAGE>

                            URBAN OUTFITTERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


4.  Property and Equipment

   Property and equipment is summarized as follows:


<TABLE>
<CAPTION>
                                                       January 31,
                                                   ------------------
                                                     2002      2001
                                                   --------  --------
         <S>                                       <C>       <C>
         Land..................................... $    543  $    543
         Building.................................    3,383     3,383
         Furniture and fixtures...................   35,963    32,527
         Leasehold improvements...................  108,278    89,120
         Other operating equipment................    7,910     7,484
         Construction in progress.................    7,280     7,330
                                                   --------  --------
                                                    163,357   140,387
         Accumulated depreciation and amortization  (57,852)  (42,486)
                                                   --------  --------
            Total................................. $105,505  $ 97,901
                                                   ========  ========
</TABLE>


Depreciation and amortization expense for property and equipment for Fiscal
2002, 2001 and 2000 was $15,434, $11,795 and $8,097, respectively.

5.  Investment in MXG Media, Inc.

   As of January 31, 2000, the Company had invested approximately $2,000 in
Series B Convertible Preferred Stock and $2,400 in convertible debentures of
MXG Media, Inc. ("MXG"). MXG incurred losses from its inception, and, in
accordance with the equity method of accounting, the Company recorded charges
to earnings as other expense in the consolidated statement of operations of
$4,400 for its portion of operating losses related to the minority interest in
MXG during Fiscal 2000. These charges in Fiscal 2000 fully reserved for the
Company's investment, and the Company made no further investments in MXG.

   On September 13, 2000, MXG ceased operations and filed a petition for relief
under Chapter 7 of the United States Bankruptcy Code. MXG had been unsuccessful
in attempts to raise additional capital. The Company does not expect to recover
any material portion of its investment in MXG.

6.  Accrued Expenses and Other Current Liabilities

   Accrued expenses and other current liabilities consist of the following:


<TABLE>
<CAPTION>
                                                       January 31,
                                                     ---------------
                                                      2002    2001
                                                     ------- -------
           <S>                                       <C>     <C>
           Accrued sales taxes...................... $ 1,058 $   748
           Accrued rents and related taxes..........   2,712   1,609
           Gift certificates and merchandise credits   2,134   2,168
           Accruals for construction................   3,315   2,297
           Accrued income taxes.....................   4,144   2,480
           Other current liabilities................   2,701   2,854
                                                     ------- -------
              Total................................. $16,064 $12,156
                                                     ======= =======
</TABLE>



                                     F-11


<PAGE>

                            URBAN OUTFITTERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  7.  Line of Credit Facility

   On September 12, 2001, the Company entered into a new $25 million line of
credit facility (the "Line") with one of its banks. The Line, which replaced
the Company's $16.2 million discretionary line of credit with the bank, is a
one-year committed line of credit to fund working capital requirements and
letters of credit. The Line contains sublimits for letters of credit and
European subsidiary borrowings. Cash advances bear interest at LIBOR plus 1.25%
to 1.75% based on the Company's achievement of prescribed adjusted debt ratios.
The agreement subjects the Company to various restrictive covenants, including
maintenance of certain financial ratios such as a fixed charge coverage ratio,
adjusted debt ratio and minimum tangible net worth and limits the Company's
capital expenditures and share repurchases and prohibits the payment of cash
dividends on common stock. At January 31, 2002, the Company was in compliance
with all covenants under this facility. There were no borrowings outstanding at
January 31, 2002 or at January 31, 2001. Outstanding letters of credit and
standby letters of credit were $9.4 million and $0.2 million at January 31,
2002, respectively.

  8.  Income Taxes

   The components of income before income taxes are as follows:


<TABLE>
<CAPTION>
                               Fiscal Year Ended January 31,
                               -----------------------------
                                 2002        2001     2000
                                -------    -------  -------
                      <S>      <C>         <C>      <C>
                      Domestic $25,705     $18,328  $34,520
                      Foreign.    (483)       (541)     329
                                -------    -------  -------
                               $25,222     $17,787  $34,849
                                =======    =======  =======
</TABLE>


   The components of the provision for income taxes are as follows:


<TABLE>
<CAPTION>
                                          Fiscal Year Ended January 31,
                                          ----------------------------
                                            2002        2001     2000
                                           -------     ------  -------
           <S>                            <C>          <C>     <C>
           Current:
              Federal.................... $ 9,694      $6,303  $14,104
              State......................   1,632         675    5,061
              Foreign....................     163         115      706
                                           -------     ------  -------
                                           11,489       7,093   19,871
           Deferred:
              Federal....................    (789)        (77)  (3,865)
              State......................    (495)        728   (1,406)
              Foreign....................     (28)       (327)    (249)
                                           -------     ------  -------
                                           (1,312)        324   (5,520)
           Change in valuation allowances      38        (125)   1,818
                                           -------     ------  -------
                                          $10,215      $7,292  $16,169
                                           =======     ======  =======
</TABLE>


   The effective tax rate was different than the statutory U.S. federal income
tax rate for the following reasons:


<TABLE>
<CAPTION>
                                                                            Fiscal Year Ended January 31,
                                                                            ----------------------------
                                                                              2002        2001        2000
                                                                            --------    --------    --------
<S>                                                                         <C>         <C>         <C>
Expected provision at federal statutory rate...............................   35.0%       35.0%       35.0%
State and local income taxes, net of federal tax benefit...................    3.2         6.8         6.6
Expenses relating to provision for foreign net operating losses, investment
  in MXG Media, Inc. and other.............................................    2.3        (0.8)        4.4
                                                                              ----        ----        ----
Effective rate.............................................................   40.5%       41.0%       46.0%
                                                                              ====        ====        ====
</TABLE>


                                     F-12


<PAGE>

                            URBAN OUTFITTERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The significant components of deferred tax assets and liabilities at January
31, 2002 and 2001 are as follows:


<TABLE>
<CAPTION>
                                                            2002     2001
                                                           -------  -------
    <S>                                                    <C>      <C>
    Deferred tax liability:
       Prepaid expenses................................... $  (260) $  (342)
    Deferred tax assets:
       Depreciation and deferred rent.....................   6,337    5,487
       Inventory..........................................   2,462    2,814
       Provision for investment in MXG Media, Inc.........     893      883
       Accounts receivable................................     309      368
       Net operating loss carryforwards...................   1,273      810
       Accrued salaries and benefits, and other...........     318       --
                                                           -------  -------
    Gross deferred tax assets, before valuation allowances  11,332   10,020
    Valuation allowances..................................  (1,731)  (1,693)
                                                           -------  -------
    Net deferred tax assets............................... $ 9,601  $ 8,327
                                                           =======  =======
</TABLE>


   At January 31, 2002, certain non-U.S. subsidiaries of the Company had net
operating loss carryforwards for tax purposes of approximately $2,781 that do
not expire and certain U.S. subsidiaries had state net operating loss
carryforwards for tax purposes of approximately $8,148 that expire from 2004
through 2021. At January 31, 2002, the Company had a full valuation allowance
for the foreign net operating loss carryforwards. At January 31, 2002, the
Company had no valuation reserve for the state net operating loss carryforwards
as management believes it is more likely than not that the tax benefit of these
carryforwards will be realized. At January 31, 2002 and 2001, the noncurrent
portion of deferred tax assets aggregated $6,820 and $5,486, respectively.

   The cumulative amount of the Company's share of undistributed earnings of
non-U.S. subsidiaries for which no deferred taxes have been provided was $2,326
as of January 31, 2002. These earnings are deemed to be permanently reinvested
to finance growth programs.

9.  Stock Option Plans

   The Company's 2000 Stock Incentive Plan (the "2000 Plan") authorizes up to
an aggregate of 1,250,000 common shares, which can be granted as restricted
shares, incentive stock options or nonqualified stock options. In addition,
incentive stock options or nonqualified stock options can be granted under the
1997 Stock Option Plan (the "1997 Plan") which authorizes up to an aggregate of
1,250,000 common shares. The vesting periods for the 1997 Plan and the 2000
Plan can range from one to ten years. The 1997 Plan replaced the previous 1987,
1992 and 1993 Plans (the "superceded plans") which were precluded from making
additional grants due either to expiration or insufficient available shares.
Individual grants outstanding under certain of the superceded plans, however,
have expiration dates, which extend into the year 2007. At January 31, 2002,
682,500 and 201,200 shares of common stock were available for grant under the
2000 Plan and the 1997 Plan, respectively.

                                     F-13


<PAGE>

                            URBAN OUTFITTERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Information regarding these option plans is as follows:


<TABLE>
<CAPTION>
                                   Fiscal 2002               Fiscal 2001               Fiscal 2000
                            ------------------------- ------------------------- -------------------------
                                          Weighted                  Weighted                  Weighted
                                          Average                   Average                   Average
Fixed Options                Shares    Exercise Price  Shares    Exercise Price  Shares    Exercise Price
-------------               ---------  -------------- ---------  -------------- ---------  --------------
<S>                         <C>        <C>            <C>        <C>            <C>        <C>
Options outstanding at
  beginning of year........ 1,454,000      $14.92     1,494,800      $15.31     1,702,500      $12.63
Options granted............   540,000       12.18       242,000        9.36       334,500       21.71
Options exercised..........   (99,400)      12.89            --          --      (366,032)      10.78
Options canceled...........   (80,200)      23.62      (282,800)      12.01      (176,168)      11.35
                            ---------                 ---------                 ---------
Options outstanding at end
  of year.................. 1,814,400       13.83     1,454,000       14.92     1,494,800       15.31
                            =========                 =========                 =========
Options exercisable at end
  of year..................   708,900       14.80       610,600       15.27       442,233       13.34
                            =========                 =========                 =========
Weighted average fair
  value of grants per share     $7.08                     $5.85                    $13.20
                                =====                     =====                    ======
</TABLE>


   The following table summarizes information concerning currently outstanding
and exercisable options as of January 31, 2002:


<TABLE>
<CAPTION>
                           Options Outstanding           Options Exercisable
                  ------------------------------------- ---------------------
                                 Wtd. Avg.     Wtd. Avg             Wtd. Avg.
     Range of       Amount       Remaining     Exercise   Amount    Exercise
  Exercise Prices Outstanding Contractual Life  Price   Outstanding   Price
  --------------- ----------- ---------------- -------- ----------- ---------
  <S>             <C>         <C>              <C>      <C>         <C>
  $7.03  --$ 8.19     27,000        8.9         $ 7.31      5,000    $ 7.26
   8.63  -- 10.50    220,900        7.1           9.21    105,700      9.50
  11.13  -- 13.44    714,000        7.2          11.83    214,000     11.62
  14.00  -- 16.50    613,000        6.9          14.75    199,400     14.80
  16.75  -- 19.09     85,000        6.3          17.17     69,000     16.99
  20.88               40,000        4.3          20.88     40,000     20.88
  26.19  -- 26.97    114,500        7.3          26.63     75,800     26.45
                   ---------                              -------
                   1,814,400                     13.83    708,900     14.80
                   =========                              =======
</TABLE>


                                     F-14


<PAGE>

                            URBAN OUTFITTERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company applies APB No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for its plans. Accordingly, no
compensation expense has been recognized for its stock-based compensation
plans. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and net
income per common share would have been reduced in Fiscal 2002, 2001 and 2000
as follows:



<TABLE>
<CAPTION>
                                               Fiscal Year Ended January 31,
                                               -----------------------------
                                                 2002      2001      2000
                                                -------   -------   -------
    <S>                                        <C>       <C>       <C>
    Net income--as reported................... $15,007   $10,495   $18,680
    Net income--pro forma.....................  13,611     8,806    16,460
    Net income per share--basic--as reported..    0.87      0.61      1.07
    Net income per share--diluted--as reported    0.86      0.61      1.05
    Net income per share--basic--pro forma....    0.79      0.51      0.94
    Net income per share--diluted--pro forma..    0.78      0.51      0.92
</TABLE>


   The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:


<TABLE>
<CAPTION>
                                  Fiscal 2002 Fiscal 2001 Fiscal 2000
                                  ----------- ----------- -----------
          <S>                     <C>         <C>         <C>
          Expected life..........  6.5 years   7.1 years   6.7 years
          Risk-free interest rate        5.2%        6.2%        5.7%
          Volatility.............       55.4%       53.1%       53.8%
          Dividend rate..........          0%          0%          0%
</TABLE>


10.  Net Income Per Share

   The following is a reconciliation of the weighted average shares outstanding
used for the computation of basic and diluted earnings per share ("EPS").


<TABLE>
<CAPTION>
                                               Fiscal Year Ended January 31,
                                              --------------------------------
                                                 2002       2001       2000
                                              ---------- ---------- ----------
  <S>                                         <C>        <C>        <C>
  Basic weighted average shares outstanding.. 17,268,615 17,257,186 17,531,971
  Effect of dilutive options.................    169,842     17,644    312,385
                                              ---------- ---------- ----------
  Diluted weighted average shares outstanding 17,438,457 17,274,830 17,844,356
                                              ========== ========== ==========
</TABLE>


Options to purchase 114,500 shares ranging in price from $26.19 to $26.97 were
outstanding as of January 31, 2002, options to purchase 1,426,500 shares
ranging in price from $8.27 to $27.56 were outstanding as of January 31, 2001,
and options to purchase 235,500 shares ranging in price from $20.88 to $27.56
were outstanding as of January 31, 2000, but were not included in the
computation of diluted EPS for the respective fiscal years because the options'
exercise prices were greater than the average market price of the common shares.

                                     F-15


<PAGE>

                            URBAN OUTFITTERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


11.  Commitments and Contingencies

  Leases

   The Company leases its stores under noncancelable operating leases.
Additionally, certain office equipment is leased under noncancelable capital
leases. The following is a schedule by year of the future minimum lease
payments for operating leases with original terms in excess of one year:


<TABLE>
<CAPTION>
                     Fiscal Year
                     -----------
                     <S>                          <C>
                     2003........................ $ 35,879
                     2004........................   36,247
                     2005........................   35,503
                     2006........................   33,643
                     2007........................   31,253
                     Thereafter..................  148,946
                                                  --------
                     Total minimum lease payments $321,471
                                                  ========
</TABLE>


   Amounts noted above include commitments for five executed leases for stores
not opened as of January 31, 2002. At January 31, 2002, the Company had entered
into a capital lease for equipment with a cost of approximately $660, which
will be recorded in the first quarter of Fiscal 2003 upon receipt of the
related equipment in accordance with the contract.

   The store leases generally provide for payment of direct operating costs
including real estate taxes. Certain store leases provide for contingent
rentals when sales exceed specified levels.

   Rent expense consisted of the following:


<TABLE>
<CAPTION>
                                   Fiscal Year Ended January 31,
                                   -----------------------------
                                     2002      2001      2000
                                    -------   -------   -------
                <S>                <C>       <C>       <C>
                Minimum rentals... $32,704   $25,651   $18,591
                Contingent rentals     216       173       441
                                    -------   -------   -------
                   Total.......... $32,920   $25,824   $19,032
                                    =======   =======   =======
</TABLE>


  Benefit Plan

   The Urban Outfitters 401(k) Savings Plan (known as the Urban Outfitters,
Inc. Profit-Sharing Fund prior to July 1, 1999) covers all employees who are at
least 18 years of age and have completed six months of service. Under the plan,
employees can defer 1% to 20% of compensation as defined. The Company will make
matching contributions of $0.25 per employee contribution dollar on the first
6% of employee contribution. The employees' contribution is 100% vested while
the Company's matching contribution vests at 20% per year of employee service.
The Company's contributions were $285, $258 and $142 for Fiscal 2002, 2001 and
2000, respectively.

  Contingencies

   The Company is party to various legal proceedings arising from normal
business activities. Although the amount of any liability that could arise with
respect to currently pending actions cannot be accurately predicted,

                                     F-16


<PAGE>

                            URBAN OUTFITTERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

management believes that the ultimate resolution of these matters will not have
a material adverse effect on the Company's financial condition or results of
operations.

12.  Segment Reporting

   Urban Outfitters is a national retailer of lifestyle-oriented general
merchandise through 80 stores operating under the retail names "Urban
Outfitters" and "Anthropologie," and through a catalog and two web sites. Sales
from this retail segment accounted for over 90% of total consolidated sales for
Fiscal 2002, 2001 and 2000. The remainder is derived from a wholesale division
that manufactures and distributes apparel to the retail segment and to
approximately 1,100 better specialty retailers worldwide.

   The Company has aggregated its operations into these two reportable segments
based upon their unique management, customer base and economic characteristics.
Reporting in this format provides management with the financial information
necessary to evaluate the success of the segments and the overall business. The
Company evaluates the performance of the segments based on the net sales and
pre-tax income from operations (excluding intercompany royalty and interest
charges) of the segment. Corporate expenses include expenses incurred in and
directed by the corporate office that are not allocated to segments. The
principal identifiable assets for each operating segment are inventory and
fixed assets. Other assets are comprised primarily of general corporate assets,
which principally consist of cash and cash equivalents, marketable securities
and other assets. The Company accounts for intersegment sales and transfers as
if the sales and transfers were made to third parties making similar volume
purchases.

   Both the retail and wholesale segment are highly diversified. No customer
comprises more than 10% of sales. Foreign operations are immaterial relative to
the overall Company.

                                     F-17


<PAGE>

                            URBAN OUTFITTERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The accounting policies of the operating segments are the same as the
policies described in Note 2, "Summary of Significant Accounting Policies." A
summary of the information about the Company's operations by segment is as
follows:


<TABLE>
<CAPTION>
                                                                 Fiscal Year
                                                        ----------------------------
                                                          2002      2001      2000
                                                        --------  --------  --------
<S>                                                     <C>       <C>       <C>
Net sales
   Retail operations................................... $330,691  $274,724  $255,782
   Wholesale operations................................   24,391    26,114    25,718
   Intersegment elimination............................   (6,124)   (5,505)   (3,387)
                                                        --------  --------  --------
       Total net sales................................. $348,958  $295,333  $278,113
                                                        ========  ========  ========
Income from operations
   Retail operations................................... $ 27,961  $ 17,466  $ 36,092
   Wholesale operations................................    1,403     4,065     4,063
   Intersegment elimination............................   (1,290)   (1,170)     (683)
                                                        --------  --------  --------
   Total segment operating income......................   28,074    20,361    39,472
   General corporate expenses..........................   (2,576)   (2,483)   (1,907)
                                                        --------  --------  --------
       Total income from operations.................... $ 25,498  $ 17,878  $ 37,565
                                                        ========  ========  ========
Depreciation and amortization expense
   Retail operations................................... $ 15,295  $ 11,794  $  8,473
   Wholesale operations................................      166       202       193
   Corporate...........................................        1         1         1
                                                        --------  --------  --------
       Total depreciation and amortization expense..... $ 15,462  $ 11,997  $  8,667
                                                        ========  ========  ========
Inventory
   Retail operations................................... $ 39,014  $ 31,845  $ 25,217
   Wholesale operations................................    2,072     2,941     1,651
                                                        --------  --------  --------
       Total inventory................................. $ 41,086  $ 34,786  $ 26,868
                                                        ========  ========  ========
Property and equipment, net
   Retail operations................................... $104,655  $ 96,890  $ 71,805
   Wholesale operations................................      849     1,010     1,013
   Corporate...........................................        1         1         1
                                                        --------  --------  --------
       Property and equipment, net..................... $105,505  $ 97,901  $ 72,819
                                                        ========  ========  ========
Capital expenditures
   Retail operations................................... $ 22,275  $ 36,697  $ 37,797
   Wholesale operations................................       34       180       352
                                                        --------  --------  --------
       Total capital expenditures...................... $ 22,309  $ 36,877  $ 38,149
                                                        ========  ========  ========
</TABLE>


                                     F-18


<PAGE>

 
                                   PART II

                  INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 14.  Other Expenses of Issuance and Distribution

   We are paying all of the selling shareholders' expenses related to this
offering, except the selling shareholders will pay any applicable underwriting
discounts, commissions and expenses. Set forth below is a table of the
registration fee for the Securities and Exchange Commission, the filing fee for
the National Association of Securities Dealers, Inc., the additional listing
fee for the Nasdaq National Market and estimates of all other expenses to be
incurred in connection with the issuance and distribution of the securities
described in the Registration Statement, other than underwriting discounts and
commissions:


<TABLE>
                  <S>                               <C>
                  SEC registration fee............. $    4,791
                  NASD filing fee..................      5,708
                  Nasdaq additional listing fee....     15,500
                  Printing expenses................          *
                  Legal fees and expenses..........          *
                  Accounting fees and expenses.....          *
                  Transfer agent and registrar fees          *
                  Miscellaneous....................          *
                                                    ----------
                     Total......................... $        *
                                                    ==========
</TABLE>

---------------------
*  To be provided by amendment.

Item 15.  Indemnification of Directors and Officers

   Section 1712 of the Pennsylvania Business Corporation Law of 1988, as
amended (the "BCL"), sets forth the applicable standard of care for directors
and officers. Section 1712 further provides that, in performing their duties,
directors may rely in good faith on certain information, material and
statements provided by officers of a corporation, certain professionals or
experts and committees of the board upon which the director does not serve and
that officers shall not be liable if they perform their duties in accordance
with the applicable standard of care. Section 1713 of the BCL allows for a
corporation's by-laws to provide that a director shall not be personally liable
for any action taken unless the director has breached the applicable standard
of care and such breach constituted self-dealing, willful misconduct or
recklessness.

   Section 1741 of the BCL permits a corporation to indemnify its officers and
directors for any expenses, judgments, fines and settlement amounts paid or
incurred in the defense of third-party actions provided such individuals have
met their applicable standard of care. Section 1743 of the BCL requires a
corporation to indemnify its directors and officers for their expenses incurred
in the successful defense of any third-party or derivative action. The
Registrant's Amended and Restated Bylaws require the Registrant to indemnify
any person who was or is party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, including actions
by or in the right of the Registrant, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director
or officer of the Registrant, or is or was serving while a director or officer
of the Registrant at the request of the Registrant as a director, officer,
employee, agent, fiduciary or other representative of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgment, fines, excise taxes and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding unless the act or failure to
act giving rise to the claim for indemnification is determined by a court to
have constituted willful misconduct or recklessness.


                                     II-1


<PAGE>

   The Registrant maintains directors' and officers' liability insurance.

   The underwriting agreement (attached hereto as Exhibit 1.1) provides for
indemnification by the underwriters of the registrant and its officers and
directors for certain liabilities arising under the Securities Act, or
otherwise.

Item 16.  Exhibits

   The following is a list of all exhibits filed as part of this registration
statement on Form S-3, including those incorporated in this registration
statement by reference.


<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C>         <S>

  1.1*      Form of Underwriting Agreement.

  4.1       Amended and Restated Articles of Incorporation of the Registrant are incorporated by reference to
            Exhibit 3.1 of the Registrant's Registration Statement on Form S-1 (File No. 33-69378) filed on
            September 24, 1993.

  4.2       Amended and Restated By-Laws of the Registrant are incorporated by reference to Exhibit 3.2 of
            the Registrant's Registration Statement on Form S-1 (File No. 33-69378), filed on September 24,
            1993.

  5.1**     Opinion of Drinker Biddle & Reath LLP.

  23.1**    Consent of Drinker Biddle & Reath LLP (included in Exhibit 5.1).

  23.2**    Consent of Arthur Andersen LLP.

  23.3**    Consent of PricewaterhouseCoopers LLP.

  24.1**    Power of attorney (included on signature page).
</TABLE>

---------------------
*  To be filed by amendment.
** Filed herewith.

Item 17.  Undertakings

   The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

   Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

                                     II-2


<PAGE>

   The undersigned Registrant hereby undertakes that:

      (1) For purposes of determining any liability under the Securities Act,
   the information omitted from the form of prospectus filed as part of this
   registration statement in reliance upon Rule 430A and contained in a form of
   prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
   497(h) under the Securities Act shall be deemed to be part of this
   registration statement as of the time it was declared effective.

      (2) For the purpose of determining any liability under the Securities
   Act, each post-effective amendment that contains a form of prospectus shall
   be deemed to be a new registration statement relating to the securities
   offered therein, and the offering of such securities at that time shall be
   deemed to be the initial bona fide offering thereof.

                                     II-3


<PAGE>


                                  SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Philadelphia, State of Pennsylvania on March
13, 2002.

                                          URBAN OUTFITTERS, INC.

                                                   /s/  RICHARD A. HAYNE
                                          By: _______________________________
                                                      Richard A. Hayne
                                                         President

                               POWER OF ATTORNEY

   KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Richard A. Hayne and Stephen A. Feldman
and each of them singly as his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for him, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with exhibits thereto and
other documents in connection therewith, granting unto each of such
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters, as
fully to all intents and purpose as he might or could do in person, and hereby
ratifying and confirming all that each of such attorney-in-fact and agent or
any of them or his substitutes may do or cause to be done by virtue hereof.

   Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.

         Signature                         Title                     Date
         ---------                         -----                     ----

   /s/  RICHARD A. HAYNE    Chairman of the Board, President    March 13, 2002
 --------------------------   and Director (Principal Executive
      Richard A. Hayne        Officer)

  /s/  STEPHEN A. FELDMAN   Chief Financial Officer (Principal  March 13, 2002
 --------------------------   Financial Officer)
     Stephen A. Feldman

    /s/  KENNETH R. BULL    Treasurer (Principal Accounting     March 13, 2002
 --------------------------   Officer)
      Kenneth R. Bull

    /s/  SCOTT A. BELAIR    Director                            March 13, 2002
 --------------------------
      Scott A. Belair

 /s/  HARRY S. CHERKEN, JR. Director                            March 13, 2002
 --------------------------
   Harry S. Cherken, Jr.

  /s/  KENNETH K. CLEELAND  Director                            March 13, 2002
 --------------------------
    Kenneth K. Cleeland

                                     II-4


<PAGE>

                       Signature         Title        Date
                       ---------         -----        ----

                /s/  JOEL S. LAWSON III Director March 13, 2002
                -----------------------
                  Joel S. Lawson III

                 /s/  BURTON M. SAPIRO  Director March 13, 2002
                -----------------------
                   Burton M. Sapiro

                                     II-5


<PAGE>


                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
  Exhibit No. Exhibit
  ----------- -------
  <C>         <S>

     1.1*     Form of Underwriting Agreement.

     5.1      Opinion of Drinker Biddle & Reath LLP.

     23.1     Consent of Drinker Biddle & Reath LLP (included in Exhibit 5.1).

     23.2     Consent of Arthur Andersen LLP.

     23.3     Consent of PricewaterhouseCoopers LLP.

     24.1     Power of attorney (included on signature page).
</TABLE>

---------------------
*  To be filed by amendment.

                                     II-6




<PAGE>

                                                                    Exhibit 5.1

                  [Letterhead of Drinker Biddle & Reath LLP]

March 13, 2002

Urban Outfitters, Inc.
1809 Walnut Street
Philadelphia, PA 19103

Ladies and Gentlemen:

    We have acted as counsel to Urban Outfitters, Inc., a Pennsylvania
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission of a registration statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933, as amended,
relating to the public offering of: (i) up to 1,550,000 common shares, par
value $.0001 per share, of the Company (the "Common Shares") by the Company,
and (ii) up to 450,000 Common Shares by certain directors and officers of the
Company (collectively, the "Selling Shareholders"), plus (iii) up to an
additional 200,000 Common Shares to cover over-allotments, of which up to
50,000 Common Shares are to be issued by the Company and the remainder are to
be sold by the Selling Shareholders, in each case as provided in the
Registration Statement.

    In that connection, we have examined the originals or copies, certified or
otherwise identified to our satisfaction, of the Amended and Restated Articles
of Incorporation of the Company, the Amended and Restated By-laws of the
Company, resolutions
 of the Company's Board of Directors, and such other
documents and corporate records relating to the Company and the issuance of the
Common Shares to be sold pursuant to the Registration Statement as we have
deemed appropriate. This opinion is based exclusively on the laws of the
Commonwealth of Pennsylvania.

    On the basis of the foregoing, we are of the opinion that the Common Shares
to be sold by the Selling Shareholders have been validly issued and are fully
paid and non-assessable by the Company under the laws of the Commonwealth of
Pennsylvania, and the Common Shares to be issued by the Company have been
validly authorized for issuance and, when issued and paid for in the manner
described in the Registration Statement, will have been validly issued, fully
paid and non-assessable by the Company under the laws of the Commonwealth of
Pennsylvania.

    We hereby consent to the reference to our firm under the caption "Legal
Matters" in the prospectus included in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. In giving
this consent, we do not admit that we come within the categories of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended.

                                        Very truly yours,

                                        /s/ DRINKER BIDDLE & REATH LLP


<PAGE>


                                                                    Exhibit 23.2




                   Consent of Independent Public Accountants


As independent public accountants, we hereby consent to the use of our report
dated March 6, 2002 included in this registration statement on Form S-3 and to
the incorporation by reference in this registration statement on Form S-3 of
our report dated March 14, 2001, included in Urban Outfitters, Inc.'s Form 10-K
for the year ended January 31, 2001 and to all references to our firm included
in this registration statement.



                                               /s/  Arthur Andersen LLP
                                              -------------------------
                                                Arthur Andersen LLP

Philadelphia, Pennsylvania
March 13, 2002






<PAGE>

                                                                   Exhibit 23.3

                       CONSENT OF INDEPENDENT ACCOUNTANT

We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated March 12, 1999 relating to the
financial statements for the year ended January 31, 1999, which appear in the
Form 10-K for the year ended January 31, 2001. We also consent to the reference
to us under the heading"Experts" in such Registration Statement.

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
March 13, 2002