Release Date: May 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Four out of five brands posted record first-quarter revenues, with Anthropologie, Free People, FP Movement, and Nuuly achieving double-digit revenue growth.
- Total URBN sales grew by 8% to a Q1 record of $1.2 billion, driven by a 5% retail segment comp.
- Nuuly saw a 56% increase in subscribers compared to the prior year, contributing to robust double-digit revenue growth.
- Adjusted gross profit dollars increased by 11% to $413 million, with an adjusted gross profit rate improvement of 106 basis points to 34.4%.
- Anthropologie and Free People brands delivered double-digit customer growth, with new and active customers increasing by over 18% year-over-year.
Negative Points
- Urban Outfitters brand recorded a 14% retail segment comp decline, driven by double-digit declines in both digital and store channels.
- Higher markdown rates at Urban Outfitters were necessary to move through inventory, impacting overall gross profit margins.
- SG&A expenses increased by 11% and deleveraged by 87 basis points, primarily due to the Urban Outfitters brand not reducing SG&A at the same rate as sales declines.
- The Urban Outfitters brand in North America is still undergoing strategic changes and has not yet shown significant improvement in women's and men's apparel categories.
- The company anticipates elevated markdown levels in the second quarter for Urban Outfitters, which could impact short-term profitability.
Q & A Highlights
Q: Dick, can you discuss the silhouette shift trend and its impact on Urban Outfitters?
A: Dave Hayne, Chief Technology Officer & President of Nuuly: The silhouette shift from big over little to little over big is about mid-point in adoption. Urban Outfitters is leveraging speed-to-market to chase trends, focusing on proportionality in silhouettes.
Q: Can you elaborate on recent trends in May across banners relative to the first quarter?
A: Dave Hayne, Chief Technology Officer & President of Nuuly: Retail segment comp performance for Q2 in May is slightly softer than Q1, with Free People posting mid-single digit positive comps. Urban Outfitters is showing improvement with high single digit negative comps.
Q: What actions are being taken regarding inventory at Urban Outfitters, and how confident are you in back half merchandise margin expansion?
A: Melanie Marein-Efron, Chief Financial Officer: Inventory at Urban Outfitters is down 10% on a negative 14% retail segment comp. Additional markdowns will be taken to ensure clean inventory for the back-to-school season, which should improve margins in the back half of the year.
Q: How are you presenting the Urban Outfitters brand to the Gen Z customer, and what changes are being made to pricing architecture?
A: Shea Jensen, President, Urban Outfitters, North America: We are conducting extensive research to understand our customers and have identified two primary goals: rebuilding the customer base and restoring profitability. We are leveraging price elasticity and focusing on price value, particularly in categories like accessories and apparel.
Q: Can you discuss the gross margin guidance and the impact of markdowns in Q2?
A: Francis Conforti, Co-President & Chief Operating Officer: Q1 gross margin exceeded expectations due to better top-line performance and lower logistics expenses. For Q2, IMU will be positive, but elevated markdowns at Urban Outfitters will impact gross profit margin.
Q: How are you using own brands at Anthropologie, and is it helping to bring in a younger customer base?
A: Tricia Smith, Global Chief Executive Officer, Anthropologie Group: Own brands like PILCRO and Maeve are driving significant results. We are expanding the footprint of these brands in stores, which is proving successful. Our efforts on social platforms like TikTok are also attracting younger customers.
Q: What is the expectation for marketing spend for the remainder of the year, and how is it allocated across brands?
A: Melanie Marein-Efron, Chief Financial Officer: Marketing spend is allocated based on growing brands like Nuuly, Anthropologie, FP Movement, and Free People. The rate of growth in marketing spend will align more closely with sales growth in the back half of the year.
Q: How long of a leash does Urban Outfitters have before making more material changes to the store base or geography?
A: Dave Hayne, Chief Technology Officer & President of Nuuly: We are engaged in a strategic review and making decisions about the store base and geography. We are seeing positive signs and believe we can turn the brand around by addressing issues like store size and social media spend.
Q: Can you elaborate on the recent trends at Urban Outfitters in Europe and their impact on the US market?
A: Sheila Harrington, Global Chief Executive Officer, Urban Outfitters Group and Free People Group: Urban Outfitters in Europe is showing signs of revival, borrowing more fashion from North America. The feminine look is performing well in Europe, and we are seeing similar trends in North America.
Q: Can you provide an update on Nuuly's performance and profitability?
A: Dave Hayne, Chief Technology Officer & President of Nuuly: Nuuly had a fantastic first quarter with significant growth in subscribers. Although not profitable in Q1 due to logistics expenses, we expect profitability through the rest of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
