Q2 2020 Earnings Call
Then press the pound key.
Good day, ladies and gentlemen, and welcome to the urban Outfitters Inc.
Second quarter FIS.
2020 earnings call.
At this time all participants are in a listen only mode.
Later, we will conduct a question answer session and instructions will follow at that time.
If anyone should require assistance.
During the conference please.
Star then zero on your Touchtone.
As a reminder, this conference call is.
Being recorded.
I would now like to introduce Oh, none Mccullough.
<unk> rector of Investor Relations.
Mccullough you may begin.
[noise].
Good afternoon.
Welcomed.
You RBN second quarter.
Fiscal 2020 conference.
Earlier this afternoon, the company issued a press release outlining the financial and operating results.
For the three and six month period, ending July 31 2019.
The following discussions may include forward looking statements.
Please note that actual results may differ materially from those statements.
Additional information concerning factors that could cause actual results.
Differ materially from projected results.
Is contained in the Companys filings with.
The Securities next.
Commission.
On today's call.
You will hear from Trish Donnelly.
Global CEO urban Outfitters group.
Income 40.
Chief Financial Officer.
Are you RBN.
Richard Hayne, Chief Executive Officer.
If you RBN following that we will be pleased to address your questions for a more detailed commentary on our quarterly performance and the tech.
Please refer to our Investor Relations web.
The U.W.W.
That you RBN Dotcom I will now turn the call over to Trish.
Thank you Ana.
And good afternoon, everyone.
I will spend the next few minutes discussing the second quarter.
We are seeing in the business currently and then give updates to some of our longer term growth initiatives.
First off results for the second quarter were disappointing the urban Outfitters brand delivered a negative five.
Retail segment sales comp.
Given by underperformance in women's apparel.
Although we faced best ever prior year comparisons, we did have product and execution Miss it.
As discussed on our last call we knew our women's assortment was not well balanced.
We were over assorted too much of the same idea the urban Outfitters brand is at its best.
Will we.
We cater to a variety of sensibilities.
The customer types within our women's offering and our execution was not where we wanted it to be.
Despite the myth.
We did have product and category successes.
Which give us optimism for the back half the year.
Where we had nice balanced in the assortment and offered compelling product.
By strong marketing messages.
Our customers responded enthusiastically.
Yes.
Within women's we had strong response to our top.
In bottoms businesses globally.
We see this continuing into the current quarter.
Within men's.
Tops drove particularly strong levels.
Also continued into the current.
Order.
And finally, we are very excited by the growth we are seeing in home decorate.
Second media.
In the beauty category.
These particular categories become more important from a volumes.
Endpoint in the back half of the year, and we are well positioned from a product inventory.
And marketing standpoint to see their continued success.
Now moving onto current business August today, we're seeing improvement in our womens business in North America, and particular strength in Europe , new fashion ideas and new silhouettes are being well received by our customers. As previously mentioned, we've seen very strong business in our home decorate category, we recently launched our vaccine.
Lets start mint.
During the popular hashtag you all on campus across our social channels and we partnered with after pay on our usual rewards platform to win the dorm room mic over receiving over 100000 entries.
Okay.
And are you a rewards.
Membership increased 11% in the.
And we now have 11 and a half million members globally.
These members are our best customers so in order to give them a better rewards experience.
Your re platforming and Relaunching the programs.
Order this will allow us to further personalize the program by implementing spending tiers.
And it will better support contest and giveaways.
Digital initiatives started in the second quarter included the launch of urban Outfitters website.
South Korea.
<unk> poor.
In Hong Kong in local language and currency, we are seeing session improvements.
The increases in new customer acquisition in these geographies and expect to launch additional local sites in the future.
Moving to source.
[noise].
In Europe , we open in urban Outfitters store in Leipzig during the quarter.
One of our most successful store openings in Germany.
This quarter, we will open three additional urban outfitters stores in Europe .
In September we will open our first store with franchise partner as a day group in the Dubai Mall and in North America, our focus.
On the store experience and driving traffic to localize and curated store events, our urban outfitters retail stores hosted over 90, experientially events last quarter, giving our customers a unique brand centric in store experiences.
Which drove traffic.
And engagement.
In closing.
Although difficult quarter.
We feel we have made the necessary structural and personnel changes have begun to see traction in the business. We are committed to giving our customers compelling brand appropriate, especially curated product in environment, He and she like given early back to.
Laurie.
We believe the second half of the year could comp positive.
While making necessary improvements to the core business.
Our focus on growth initiatives within digital.
Worse and wholesale across all geography.
I would like to thank Meg.
You are leadership.
And our home office and field teams for quickly course correcting.
Last quarter's issues and focusing on moving forward to once again, please our customers. Thank you.
I will now turn the call over to Frank.
Thank you Trish.
[laughter].
As we entered the third quarter of fiscal year 2020.
It may be helpful for you to consider the following.
Yeah.
Are you already in comp sales have started out the third quarter positive.
Based on our quarter to date performance and sales plans.
We believe our new RBN retail segment comp sales.
Good Register low single digit positive.
In the third quarter.
<unk>.
Now moving on to gross profit margin.
We believe you RBS gross margin rate for the third quarter could deleverage by approximately 200 basis point.
The decrease in gross profit rate could be due to three factors.
First we believe markdown rates for Q3 could exceed last years, historically low rates and end up more similar to the average third quarter rates over the last five years.
While women's apparel assortments at both Anthropologie and urban Outfitters are much improved from the first half offerings. The customer is reacting strongly to promotional offers this year.
As we have more carryover inventory from Q2 than last year.
Second we could continue to see deleverage in delivery and logistics expense.
Due to the increase and digital penetration to total retail segment.
And deleverage in store occupancy as store traffic.
Comps remain negative.
Lastly.
We believe there could be deleveraging gross profit rate related to the launch of newly our new subscription rental business.
And the transition to managing our furniture and nonsurgical distribution from a third party logistics provider.
Internal operation.
Now for an update on M&A.
[noise].
Based on our current sales performance.
And financial plan.
We believe SNA could grow by approximately 5% for the quarter.
Growth in ESS, DNA could primarily relate to digital marketing investments to support our digital channel sales growth.
Additionally.
SNA will include approximately $5 million of expense associated with the launch of new.
Our annual effective tax rate.
Is planned to be approximately 26% for the third quarter and for the full 2000 2000 fiscal year.
Capital expenditures for the fiscal year.
Our planned at approximately $250 million.
The spend.
An increase to the prior year.
Primarily related to planned investments.
An additional and expanded distribution facilities, the opening of new stores and our new European home office.
As a reminder, the foregoing does not constitute a forecast but is simply a reflection of our current views. The company disclaims any obligation to update forward looking statements now it is my pleasure to turn the call over to decaying are you RBN Chief Executive Officer.
Thank you Frank and good afternoon, everyone.
Today, I will speak briefly to our second quarter results and provide some commentary on current business trends before turning the call over to your questions.
This year's second quarter will certainly not be remembered as one of your bans financed.
The Anthropologie and urban brands.
Produce sales and margins below our expectations.
Customer acceptance of their women's apparel assortments was softer than planned.
This resulted in higher year over year markdowns.
And lower merchandise margins.
Additionally.
The worst store traffic accentuated negative comp store performance and weighed on overall result.
Despite these second quarter issues that are currently many bright spots in the business.
Recent sales results have improved measurably and give us confidence in the future performance at all three brands. The promising reaction to early fall deliveries that Trish referenced in urban brand commentary.
It's also true for the Anthropologie brand.
Yeah.
Meanwhile, free people, which delivered an amazing second quarter driven by strong apparel sales continues its exceptional rate of multi year comp sales increases.
August to date total company sales.
Our comp positive and we are planning for comps to remain so.
The third quarter.
From a fashion perspective, we see plenty of newness in apparel and accessories to propel comps.
While home sales continued to post nicely positive comps at both larger brands.
Based on what we're seeing especially at the free people brand that consumers in good shape.
Sentiment is favorable.
And she is eager to spend when products are right.
Yes.
She is particularly interested when given a compelling called action off.
More often than not that compelling offer.
Comes as a promotion.
And promotional activity along with the ongoing shift in customer preference to shop online visit stores less.
Result, and pressure on gross margins.
For these reasons, we expect Q3 gross margins to back off from the same period last year in spite of what we believe will be positive comp sales.
Turning your attention to newly I'm, especially pleased to report the launch.
This new brand during the quarter.
Newly as our rental subscription service that officially shipped its first.
Subscription boxes to the public on July Thirtyth.
The launch was met with high praise from media and Influencers.
More than 40 articles and post were written in publications on and offline.
In this early period the brand.
As tightly manage the number of subscribers off our waitlist to ensure a positive customer experience.
Fortunately the internally built systems processes, and all warehouse and laundry equipment.
At work flawlessly.
And subscriber feedback has been highly positive about the overall experience.
As it grows we're confident newly will become a vital part.
Have you RP ends.
In portfolio.
Congratulations.
The entire newly team on a terrific line.
In closing.
Although Q2 was a difficult quarter for you RPN.
In the first three weeks of August are an indication Q3 should bring improved comps driven by him.
Moved assortments in the apparel category.
I want to thank the brand teams for their hard work and dedication to our success and our 24000 associates worldwide for their inspiring dedication drive and creativity.
I also recognize and thank our many partners around the world.
And finally I, thank our shareholders for their continued.
That concludes my prepared remarks.
Yeah.
Thank you and now for your questions.
Thanks.
Q if you have a question at this.
I'm pleased.
Our one on your Touchtone teller.
If your question hosted answered or you wish to move yourself from the queue. Please.
Keith Please limit your question to one per caller.
Yeah.
This one comes from Kimberly Greenberger with Morgan Stanley . Your line is open.
Okay, great. Thank you so much.
You've obviously had a very encouraging start here to the third quarter.
<expletive> and I'm wondering if you could just address on a.
On a brand by brand basis do you feel like.
Each of the brands is sort of back.
On target with its product execution or maybe you can just give us a status update and then how much.
Open to buy for Q4 at this point of the third quarter.
Thanks.
Hey, Kimberly Kimberly this is <expletive> .
Let me go down the brand's free people as you know had a just a phenomenal quarter.
The second quarter.
And they are leading the group right now in the third quarter, that's not surprising.
Both the Anthropologie and urban.
Our brands.
Have made what I would.
Consider.
Significant and very very impressive improvements to their assortments.
Both of them are currently comp positive.
And both of them believe that they can continue to become positive throughout the third quarter.
So I.
I think in general we're very optimistic.
In terms of open to buy.
Currently we have about 50%.
Of our fourth quarter by open.
<unk>.
Now this is just a touch less than what we had.
Last year at this time.
And I think that is mostly due to.
The sourcing issues that had been sort of points are honest by the trade dispute.
The China.
I guess, we believe.
It was about one week.
He'd drop.
Due to those issues.
I don't know that that will change.
In the next.
Straight to six months.
Longer term, we think it will come back.
Yes.
On the issues are around we have to establish some new factories.
We have to set up processes and procedures, where those factories and we have to deal with countries that are have less established infrastructure.
In order to move the product from the factories to the U.S.
So all in all it's a little bit slower, we expect to bring things and hopefully.
Order them and bring them in a little bit sooner.
To compensate for that lack of speed.
Your next question comes from Lorraine Hutchinson with.
Think of America. Your line is <unk>.
<unk>.
Good afternoon.
Could you just comment a little bit.
Inventory.
And.
Where you see.
Reliable product.
Anthropologie ended the quarter little bit heavy and then how you are.
The thing about.
Receipt flow.
The third quarter.
Okay.
Other and this is Frank and let me just take that question I guess in total.
By segment, and then I'll speak a little bit by brand as well.
We obviously realize that the increased looks unusual for us.
And there are several moving pieces here, let me start with retail segment comp inventory our third quarter.
As started off positive and our retail segment comp in the third quarter is actually very comparable with where our ending inventory comp is.
Now moving on to horrible wholesale.
Total wholesale inventory is up 36% or $17 million to last year.
A portion of that increases the fund the growing anthropologie home and urban Outfitters PDG wholesale businesses.
The largest portion of that increase is it free people and given the current wholesale trends. We do believe could result in lower wholesale margin rates for that for the third quarter.
Lastly, and <expletive> mentioned, a little bit of this just just recently on the last answer we have experienced a fair amount of uncertainty.
Around inventory deliveries over the past quarter, which has a lot to do with the trade where that continues.
We have several inventory delivery date, deviations, which have elevated our inventory a bit coming into the quarter.
We believe these unexpected movements in inventory results in approximately $10 million to $15 million more in inventory versus the prior versus the prior year and Thats, primarily affected the free people brand into a little bit of a lesser extent the anthropologie brand.
Thanks.
Your next.
I've seen comes from Janet.
Remember with J.J.K. Research your line is open.
Hi, everybody.
Virtual license on the improvement based.
[noise].
Talk a little bit about.
Jan outlook.
Forward coming out of that.
<unk> quarter.
You think the carry over inventories will be leaner.
And then also.
<unk>.
Yeah.
Okay, just on value and the.
New like that.
Don't make.
Thank you to make.
After the close.
On line as we go.
All right.
How should we be thinking about that.
Much.
Sure Janet this is Frank I'll take that one.
So as we look into the into the third quarter, we do believe that we could leverage by roughly 200 basis.
The largest portion of this.
Would be in merchandise markdowns.
The markdown rate increase which is honestly off a historically low markdown rate in that.
At quarter of last year could be due to increased promotional activity to key product moving at each of our brands.
While both urban Outfitters, and Anthropologie brands women's apparel Assortments are much improved.
The customers still reacting very strong strongly right now to promotional offers.
Additionally, as I just spoke about a little bit there we do answers.
Lower profit margins at free people wholesale.
Which will also show also shows up there in that in that Mark down rate next is delivering logistics expense and we do anticipate or do you believe we could have the leverage there due primarily to the increased penetration of digital sales.
The retail segment as well as store occupancy deleverage of store traffic and correspondingly store comps remain negative.
Lastly, and I believe what you're referencing there is we do believe we could have the leverage.
In the third quarter due to the transition from our third party logistics provider.
Which is for our furniture and non sort of distribution to an internal operation.
That will subside, we believe most of that will subside once we get through the get through the third quarter.
Additionally, there is slight deleverage also due to the newly operation.
And that's the leverage relates to.
And I know of course profit margins a little different.
Pending on which retailer you are looking at we put our merchandise team. So our merchant organization foods buyers and planning and allocation into gross profit margin.
We also put the logistics facility into gross profit margin and obviously those.
Things are built to to scale.
And we'll leverage more over time as sales and subscribers begin to grow.
Yes.
Gen is.
I think you ask about value and newly I think what you probably mean by that is.
Did we do this as a value exercise.
And I can tell you that certainly it is a greater value to the customer, but the reason that we did that we launch newly is because our customers are engaging in the rental activity and we want to be where our customers are.
We believe that over the coming.
Or five years.
Rental will become a much larger business I think you are already seeing a bunch of people get into this and I think as they get into it.
It will.
Make it more known to most customers and I think they will engage in it.
The reason, we built the systems in house.
Was to have control over the customer experience.
Which as you know with our brands is one of the most important things that we value.
Yes.
And also together the customer data thats generated.
So thats news.
Okay.
Your next.
<unk> comes from.
Fitzsimmons with RBC.
All markets.
<unk>.
<unk>.
Yes, hi, everyone I'll add my congratulations on the improvement quarter to date.
[noise].
I guess, Frank just going back in terms.
On the gross margin outlook, just as we think about it from.
Re queue into for Q.
I hear what you're saying on the Mark Downs and in an effort in an effort.
Do I get the inventory, particularly on the wholesale side.
Cleaner I guess, just how should we think about the markdown progression from.
Re queue and two for Q.
Also just.
Commenting on the value and you guys have in the past called out the consumers enhance focus.
On promotion during holiday and then Frank also just considering that fourth quarter step up in direct just.
Any nuances.
We should consider there.
Thanks for the question I think as it relates to the fourth quarter, we're going to we're going to wait to talk about exactly what margin could look like I think both urban outfitters and Anthropologie have made significant improvement from the second quarter to third quarter in their trends.
Yes, the customers still reacting to some of those promotional offers which will put some pressure on our markdown rate in the third quarter, but given the rate of improvement that they've made both brands from from Q2 to Q3.
I just think it would be a little premature right now for us to speak about with the with the markdown rate promotional activity could look like in the fourth quarter.
Okay.
Your next.
She comes from Paul Lejuez with.
City.
<unk> your line is.
<unk>.
Hey, Thanks, guys I'm, just curious on the women's apparel weakness that you saw in anthro, an urban where the weakness more on your private label product or was it third party.
Brands and maybe if you can talk about merch margin on their private label brands specifically just.
On an apples to apples.
This is what's happening.
There and then just last.
Store comps were down high singles, and urban and anthro or if you could maybe break that down traffic and ticket.
Thanks.
Hi, it's Hillary.
The anthropologie.
So what I would say that it was not necessarily isolated to own brand or to market brand, but really more about a sensibility. So as I mentioned in the last call. We struggled in the first quarter with our casual.
<unk>, we didnt innovate and push it forward and we really suffered that continued into.
I think quarter, and that's exactly where we're seeing improvement in the third quarter.
Hi, Paul it's Trish and in the <unk>.
Urban brand.
No I alluded to we did have issues.
Primarily in women's apparel.
In terms of brands you know we've had.
Conversation before were brands have always been a really.
It's been part of urban DNA and part of the assortment.
Particularly in women's the penetration is and isn't material.
So you know because it's not material. There are some brands that you know are important for a season and then other brands emerge and take there.
So it wasn't really on that on the brand to trend at all.
We have an internal issue.
Paul This is Frank as it relates to the store comps, yes, what we did experienced in the second quarter was store comps.
For both urban and Anthropologie being further negative and what their traffic trends were and we believe that's a result of where we were from a product execution standpoint, with both brands starting to show improvement. There. We are hopeful in the near term there we can start to trend closer to where the where the overall traffic trends are within that within our stores.
Your next.
<unk>.
<unk> Morgan your line is.
<unk>.
Thanks, <expletive> maybe larger.
Next year.
What's your view on the consumer backdrop.
And then.
Secondly.
Related to the terrorists.
What's urbans.
Direct exposure.
I'm curious your thoughts around that.
Leasing power that you believe it.
You have it.
In any impact.
That potential price increase.
It could have on.
[noise].
Hey, Matthew Thank you very much.
Like I said in the prepared remarks.
I believe that.
A lot of fashion out there to drive comps in that.
Yes.
The newness in the fashion exist across all of our categories of women's and men's apparel and accessories and hardgoods.
We're very encouraged by that.
In apparel.
The.
The faction is more in its still a bottom cycle, it's a strong bottom cycle and.
Anytime a bottom silhouette changes as top silhouette changes with it.
So both tops and bottoms are selling very well.
From a customer perspective.
We see that the customer is very strong.
She.
If she's unemployment she wants to be unemployed and.
Her wages are going up.
[noise].
He has money to spend.
Consumer sentiment is reasonably high.
And so we think that this is a very very good time.
Our fashion.
And.
The only negative as we see in the.
On the front.
In front of US is our political ones, that's fair trade wars and Brexit.
[noise].
As far as the trade wars are concerned.
If the 10% tariffs go into.
Affect as.
As.
They are threatening to.
I think we could see anywhere from two and a half to $3 million charge.
In the back half of the year.
Yes.
Now.
We are making up.
Some of the money is.
In refunded to us by the.
In terms of better prices.
And some of the money.
He is coming to us be a depreciation one.
So I think that.
We are reasonably confident that the effect will not be too great.
And then we also have some pricing power.
And any assortments I think that.
Our teams could go in and probably Cherry pick.
In percent of the items.
And say that if it were a few dollars more probably no one would notice.
And so we may do that.
We haven't decided yet.
Matt This is Frank just real quickly.
The the respect it talks about a roughly two and half to 3 million to the back half of the year, it's fairly ratable. If it does get enacted in Q3 and Q4 based on our receipts.
It would put about tend to maybe maybe 15 basis points of pressure on IMU and it's not baked into into the current forecast because we're still working on our strategies to seeing how much of that we can we can offset.
Yeah.
[noise].
I've seen comes from Mark.
Schrager with Baird. Your line is open.
[laughter].
Good afternoon, Thanks for taking my question.
First Frank I think you said earlier that you are.
Retail segment comp in the third quarter is very comparable to where the.
Ending inventory comp was.
So I guess can we take from that that your quarter to date retail comps are.
In the plus.
5% range or maybe I misinterpreted that comment so if you could.
Clarify that.
It would be great and then just bigger picture on this.
Store is just with the continued divergence between the store and the digital comps how are you thinking about the store.
In terms of the size of stores the number of stores just wondering if there's any kind of bigger picture change to your thinking there as we move forward.
Mark Let me answer the second question first.
And.
Additive.
Change the stores, there really isn't a increasing divergence.
The spread between store comps and.
Direct comps.
Remained relatively constant over the last.
I would say two to three years.
Yeah.
Now.
Obviously, there is an compound effect.
And so you're you're correct in that end, but.
Don't want anybody come away with the idea that.
Stores continue to go down.
More and more and more on an overall basis. So what are we going to do about that.
We think that from a model perspective.
The stores.
Our still very profitable.
And and and should be and would be.
Even if the store comps were to be.
Negative along with.
What we see is low single digit drops in traffic.
For a number of years and were seeing an awful lot of concessions from our landlords.
More and more of our landlords are adopting but we want which is.
As a percentage of sales rent.
Although the ones that I guess are deemed to be AAA locations, we're having more problems there, but I think the landlords for the most part are.
Really coming around so.
Oh.
We don't have any.
Anxious about stores going away anytime soon.
Yes.
It is a challenge and the challenge for US really is around making sure. The passion is right when the fashions right we see the.
The store comps basically in line with the traffic comps, which I said tend to be about.
Negative low single digits.
Mark This is Frank in regards to the third quarter comp no. We're not at a five but we're not far off.
Where it certainly in that in that ballpark and as you can imagine in the first 20 days of a quarter. There is all different types of anomalies as to promotional activity here and there.
We're at where their anniversary events and didn't anniversary event.
Relatively speaking we are we are in the range of where our into ending inventory complex.
Your next question comes from John Morris.
With D.A. Davidson.
Your line is open.
Hi, Thanks also congratulations on the.
I guess everybody is making.
We heard from Trish I'm wondering if we can here along the same lines.
Hillary.
Characterization.
<unk> kind of same kind of structure.
As we got from Trust curious about the category.
And.
Aaron.
We're also.
Looking at trending.
Sort of like.
It's it's in the back half.
Sure similar to what I, just said a little bit ago casual has really been the main challenge in our business starting out in Q1 lasting through Q2.
And that's particularly isolated to the separate businesses I would say and as we turn the corner into two into Q3, we've seen market improvement there I expected to see that improvement in Q2, and we did have some delivery slides that.
Made that really happened later.
<unk> Q3.
And John this is Derek as to category performance.
In the second quarter.
Most of the shortfall.
Okay dense urban and Anthropologie were in the women's apparel business.
With Anthropologie the.
Accessory business was.
It's strong.
As was the home business and the beauty business was also positive so.
As the women's apparel business is showing much more signs of life and coming around.
It's very possible, we will have all categories clicking.
Your next.
<unk> stream comes from.
For shell with.
<unk> your line is.
<unk>.
Yes.
Markdown component of other gross margin decline in Q3 should that be fairly even anthro in urban or should one of those brands.
You know.
More materially.
Emotional.
Then the other and then if I if I'm looking at this right the newly expenses have ramped.
As through this year, including the $5 million for Q3 is 5 million.
I know where we should.
About.
<unk> run rate ending or is it possible to that.
Dollar amount could you could ramp even further as we enter Q4.
[laughter].
Hi, This is Frank.
I think the markdown rate risk for both urban and Anthropologie is fairly consistent for us for the third quarter.
As it relates.
Two.
Newly yes, we are planning on a roughly $5 million of SDMA expense for the third quarter.
I don't know that Weve finalized the fourth quarter just to add to this will be our first time of operating the business were days not even months into the subscription subscription business here and I can tell you that there are a ton of assumptions and theories and the model that we are anxious.
To start to get some actuals up against.
But but that 5 million relates primarily to the teams.
And marketing expenses around building on subscribers building brand awareness and supporting the ongoing operations of the business.
Thanks.
Your next.
She comes from Dana.
Telsey with.
Your line.
<unk>.
Good afternoon.
As you think about.
Sure.
The back half the year.
Whether it's with the newly or.
Any of the other initiatives that you had them.
How do you think of the yes.
In a ramp.
With the new guidance.
Now compared to the old guidance.
I mean is there anything that's.
Sure.
20.
Okay.
Hi, Dana this is Frank I'll take that question.
As it relates to the fourth quarter machine, a I would tell you that that growth rate will depend on exactly how our sales perform over the over the back half of the year. It is possible that Q4 could look similar to Q3, if sales trends were to be consistent with what we're talking about right now.
Similar to the third quarter, the fourth quarter will also be inflated by a couple of hundred basis points due to some of the investments that we've been speaking about this year. So obviously the newly business operation.
China investments as we begin to ramp for the all important single day of 11 11, the EU home office transition as well as that you distribution expansion. So like I said it could look similar to the third quarter. If sales continue to trend as they are right now and then would be elevated.
And some of that would be elevated a little bit relative to those that those initial initial investment that we've talked.
Yes.
Hi.
[laughter].
Your next question comes from Wes.
As Congress yet.
Yes.
<unk>.
Thanks, guys.
Good question.
On.
How do you view.
Maybe the retro trend.
Whether you feel that.
That is continuing and then maybe that's part of the casualization.
And the second one.
And your.
Loyalty program and your App.
Any.
New developments in terms of either.
Driving to use that data to help.
On your your design philosophy.
And your brand and.
You can.
You know like you can use.
<unk> data for two.
Maybe a little more surgical in your.
<unk> promotions.
Thanks.
Oh, Yes, hi, it's Trish in terms of the retro trend.
It's an interesting question and.
[noise].
One that I've read a lot about lately in the industry and the fact is it kind of depends how you define retro.
We have a number of brands one could consider retro in our business that.
Our certainly not as powerful as they were even you know season ago, but then we have other emerging brands. One could also consider retro so it's really not a blanket statement about retro softening or.
The issue with the retro trend.
It's it's you know some newer.
Are being replaced by some of the older.
Oh, yeah, it's not it's not a 100% accurate statement.
As you know call out a softening of the of a retro trend and in terms of.
The wealthy program Yeah, we're really excited about this three platform because it will enable us as I touched on.
Lately to do a lot of deep dive into the data and be as you say far more surgical so that will happen in the.
The current.
Q3.
Well Scott this is <expletive> talking I am the chief Retro officer [laughter] and on.
What I've observed over 50 years in this business is that.
Urban customer is always about 20 to 25 years.
Looking back and adopting the looks that are.
Were prevalent at that time, and so I think it's.
Yeah.
I way of saying that there are always into a retro trend, it's just that the retro trend changes.
Yes.
Your next.
She comes from Jeanine Stitcher with Jefferies. Your line is.
<unk>.
Hi, everyone ask couple of questions on newly understanding it's just a few days old at this point I think about building up the revenue base can you give us how you're thinking about maybe just some perspective on what the business should look like in terms of existing customers versus growing new to brand customers and then how much.
The spend could have been even existing customer growing her spend within the brand versus cannibalizing existing sales.
Yes, Hi, Janine this is Dave thanks for the question.
I would say that we're really excited to learn about everything that you just kind of listed out were.
Yes.
Looking at a launch that's about three weeks behind us.
Super excited about where we are with kind of the pickup rate and the traction that we're getting from customers and the feedback we're getting from customers.
The operations from just a purely from a standpoint of operating the business going smoothly.
So so operating and kind of ramping up is where we're looking at kind of focusing our energy now.
The idea of being able to get significantly more data from kind of this recurring.
Customer relationship that we have is something that we're looking forward to and really kind of excited about.
Gaining the types of insights that you spoke.
So those are all the types of insights we are going to be reading very closely.
Trying to look at what types of customers are embracing the program.
How they continue to engage with the program churn rates have a.
Evolve their behavior over time, and really then trying to parlay that into their relationship was with any of our current existing brands and how those relationships change if at all.
So still very early days, but those are the types of insights were excited to see that kind of.
You can do.
Your next.
As seen comes from Susan Anderson with B. Riley FBR.
Your line is open.
Hey, good evening.
Thanks for taking my question.
I was wondering if you could maybe talk about the varied performance in Europe between anthro.
You owe it looks like you all performed much better I know anthro still small there and then maybe also if you could comment on why you think Europe is performing better than North America for the oil brand is there anything different going on there. Thanks.
[noise].
Hi, It's Trish, yes, we're seeing some really great success in the urban brand in Europe .
We're seeing a lot of strength in women as I mentioned, you know, we're still feeling really good about it.
Action and.
Our openings the men's business for the third quarter has been particularly strong.
Yeah, and their their comps actually outpacing so we're feeling really optimistic and positive about our performance in Europe and the UK.
She comes from Rob.
And Meyer with MKM partners.
Your line is open.
Great. Thanks for taking my question.
I want to ask about the wholesale business, particularly at free people you know why do you think it was it was down and how how are you thinking about it going forward.
And from a longer term perspective.
How are you thinking about the role wholesale is going to play.
For a free people, specifically, just knowing that theres weakness in that channel.
You know between the department stores and specialty any change to your.
Long term vision for wholesale.
[noise].
Roxanne.
[noise].
First of all I want to tell you that the entire miss in the wholesale sales for Q2.
Came from lower shipments of the free people product.
Our department store partners.
And this these were the ones that were intended to go to the full price stores.
The digital on off price divisions of the department stores.
As well as our specialty stores in our pure play customers.
And our international customers all showed year over year gains for the second quarter.
The gains.
Obviously were not enough to overcome the lower department store purchases that I just mentioned.
And we anticipate that the wholesale business could see a similar pattern in Q3, but I want to be clear that.
The wholesale business is a very.
Strong and profitable business and we expect it to continue to grow.
[noise].
Our department store partners make up a very meaningful part of that.
And that account, but I do want to know that they account for less than 20% of free people revenues overall.
The department stores, obviously really like our brand.
In our fashion content, and we like them very much for the distribution rate.
And we expect to grow the business.
With both the department stores and specialty stores.
By expanding the offering and this would be especially in lines like.
Our movement and BTG lines and growing the number of doors.
Shop in shops that we operate.
<unk>.
And expanding our digital and international account base, So I think in in summation.
We're very.
Very encouraged.
<unk> wholesale where it could be and we are meeting with our partners to discuss.
More.
Beneficial relationship with them.
It goes both ways.
I will now turn the call back over to Mr., Richard Hayne for closing comments.
Well I. Thank you all very much for being on the call and I look forward to joining you in three months.
[noise] does.
You may notice.