Q3 2022 Urban Outfitters Inc Earnings Call

Good day, ladies and gentlemen, and welcome to the urban Outfitters, Inc. Third quarter fiscal 'twenty two earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance during the conference. Please press star.

Then zero on your Touchtone telephone as a reminder, this conference call is being recorded I would now like to introduce Anna Mccullough director of Investor Relations. Ms. Mccullough you may begin good afternoon, and welcome to the U R. B N third quarter fiscal 2022 conference call.

Earlier this afternoon, the company issued a press release outlining the financial and operating results.

And nine months ending October 31, 2021.

The following discussions may include forward looking statements in.

Today's commentary unless otherwise noted all comparisons will be made to the third quarter of fiscal 2020 referred to as double L y.

It's important to note at this time the global COVID-19 pandemic has had and continues to have a significant impact on European business in.

Given the uncertainty about the duration benefit virus impacts the global retail environment content.

Today's call could change materially at any time.

Accordingly, future results could differ materially from historical practices and this all.

Our current description estimates ingestion.

Additional information concerning factors that could cause actual results to you.

For materially from projected results is contained in the company's filings with the Securities and Exchange Commission.

On today's call, you'll hear from Frank Conforti, co President and COO, Melanie brain, Athlon, Chief Financial Officer, and Richard Hayne Chief Executive.

Well why not we will be pleased to address your questions for more detailed commentary on our quarterly performance and the text of today's conference call. Please refer to our Investor Relations website at Www Dot you are being dot com I will now turn the call over to Frank.

Thank you Ina and good afternoon, everyone.

Today, we announced another record breaking quarter.

Before discussing our results I first want to congratulate and thank all European team members.

The record results, we produced this quarter and this year are a tribute to your hard work perseverance and above all your ability to successfully navigate a rapidly changing landscape.

Thank you.

I will now give a high level view of our Q3 results followed by a more detailed analysis by brand.

Total company sales grew by 15% to a third quarter record of $1. One 3 billion driven by total retail segment comp sales increase of 14%.

Strong consumer demand across most categories plus skilled execution by our team drove nicely positive retail segment comps at all brands.

Total sales were driven by robust strength in full price selling which resulted in a record low European third quarter markdown rate.

This helped to generate outstanding merchandize and gross profit margin, despite inflationary pressures from freight raw materials and wages.

The combination of strong gross profits with well controlled SG&A expenses led to all three larger brands recording double digit operating profit margins.

Overall European produced a record third quarter results for total sales operating income and earnings per share.

Although we're certainly pleased with record results, we are confident that a myriad of supply chain problems throughout the quarter held back both top and bottom line results.

Lack of new receipts depressed sales, mostly in August and September.

As receipt flow improved somewhat in October we saw a commensurate improvement in our comp trends as well with October delivering the strongest comp quarter.

That trend has continued into the fourth quarter with quarter to date European retail segment comps eating their third quarter print.

As of today, we believe we have sufficient inventory on hand, and receipts coming in to support fourth quarter sales growth.

Now moving on to the detail by segment.

Starting with the retail segment.

Retail segment sales increased by 16%.

Comp store sales declined in the mid single digit range, but improved throughout the quarter with October coming in only slightly negative.

As mentioned lack of inventory in the first half of the quarter negatively impacted store sales.

Total store traffic versus L O Y with mid teens negative, but healthy AUR gain partially offset that deficit.

By region traffic in the southeast southwest and Midwest continued to outperform the major Metro markets in New York, California, and Canada.

In Europe traffic levels were stronger than the trend seen in North America.

The digital channel continued its rapid growth registering mid double digit sales gains in North America, and even larger gains in Europe.

Overall, the strong digital performance was driven by increased sessions and improved conversion and higher L. B.

Digital customer growth also remained strong with year to date total customers up 50% to L O Y and 3% L y.

Good thing for the wholesale segment.

Total wholesale sales decreased by 15% versus LOI.

Lower sales at free people wholesale partially offset by a decrease in wholesale sales.

As we've discussed previously free people wholesale has adjusted its customer mix cutting back some accounts to better align with our go forward strategy of concentrating on full price selling.

While this strategy reduced sales in the short term we believe it has benefited the brand overall and resulted in improved profitability in the quarter and less discounted product in the market.

I will now provide more details by brand.

Starting with the urban Outfitters brand.

The urban brand delivered a 7% retail segment comp versus LOI.

Double digit direct sales more than offset negative store comps.

The brand drove increased sales despite a significant decrease in promotional activity during the quarter.

Focus shifted from offering frequent dollar and percentage off promotion two years ago to highlighting everyday accessible opening price points in key categories.

This strategy resulted in nearly 400 basis points improvement in merchandise markdowns.

Healthy improvement in gross profit margin and low double digit operating profit margins.

In North America, Europe entered the quarter with tight inventory levels, especially in apparel accessories and shoes.

And thus was highly impacted by supply chain driven late receipts.

Late apparel inventory and fewer promotions led to a deceleration in overall comps from Q2, but fueled strong double digit regular price comps and a historically low markdown rate.

In Europe, the brand experienced fewer delays in inventory receipts better store traffic and delivered better comps than its north American counterparts.

Also along with a very low markdown rate.

Now turning to Anthropologie.

The brand delivered a 9% retail segment comp versus L O y.

Like the urban brand Anthropologie entered the quarter with type apparel inventory levels and like urban supply chain disruption stunted apparel sales.

Retail segment comp sales accelerated each month in the quarter fueled by strong double digit digital sales, which more than offset negative comp store sales.

Sales were driven solely by full price selling with regular price comps jumping by more than 50%.

This led to a reduction in markdown almost 300 basis points improvement in and then view and low teens operating profit margin.

The brand proactively planned to receive holiday home product early this year.

Elevated home inventory throughout the quarter.

As a result, the home category produced the strongest comps in Q3.

Improved inflows of apparel and accessories inventory at Anthropologie beginning in October have boosted sales trends in these categories.

Within the apparel category denim produced the highest comp growth fueled by the marketing campaign in early September.

Sales of occasion and party dresses surge towards the end of the quarter as new receipt finally arrived.

Momentum in that class has continued into November.

We believe anthropologie is well positioned to deliver exciting fourth quarter results as October double digit comps have accelerated in November with a customer shopping early for holiday trim decor home and apparel.

Now I will call your attention to the free people brand.

Once again, the free people team produced an extraordinary quarter with retail segment comps, achieving a staggering 55% gain versus LOI.

Every product category recorded at least a strong double digit regular price comp.

The total free people brand generated powerful triple digit direct comps.

Which easily offset the slightly negative store comps.

Store sales showed sequential improvement in the quarter with October store comps turning positive.

Free People's extremely low markdown rate for the quarter led to over 350 basis points improvement in merchandise markdowns.

Strong sales and gross margin growth all led to an impressive high teens retail segment operating profit rate for the brands.

The free people movement brand also delivered an outstanding quarter.

Retail segment sales grew by close to 300% versus LOI and they opened six additional standalone movement stores, bringing the total number to 15 at quarter's end.

November is off to a strong start and both free people and movement. So we believe both brand could produce stellar results again in Q4.

Lastly, I will speak to Nuomi.

As noted on our last call our subscription rental business has seen a positive shift in customer behavior as Covid Wayne and customers have returned to more normal behaviors.

The brand is also in a better inventory position.

Which helped fuel a subscriber count growth of 55% versus last quarter to 44000 active subscribers.

We believe we are on target to reach our goal of 50000 prescribers by year's end.

In October the newly brand launched newly threat, a new retail app.

The App offers users a peer to peer we sell platform, where sellers can sell products and receive either a cash payment or choose newly cash with a kicker that can be then redeemed for purchases at any you RBN brand.

We are still in the early inning of these rental and retail businesses.

And our and we are looking forward to continuing to grow newly customer base over the coming year.

I will now turn the call over to Melanie our CFO.

Thank you Frank.

Good afternoon, everyone.

Now I will discuss our thoughts on our fourth quarter financial performance.

As Frank noted we remain optimistic about the opportunity ahead of US of course, there are always challenges to overcome and risk to our plans. The impact of COVID-19 is still driving numerous disruptions and cost pressures in many areas of the business but.

Logistics sourcing set film at the overall labor market and product input costs remain constant area of focus right now and the foreseeable future. We have several strategies in place to try to mitigate the ever changing cost and operational challenges in these areas.

We believe the fourth quarter could continue to show healthy sales improvement versus fiscal year 'twenty. We believe our retail segment comp sales growth could land in the mid teens range, while the wholesale segment sales could decrease at a rate similar to the third quarter.

Together. This would result in total company sales growth in the mid teens range.

Based on current sales performance and forecast, we believe our gross profit margin for the fourth quarter could show approximately 100 basis points of improvement to fiscal year 'twenty much like our third quarter. This improvement could be largely driven by lower markdown rates as a result.

A strong consumer demand and solid product performance.

We believe favorable markdowns could offset lower initial markups and deleverage in delivery and logistics expenses.

Lower initial markups are likely to be due to increased freight and commodity price increases.

Leverage in delivery and logistics expenses are likely to be driven by the increased penetration of the digital channel as well as increased delivery and labor crisis. We would also anticipate store occupancy to leverage nicely due to the increased penetration of the digital channel.

Now moving on to SG&A.

Based on our current sales performance and plan, we believe SG&A for the fourth quarter could grow at a rate just below our sales growth rate while still leveraging.

Our planned growth in SG&A is primarily due to greater marketing and creative spend to support our robust digital channel for us.

Additionally, our SG&A growth is the result of planned incentive based compensation, which was largely not achieved in FY 'twenty.

Similar to the past few quarters, our team will manage SG&A relative to actual at that.

We are currently planning our effective tax rate to be approximately 24% for the quarter.

Capital expenditures for the fiscal year are planned at approximately $285 million.

And is primarily related to providing increased distribution and fulfillment capacity to support our growing digital business and secondarily to opening new stores.

We are planning on opening approximately 56, new stores and closing 21 stores for the entire fiscal year and new store opening number does not include franchise partner locations and international market.

Lastly, I want to add that the current supply chain challenges brought on by disruption in production and the global Transportation network have resulted in delayed inventory receipt flow.

As a result, we are continuing to strategically place earlier inventory positions in areas with lower fashion risks such as the home category.

We believe these factors may elevate our inventory position at the end of the fourth quarter versus two years ago.

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.

I am pleased to turn the call mastodon.

Thank you Mel and good afternoon, everyone.

All of the holiday season is upon us and we're optimistic about our prospects.

Tumor demand remains powerful despite the various sentiment reports that would suggest otherwise.

The customer is shopping early and often selecting both apparel and home products sweaters.

Sweaters dresses and denim seem to be the apparel items of choice this year well.

While candles trim and holiday decor top the homeless.

Fashion newness remains more important than price.

No promotional activity is normally higher in Q4, we are still planning for a favorable markdown rate compared to dump oil work.

As for inventory receipt flows have improved over the past four weeks. So we are comping, our inventory will be sufficient to meet our sales cool.

Total retail segment comps were currently running nicely ahead of Q3's rate. So in sum. We believe we are well positioned to capitalize on the fashion trends and strong customer demand and deliver another record quarter.

On our last conference call I focused on two important you are being growth initiatives.

The movement of new.

We believe both holds significant promise and as Frank relayed earlier, both are performing well.

I would like to discuss with Jordan.

Andrew Levy.

And so moving as a gift and home furnishings division of the Anthropologie group.

The brand selected this division to deliver outsized growth several years back and Theres not been disappointed.

In the current year anthro, leaving us on track to deliver almost $150 million in it.

Incremental sales versus double L y.

Our consumer research indicates that the average anthropologie customer spends more on home products. Each year then on apparel.

The size of the Anthro apparel business, we believe the anthro moving that as an opportunity to be at least a.

$1 billion business.

Capture that opportunity the brand over the past few years.

<unk> invested in infrastructure delivery capabilities systems marketing and people.

Clothing, additional design merchant and marketing talent.

Those investments have paid off nicely with total sales. This year are projected to advance by 44% against somewhat of a wash.

The brand's ambition is to add another $150 million in sales over the next three years.

This the brand plans to expand your assortment using a mix of internal design and artistic designer collaborations.

Concentrate on certain iconic product categories like home fragrance.

Accelerating new customer acquisition by investing more in both digital and traditional markets.

Rapid growth from initiatives like movement, newly and anthro moving in combination with core growth and our three brands should help you are being achieved its goal of driving double digit sales growth in the years ahead.

That concludes our prepared remarks I want to thank our brand creative and shared service leaders I also thank our 25000 associates worldwide for their hard work dedication and amazing creativity.

Thank our many partners around the world for their extra efforts in helping us overcome numerous supply chain disruptions and finally I. Thank our shareholders for their continued interest and support.

I will now turn the call over for your questions.

As a reminder, please limit your questions to one per caller.

Thank you if you have a question at this time. Please press star one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key please limit your questions to one per caller. Your first question will come from Lorraine Hutchinson with Bank of America. Please proceed with your question.

Well.

Thanks, Good afternoon. So.

So it sounds like you're confident that you'll have enough inventory for holiday, but as you think about spring I guess two pieces can you get enough home inventory in early and then second do you think you'll have to continue to air freight all of your apparel line for the spring.

Yeah.

Hi, Ray this is Frank I can take that one so home is a perfect example of a category, where we have extended our lead times intentionally.

So for this holiday period, and that is definitely benefiting the anthropologie and urban outfitters businesses and.

And we would anticipate continuing to do so.

For spring and summer next year to be able to support the business going forward.

And as to.

Airfreight, we're trying to use a little bit less air freight and that's why we're bringing things in.

Sooner.

And we think we will have success with that.

In Q2 more than in Q1.

Your next question will come from the line of Kimberly Greenberger with Morgan Stanley. Please proceed with your question.

Okay, great. Thank you. So much my question is on Anthropologie I just wanted to ask about anthro living I'm wondering if you could help us understand what's the difference between sort of the traditional home offering that we.

No and love Anthropologie for and have known it for over the last 20 years and and the new Anthro living initiative and if I could just follow up on Anthropologie apparel comments that you made during your prepared remarks it sounded like.

The driver for the negative apparel comps in anthro in third quarter was just simply lack of inventory I'm wondering if you can comment specifically on whether that category has seen an inflection either in October or November once you replenished. Thank so much.

Okay, Kimberly I'm going to ask Tricia.

That.

Is that sort of purview, yeah, hi.

Hi, Kimberly.

It relates to anthro living I think you know that.

But yes part of the business that's been established for many years continues to remain very very strong and I think what we're seeing a lot of processes and digital.

As well as now looking at the furniture and decor category building not outside the growth has come from I would say both the established categories handles as <expletive> mentioned.

But also you know across the board all of those categories are growing very nicely.

The gift and entertaining categories in stores and digital and then our furniture business.

We're seeing growth across all categories as it relates to apparel I think as Frank mentioned the early receipt challenges that we saw where were difficult in August and so I'd say mid September.

We our regular priced comps of plus 50%. We were very very pleased with at least thought that apparel business returning back to comp growth.

By the end of October.

Double digit comps and shouldn't November.

So as I think Frank mentioned that denim sweater footwear business is very very strong and in addition to that the dress business on occasion has been incredibly incredibly strong, particularly in the last three or four weeks. So it felt really good about our inventory position the strength of our full price business as well as now the customers return to shopping.

For multiple locations I mean, like we're in a good position to be able to deliver comps.

Your next question will come from the line of Adrian <unk> from Barclays. Please proceed with your question.

Good afternoon, and congratulations on the progress at all three brands, it's really great to see.

My question is on inventory I was wondering if you could give more color on the composition of that at the ended the quarter by brand and then buy apparel relative to home and how many weeks of supply are you pulling forward receipts. Thank you very much.

Yeah. Adrienne. This is this is Frank so I can tell you coming into the third quarter. We were certainly later than we would've liked to have been in almost all the parents apparel categories.

In all brands.

Both urban and Anthropologie were more significantly impacted by this because their inventory volumes were a little bit lower than where free people was running through the obviously the significantly strong shrunk three people comp and not to say that free people wasn't impacted as well.

This quarter the third quarter progressed, we certainly and got into October and wait and wait later in October we certainly started to see those apparel inventory balances improved and on a commensurate basis, we started to see our comps improve.

Both they're both the urban and Anthropologie businesses as well I think as always.

A little bit more what's what's doing really well right now, but we certainly feel like we're in a much better position now in the apparel categories than we were entering into entering into the third quarter and feel like we've got enough inventory to support the robust sales that we're currently you're currently seeing as it relates to the home categories.

I talked about it a little bit earlier.

We did it bring that category in earlier strategically.

Try and protect against against the longer lead times, there as well as the increased cost knowing that we had to and most of most of the classes within the home category have to use that for containers.

So that that category was in a better position throughout the throughout the quarter and remains in a healthy position for the fourth quarter or so.

So Adrian this is.

To emphasize.

What Frank was just talking about if you take an example like Anthropologie.

In the middle of the third quarter.

Their dress inventory was down.

Very good.

Mid double digits.

And obviously that impacted their sales.

As we receive more inventory.

At the end of the third.

Third quarter and have received even more now in November.

The dress inventory is back not quite the double L y but close.

And the comps are basically exploded and we are seeing.

<unk> been high double digits.

Comps in the dress category. So that's just one example.

What we went through in Q3.

Your next question will come from the line of Matthew Boss with J P. Morgan. Please proceed with your question.

Great. Thank you so <expletive>.

<expletive> could you elaborate on the underlying health of the consumer you had an interesting comment to kick off the call and then on quarter to date is the acceleration in same store sales across brands as we enter holiday do you see this as a potential pull forward of sales where do you think the sports shadows potential double dip holiday.

The consumer buys early and late just curious your overall thoughts.

Okay, Matthew I'll try on that.

If you take a look at some of the surveys that are out there like the the Michigan.

The consumer sentiment survey.

You'll get an impression that we were already in a recession.

But I have to tell you that's not what we're seeing at all.

He couldn't be more different our customers.

Seem to be upbeat and they're definitely in the mood to buy.

She seems to be trading up not down.

She wants to be.

In functions and with friends are doing the things that she used to do in a normal life.

She has a pool.

Positive mood.

And most of the consumers that we're dealing with the financial means.

To continue to purchase so I think it augurs well for our prospects during this holiday.

And.

Without some macro shock that I can't really see right now.

I think that mood should continue into the first quarter of next year.

And your second question was.

Oh quarter to date trends, okay, well I'll give you a rundown of that.

Our total retail segment comp for Q4 is currently above 20%.

Europe's a little stronger than North America, all brands are producing positive comps above the Q3 print.

Once again free people is mid double digit positive.

And.

Certainly movement is helping that.

That brand ads.

Anthropologie comps are in the high Twenty's Andy.

And the urban Outfitters brand is high single digit positive.

We look at it by channel.

Total digital comps are mid double digit positive while store comps are actually low single digit, but positive which is a change from what we've seen in the in the past.

I won't.

So everything looks very good right now, but I want to.

Just please remember we are early in the season.

And we don't know how much sale.

Sales volume has been pulled forward due.

Due to earlier Thanksgiving, but we're quite confident that some ads.

The heaviest volume days are ahead so.

The current non comp numbers could change.

But I have to say right now as we sit here today, we feel pretty good about our prospects for Q4 and are hoping that we'll be able to record another.

Our record results.

Your next question comes from the line of Paul Lajoie from Citi. Please proceed with your question.

Okay. Thanks, guys.

I'm curious as you think about the first half of 'twenty. Two how are you thinking about your unit buys by brand and I'm curious how your answer would be different supply chains were fully functioning.

Yeah.

Okay, Paul well one of the one of the differences.

We're positioning fabric.

Earlier.

And we're positioning fabrics too.

And we're buying more of the fabric.

Position it for multiple styles.

Multiple iterations of the same style. So in other words, we're going in and buying more fabric and getting better prices doing it earlier, so that we can achieve.

Non inflationary prices on the fabric.

And then the other couple of other things that we're doing.

Buying what we're trying to.

Buy more product of certain styles.

And discard a couple of the lower volume styles at the end of the tail.

So to do this we think we can achieve better I am news on those things that we buy higher volume up as a matter of fact, we know we can.

So.

How would it change if we didn't have the supply chain.

Well as you know over the last year.

Six seven years, we have consistently talked about.

Can keeping our inventory as lean as possible.

Testing and learning and going back and quickly and.

And.

Getting a buying more of certain items or things that are like the certain items that are selling.

Replenishing that way.

Now we don't have the choice of doing that because the supply chain is anywhere from four to six weeks longer than it was two years ago.

Yeah.

Your next question will come from the line of Mark All Swogger from Baird. Please proceed with your question.

Thank you for taking my question good afternoon.

Do you have an estimate for how much the inventory flow challenges might have weighed on sales growth this quarter.

Bigger picture.

It looks like sales are on track for maybe mid teens growth L. O Y. This year do you anticipate any pressure next year as we lap stimulus and that's pretty intense pent up demand or how are you thinking about the controllable levers with you know things like the free people movement anthro living versus maybe the broader macro set up into next year. Thank you.

Hey, Mark I can take the first part of your of your question relative to how much sales. We think will work I mean, obviously, we don't have the perfect answer there, but I think we can comfortably say that we probably lost a couple of hundred basis points.

Really honestly, probably all three brands.

But by some of the supply chain challenges.

We saw in the third quarter.

And it takes up a little bit of that consumer demand next year in his first of all.

Thanks, a lot Brian.

Crystal ball.

Next year.

I believe that the sales demand will continue.

I think it is slowly slowly decreasing but.

I don't I don't expect any big changes.

What could impact that.

Don't want to go into all the possibilities.

Possibilities of bad things happening.

And there are some out there inflation.

Inflation being one, but I think that.

For the first and second quarters I think we are fairly confident that the consumer is still going to be fairly powerful.

Your next question will come from the line of Dana Telsey from Telsey Advisory Group. Please proceed with your question.

Good afternoon, everyone.

<expletive> has in the last call you talked about taking price how do you see taking price is it expanded beyond the urban division and where do you see pricing going and then also anything in terms of how you're thinking about the real estate profile for next year in terms of openings and closings. Thank you art.

Dana.

We are gently.

I repeat the word gently.

Raising some prices across all.

All categories and all brands.

And that is one of our.

The answers to how are we going to operate in this inflationary environment.

We have a number of other.

The initiatives that we're doing and I'll, let Brian talk about them in a second.

But I will talk about the real estate first and the real estate.

We opened 56 stores this year and closed.

20, something.

Thank God for a net gain of 35.

Over half of those stores, where free people movement stores, so rather small but highly productive.

When we think about next year.

We are going to we are planning to open basically the same number of net new stores.

Yeah.

You know we are opportunistic and what we're finding is that there are still.

Pretty good lease opportunities out there to be had so.

That could could change.

As we move into the back half of the year.

Dana This is a this is frank you'd asked about price.

Obviously, that's one of the strategies and opportunities to offset inflation and then as we as we sit here today.

We look forward into <unk> and into next year, we certainly think inflation is going to continue.

Robbie in multiple forms right, whether it be freight raw materials and labor just to name a few.

I think price is one of our strategies as <expletive> talked about sort of gently raising prices.

Also we are conscious of wanting to protect that opening price point.

And all of US at all of our brands, we think that that's critically important in addition to that I think you'd mentioned earlier, we are going to extend our lead times in certain categories. This will enable us to increase our penetration transit excuse me of Ocean transit versus air, which obviously favorably impacts our freight costs were.

Going to increase the depth of product buys in certain areas. This.

This is in order to obtain more favorable pricing.

As <expletive> mentioned earlier, we are going to leverage earlier and deeper fabric positioning across more styles and deep revised Canadian more favorable favorable pricing there.

And then lastly, we're also going to further utilize our CAD system and we believe that that's going to be able to increase some cost efficiencies that fabric samples freight as well as our style adoption rate. So as it relates to the inflation and IMU pressures for next year. It really is a multipronged approach for us is not something where we just.

Looking to take price across the board and pass it all along to consumer we think there's a lot we can do internally.

Just to hopefully mitigate mitigate some of those pressures. Thank you.

Your next question will come from the line of Janet Kloppenburg from J J K Research. Please proceed with your question.

Hi, everyone and congratulations on the great progress.

Maybe just a couple.

Hi.

Nice scaling Nick I Wonder if you could talk a little bit about your satisfaction with the.

Improvement in the apparel business in Anthropologie, and perhaps where you are in that journey in terms of getting it to where you want it to be and of course, it's tricia.

Your voice is also important in that question and Frank if you could help us understand the impact on gross margin in the third quarter PCP.

The first half and how we should be thinking about the freight impact.

And not only in the fourth quarter, but.

What that looks like.

For the first half as well just so we could model.

Kind of thinking about EBIT margins for next year, maybe if you could give us a framework that would help thank you.

Well Janet.

As for apparel at Anthropologie.

I would say that they are doing an incredibly good job I don't want to make Tricia blush I know I know you can't see it.

On the line, but.

She's sitting right next to me so I don't you know.

I want to be conscious of our own I'm not too effusive, but things are very good at anthropologie and both the apparel and home areas.

And I would as I pointed out before.

I'd point out the dress business is just outstanding right now and.

And being driven not just by Oh occasion dresses, but by party dresses, which anthropologie really pattern.

Hum hasn't done a lot around until recently and I think the other thing.

I think it's very important in driving the <unk>.

Anthropologie apparel businesses the imagery that the team is now creating and in the.

All the marketing efforts that they are doing I think that that is having a very.

Significant effect on Anthropologie apparel sales, so I'm delighted with their sales.

I think that.

I'm not suggesting there are areas that they couldnt do better I mean, there's a retailer we always thank god.

Overall, I think that I would give tricia and I E.

For not just the effort, but the results. So I don't know what Tricia if you want to add anything to that she's very red right now that's definitely a blessing them now I think we're.

From where I'm coming from I think we're at the early stages.

Establishing some key categories as <expletive> mentioned.

We're really leaning in heavily into establishing that somewhere in the shoe business. We just launched shoes in 20 stores expense take out tomorrow stores overall.

And I think that the biggest opportunity Janet as I'm thinking about that the occasion piece of the business as well as the more casual side. So you can see that in the strength and the investments that we made in Q3 and denim and just the investments that we've made in some key categories overall.

I think that as absolutely imagery are allowing us to their team has done a fantastic job I agree and allowing us to fire you Anthropologie apparel customer and then in addition to and I think our existing more loyal customer spending more with us at the same time, so I think.

I believe we're at the early stages.

Continued growth in the Anthropologie apparel and I'm happy that the play team has performed and what we were able to deliver and this is Mac I'd like to add that.

Having a lot of fun and Anthropologie right now.

Foreseeing that the customer has really gravitated towards fashion.

And we're really opening the doors, whether it's with products or the imagery.

A lot more risks this year than we have in the past and she's loving. It. So all the teams are having a lot of fun. So it's been great.

And Janet for the second part of your question, our smelter thinking Hey.

That's M. Janet when you to answer your question about free and inbound freight specifically when we looked at our Q3 gross profit and how it compared to Q2.

A lot of the difference really is the increased our freight inbound freight.

When you compare Q3 and Q2, our markdown favorability with very similar versus prior year, but the headwinds that we experienced in Q3, where greater and those being specifically the inbound freight inflation, which lowered our MMU. In addition, our gross profit was also brought down by <unk>.

Kris delivery deleverage from higher carrier costs, and greater logistics costs.

Okay.

Your next question will come from the line of Marni Shapiro from the retail tracker. Please proceed with your question.

Hey, guys best of luck with holiday in case I forget at the end of the stores look beautiful now.

Thank you Martin just can you talk a little bit about two things one just on the delivery delays can you just clarify did you see it across apparel more than home and accessories, it felt that way and across all the brands equally.

And then.

If you guys could just talk a little bit about your third party fulfillment or marketplace I've seen you've layered in.

A bunch of new brands, and new things, even like fine jewelry under free people and Anthropologie site at much higher price points I'm curious, how you feel about that marketplace business and if it's something that you're looking to grow in 2022.

Okay, Marni I'll start with the delivery delays.

Probably the biggest one of the quarter.

It was actually it was in Q2, but it has affected Q3.

It was when the Vietnam was forced to close entirely.

For most of the month of July.

And so all the product that we had on order and by the way Vietnam is the third largest producing.

Producing country.

<unk> urban so.

All of that product was just put on hold for the better part of the month of July so all the product that would've come in in August.

Through mid May.

Late September.

Was about 30 days late so that was the.

The biggest problem and then of course, all the things that you know.

I'm sure you know very well from talking to a lot of people about.

Port delays and container problems.

That impacted us as well from all countries not not just Vietnam.

So I think that what we saw was a big.

A big dip in we were light in apparel to begin with as Frank said.

Going into the.

The quarter in August, but there was a big sort of Sag a dip in the middle of the quarter. When all of those factors that I just talked about took hold and then we have received so you know most of that now.

At the end of October and the beginning of November and we're seeing the benefit of that in the in the comp sales.

Oh I see.

Yeah.

I don't know of Frank's estimate of a couple of hundred basis points.

Of sales that we missed is correct.

I can tell you that I believe it's at least that if not more.

Yeah.

Our last question comes from the line of Simeon Siegel from BMO capital markets. Please proceed with your question.

Thanks, everyone and good afternoon, I'm curious if you have any thoughts on lower U P. Ts I think you mentioned that stores I get the traffic, but are you surprised at lower conversion U P. Ts I don't know if that was compared to 19 or 20, but is there any thoughts or color. There and then frankly I mean did you guys comment on what percent of <unk> inventory was in transit. Thanks, So much and happy hour.

Jason.

Thanks, Amy and same to same to you.

<unk> was very very small and I can tell you I think that's probably directly related to lower promotions.

Typically we see that whether it be online or in stores. When you lower promotions is that it typically has an impact on UPC.

So with the brand's hosting.

<unk> thousand 30, 50% Reg price comps in the in the quarter with significantly reduced promotions I think that was the largest driver there and really the primary driver there of any variance.

And then as far as the inventory in transit goes.

Our total inventory was up roughly 18% and nobody's going to correct me if I'm wrong I think comp inventory was actually up 7%. So it gives you a sense of are there was a pretty healthy portion of inventory still coming in and being in transit.

It came in.

Sorry about that about a quarter a quarter of our increased.

Thank you for the inventory.

Was sitting there in transit.

And that is then started to come in through our distribution centers now in the stores and be available for sale, but digital and we think also.

Probably due in part to the consumer shifting up earlier as well as us having more inventory more inventory to sell is partially a result of what we're seeing here in acceleration of sales for all three brands.

Okay, Yeah, and I like to go back Marni ask.

Question about marketplace.

So Sheila can you talk at all about that or Tricia sure I can I can start.

And then I feel like market place has been a key strategy for it.

The different brands free people and urban for different reasons.

It gives us a chance to expand our lifestyle offering them really test out opportunities.

And I think there's something to be built honest, we continue to go after our direct to.

Consumer business. So we think it is a very supportive arm of our growth the D. T C.

And for Anthropologie, I'll say, we've leveraged our marketplace historically, mostly for anthro living category.

But the team is working actively on developing our choice count expansion and apparel categories footwear, and the opportunity to be able to leverage market place to expand our assortment at fault on the apparel side. That's okay. Thank you.

And I believe that concludes.

The call I would certainly extend my warm wishes to all of you and hope you have a wonderful Thanksgiving. So thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

[music].

Uh huh.

[music].

[music].

[music].

Good day, ladies and gentlemen, and welcome to the urban Outfitters, Inc. Third quarter fiscal 'twenty two earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then two.

Zero on your Touchtone telephone.

This conference call is being recorded I would now like to introduce Anna Mccullough director of Investor Relations.

Mccullough you may begin good afternoon, and welcome to the U R beyond third quarter fiscal 2022 conference call.

Earlier this afternoon the company issued a press release outlining the financial and operating results for the three and nine month periods ending October 31, 2021.

The following discussions may include forward looking statements.

In todays commentary unless otherwise noted all comparisons will be matched the third quarter of fiscal 2020 referred to as double L y.

It's important to note at this time the global COVID-19 pandemic has had and continues to have a significant impact on European business.

Certainty about the duration I benefit biases impacts the global retail environment console discussed on today's call could change materially at any time.

Accordingly, future results could differ materially from historical practices and adult occurred discussion estimates.

Yeah.

Additional information concerning factors that could cause actual results.

Differ materially from projected results is contained in the company's filings with the securities and exchange.

On today's call, you'll hear from Frank and 40, co President and C. O L. Melanie Brian Echelon, Chief Financial Officer, and Richard Hayne Chief Executive.

Following that well be pleased to address your questions for more detailed commentary on our quarterly performance and the check in todays conference call. Please refer to our Investor Relations website at Www Dot you are being dot com I will now turn the call over to Scott.

Thank you Elena and good afternoon, everyone.

Today, we announced another record breaking quarter.

Before discussing the results I first want to congratulate and thank all European team members the.

The record results, we produced this quarter and this year, our attribute to your hard work perseverance and above all your ability to successfully navigate a rapidly changing landscape.

Thank you.

I will now give a high level view of our Q3 results followed by a more detailed analysis by Brett.

Total company sales grew by 15% to a third quarter record of 113 billion driven by auto retail segment comp sales increase of 14%.

Strong consumer demand across most categories.

The execution by our team drove nicely positive retail segment comps at all brands.

Total sales were driven by robust strength in full price selling which resulted in a record low European third quarter markdowns.

This helped to generate outstanding merchandize and gross profit margin, despite inflationary pressures from freight raw materials and we.

The combination of strong gross profit with well controlled SG&A expenses led to all three larger brands recorded double digit operating profit margins.

Overall European produced a record third quarter results our total sales.

Operating income and earnings per share.

Although we're certainly pleased with record results, we are confident that a myriad of supply chain problems throughout the quarter held back both top and bottom line results.

Lack of new receipts depressed sales most in August and September.

As receipt will improve somewhat in October we saw a commensurate improvement in our <unk>.

Comp trends as well with October delivering the strongest comp quarter.

That trend has continued into the fourth quarter with quarter to date European retail segment comps there.

Our third quarter press.

As of today, we believe we have sufficient inventory on hand, and receipts coming in to support fourth quarter sales growth.

Now moving onto the detail by segment.

Starting with the retail segment.

Retail segment sales increased by 16%.

Comp store sales declined in the mid single digit range, but improved throughout the quarter with October coming in slightly negative.

As mentioned lack of inventory in the first half of the quarter negatively impacted store sales.

Total store traffic versus LOI with mid teens negative, but healthy AUR gain partially offset des.

By region traffic in the southeast southwest and Midwest continued to outperform the major Metro markets in New York, California, and Canada.

In Europe traffic levels were stronger than the trend seen in North America.

The digital channel continued its rapid growth registering mid double digit sales gains in North America, and even larger gains in Europe.

Overall, the strong digital performance was driven by increased sessions and improved conversion and higher <unk>.

Digital customer growth also remained strong with year to date total customers up 50% to LOI and 3%.

Shifting to the wholesale segment.

Wholesale sales decreased by 15% versus LOI.

Lower sales at free people wholesale partially offset by a decrease in wholesale sales.

As we've discussed previously free people wholesale has adjusted its customer mix cutting back some accounts to better align with our go forward strategy of concentrating on full price selling.

While the strategy reduced sales in the short term we believe it has benefited the brand overall and resulted in improved profitability in the quarter and less discounted product in the market.

I will now provide more detail by brand.

Starting with the urban Outfitters brand.

The urban brand delivered a 7% retail segment comp versus LOI.

Double digit direct sales more than offset negative store comps.

The brand drove increased sales despite a significant decrease in promotional activity during the quarter.

Focus shifted from offering frequent dollar and percentage off promotion two years ago to highlighting everyday accessible opening price points in key categories.

This strategy resulted in nearly 400 basis point improvement in merchandise markdowns healthy improvement in gross profit margin and low double digit operating profit margins.

In North America, Europe entered the quarter with tight inventory levels, especially in apparel accessories and shoes.

And thus was highly impacted by supply chain driven late receipts.

Late apparel inventory and fewer promotions led to a deceleration in overall comp from Q2, but fueled strong double digit regular price comps and a historically low markdown rate.

In Europe, the brand experienced fewer delays in inventory receipts better store traffic and delivered better comp than its north American counterparts.

Also along with a very low markdown risk.

Now turning to Anthropologie.

The brand delivered a 9% retail segment comp versus LOI.

The urban brand Anthropologie entered the quarter with tight apparel inventory levels and like urban supply chain disruption stunted apparel sales.

Retail segment comp sales accelerated each month in the quarter fueled by strong double digit digital sales, which more than offset negative comp store sales.

Sales were driven solely by full price selling with regular price comps jumping by more than 50%.

This led to a reduction in markdowns, almost 300 basis points improvement MMU and low teens operating profit margin.

The brand proactively planned to receive holiday home product early this year, leading to elevated home inventory throughout the quarter.

As a result, the home category produced the strongest comps in Q3.

Improved inflows of apparel and accessories inventory at Anthropologie beginning in October at boosted sales trends in these categories.

Within the apparel category denim produced the highest comp growth fueled by the <unk> marketing campaign in early September.

Sales of occasion and party dresses surge towards the end of the quarter as new receipt finally arrived.

Momentum in that class has continued into November.

We believe anthropologie is well positioned to deliver exciting fourth quarter results. As October is double digit comps have accelerated in November with a customer shopping early for holiday trends the core home and apparel.

Now I will call your attention to the free people brand.

Once again, the free people team produced an extraordinary quarter with retail segment comps, achieving a staggering 55% gain versus LOI.

Every product category recorded at least a strong double digit regular price comp.

The total free people brand generated powerful triple digit direct comps.

Which easily offset the slightly negative store comps.

Store sales showed sequential improvement in the quarter with October store comps turning positive.

Free people extremely low markdown rate for the quarter led to over 350 basis points improvement in merchandise markdowns.

Strong sales and gross margin growth all led to an impressive high teens retail segment operating profit rate for the brands.

The free people movement brand also delivered an outstanding quarter.

November is off to a strong start at both free people and movement. So we believe both brands could produce stellar results again in Q4.

Lastly, I will speak in Italy.

As noted on our last call our subscription rental business has seen a positive shift in customer behavior as Covid Wayne and customers have returned to more normal behaviors.

The brand is also in a better inventory position.

Which helped fuel a subscriber count growth of 55% versus last quarter to 44000 active subscribers.

We believe we are on target to reach our goal of 50000 prescribers by year's end.

In October the newly brand launched newly threats and new retail App.

The App offers users a peer to peer resale platform, where sellers can sell products and receive either a cash payment or choose newly cash with a kicker that can be redeemed for purchases at any <unk> brand.

We are still in the early inning of these rental and retail businesses.

And our and we are looking forward to continuing to grow new elite customer base over the coming year.

I will now turn the call over to Melanie our CFO.

Thank you Frank.

Good afternoon, everyone.

Now I will discuss our thoughts on our fourth quarter financial performance.

As Frank noted we remain optimistic about the opportunity ahead of US of course, there are always challenges to overcome and risk to our plans. The impact of COVID-19 is still driving numerous disruptions and cost pressures in many areas of the business but.

Logistics sourcing fulfillment, the overall labor market and product.

Cost remained constant area of focus right now and the foreseeable future. We have several strategies in place to try to mitigate the ever changing cost and operational challenges in these areas.

We believe the fourth quarter could continue to show healthy sales improvement versus fiscal year 'twenty. We believe our retail segment comp sales growth could land in the mid teens range, while the wholesale segment sales could decrease at a rate similar to the third quarter.

Together. This would result in total company sales growth in the mid teens range.

Based on our current sales performance and forecast, we believe our gross profit margin for the fourth quarter could show approximately 100 basis points of improvement to fiscal year 'twenty much like our third quarter. This improvement could be largely driven by lower markdown rates as a result.

A strong consumer demand and solid product performance, we believe favorable markdowns could offset lower initial markups and deleverage in delivery and logistics expenses.

Lower initial markups are likely to be due to increased freight and commodity price increases.

Deleverage in delivery and logistics expenses are likely to be driven by the increased penetration of the digital channel as well as increased delivery and labor costs. We would also anticipate store occupancy to leverage nicely due to the increased penetration of the digital channel.

Now moving on to SG&A based on our current sales performance and plan, we believe SG&A for the fourth quarter could grow at a rate just below our sales growth rate while still leveraging.

Our planned growth in SG&A is primarily due to greater marketing and creative spend to support our robust digital channel growth.

Additionally, our SG&A growth as a result of planned incentive based compensation, which was largely not achieved in FY 'twenty.

Similar to the past few quarters, our team will manage SG&A relative to actual fab.

We are currently planning our effective tax rate to be approximately 24% for the quarter.

Capital expenditures for the fiscal year are planned at approximately $285 million.

The spend is primarily related to providing increased distribution and fulfillment capacity to support our growing digital business and secondarily to opening new stores.

We are planning on opening approximately 56, new stores and closing 21 stores for the entire fiscal year, our new store opening number does not include franchise partner locations and international market.

Lastly, I want to add that the current supply chain challenges brought on by disruption in production and the global Transportation network have resulted in delayed inventory receipt flow.

As a result, we are continuing to strategically place earlier inventory positions in areas with lower fashion risks such as the home category.

We believe these factors may elevate our inventory position at the end of the fourth quarter versus two years ago as.

As a reminder, the four billing does not constitute a forecast but is simply a reflection of our current views. The company disclaims any obligation to update forward looking statements.

I am pleased to turn the call nasty.

Thank you Mel and good afternoon, everyone.

All of the holiday season is upon us and we're optimistic about our prospects.

Tumor demand remains powerful despite the various sentiment reports that would suggest otherwise.

The customer is shopping early and often selecting both apparel and home products sweaters.

Sweaters dresses and denim seem to be the apparel items of choice this year.

While candles trends in holiday decor top the homeless.

Fashion newness remains more important than price and promotional activity is normally higher in Q4, we are still planning for a favorable markdown rate compared to double oil work.

As for inventory receipt flows have improved over the past four weeks. So we are comping, our inventory will be sufficient to meet our sales goals.

Total retail segment comps are currently running nicely ahead of Q3's rate. So in sum. We believe we are well positioned to capitalize on the fashion trends and a strong culture of demand and deliver another record quarter.

On our last conference call I focused on two important European growth initiatives.

The movement in <unk>.

We believe both hold significant promise and as Frank relayed earlier, both are performing well.

I would like to discuss return initiatives.

<unk> living.

<unk>, giving us a gift and home furnishings division of the Anthropologie group.

The brand selected this division to deliver outsized growth several years back and has not been disappointed.

In the current year Antero, leaving us on track to deliver almost $150 million in it.

Incremental sales versus double L y.

Our consumer research indicates that the average anthropologie customer spends more on home products. Each year then on apparel.

Even the size of the afternoons apparel business, we believe <unk> has an opportunity to be at least a.

$1 billion movement.

Capture that opportunity the brand over the past few years.

<unk> invested in infrastructure delivery capabilities systems, marketing and people, including additional design merchant and marketing talent.

Those investments have paid off nicely with total sales. This year are projected to advance by 44% against homeowner loss.

The brand's ambition is to add another $150 million in sales over the next three years.

To achieve this the brand plans to expand our assortment using a mix of internal design and artistic designer collaborations.

Concentrate on certain iconic product categories like home fragrance and accelerate new customer acquisition by investing more in both digital and traditional markets.

Rapid growth from initiatives like movement, newly and Anthro movies in combination with core growth at our three brands should help you RBN achieved its goal of driving double digit sales growth in the years ahead.

That concludes our prepared remarks I want to thank our brand creative and shared service leaders I also thank our 25000 associates worldwide for their hard work dedication and amazing creativity.

Thank our many partners around the world for their extra efforts in helping us overcome numerous supply chain disruptions and finally I. Thank our shareholders for their continued interest and support.

I'll now turn the call over for your questions.

As a reminder, please limit your questions to one per caller.

Thank you if you have a question at this time. Please press star one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key please limit your questions to one per caller. Your first question will come from Lorraine Hutchinson with Bank of America. Please proceed with your question.

Thanks, Good afternoon.

So it sounds like you're confident that you'll have enough inventory for holiday, but as you think about spring I guess two pieces can you get enough home inventory in early and then second do you think youll have to continue to air freight all of your apparel line for the spring.

Hi, Ray this is Frank I can take that one so home is a perfect example of a category, where we have extended our lead times intentionally.

So for this holiday period, and that is definitely benefiting the anthropologie and urban outfitters businesses.

We would anticipate continuing to do so for spring and summer of next year to be able to support the business going forward.

And as to.

Airfreight, we're trying to use a little bit less air freight and that's why we're bringing things in.

Sooner.

We think we will have successfully.

In Q2 more than in Q1.

Your next question will come from the line of Kimberly Greenberger with Morgan Stanley. Please proceed with your question.

Okay, great. Thank you. So much my question is on Anthropologie.

I just wanted to ask about anthro living dip.

Yep.

I'm wondering if you could help us understand what's the difference between sort of the traditional home offering that we know.

No one loves Anthropologie for and have known it for over the last 20 years and the new Anthro living initiative and if I could just follow up on <unk>.

The Anthropologie apparel comments that you made during your prepared remarks, it sounded like the.

The driver for the negative apparel comps in anthro in third quarter with just simply lack of inventory I'm wondering if you can comment specifically on whether that category has seen an inflection either in October or November once you replenished. Thanks, so much.

Kimberly I am going to ask Tricia.

Thats.

Since that's our per view, yeah, hi.

Hi, Kimberly.

It relates had asked for a living I think.

Yes.

Yes part of the business that's been established for many years continues to remain very very strong and I think where we're seeing a lot of our efforts in digital.

As well as now looking at the furniture and decor category building that out so the growth has come from I would say both the established categories candles as <expletive> mentioned.

But also across the board all of those categories are growing very nicely.

The gift and entertaining categories in stores and digital and then our furniture business.

We're seeing growth across all categories.

As it relates to apparel I think as Frank mentioned the early.

The challenges that we saw were difficult in August and so I'd say mid September.

We our regular price comps of plus 50% we were very very pleased with and we saw that apparel business returning back to comp growth.

By the end of October.

Double digit comps and till November.

So as I think Frank mentioned that denim sweater footwear business is very very strong and in addition to that address business on occasion has been incredibly incredibly strong, particularly in the last three or four weeks. So we feel really good about our inventory position the strength of our full price business as well as now the customers return to shop.

From multiple locations and reflect a good position to be able to deliver comps.

Your next question will come from the line of Adrian <unk> from Barclays. Please proceed with your question.

Good afternoon, and congratulations on the progress at all three brands, it's really great to see.

My question is on inventory.

I was wondering if you can give more color on the composition of that at the ended the quarter by brand and then buy apparel relative to home and how many weeks of supply are you pulling forward receipts. Thank you very much.

Okay.

Yeah. Adrienne. This is this is Frank so I can tell you coming into the third quarter. We were certainly lighter than we would've liked to have been in almost all the parent apparel categories.

In all brands.

I think both urban and Anthropologie were more significantly impacted by this because their inventory volumes were a little bit lower than where free people with running due to obviously the significantly strong shrunk three people comp and not to say that three people wasn't impacted as well.

This quarter the third quarter progressed, we certainly and got into October late in late later in October we certainly started to see those apparel inventory balances improved and on a commensurate basis, we started to see our comps improve.

Both at both the urban and Anthropologie businesses as well.

As always we'd like a little bit more of what's what's doing really well right now, but we certainly feel like we're in a much better position now in the apparel categories than we were entering into entering into the third quarter and feel like we've got enough inventory to support the robust sales that we're currently currently seeing as it relates to.

The home category as I talked about it a little bit earlier, we did bring back category earlier strategically to try and protect against against the longer lead times, there as well as the increased cost knowing that we had to and most of most of the classes within the home category has to use vessel containers.

So that that category was in a better position throughout the throughout the quarter and remains in a healthy position for the fourth quarter as well.

So Adrian this is.

No.

Emphasize.

But frankly, just talking about detecting example, like Anthropologie.

In the middle of the third quarter there.

<unk> inventory was down.

Can vary.

Mid double digits.

As we've received more inventory.

At the end of the third quarter and have received even more now in November.

Congrats inventories back not quite the double worldwide with close.

And the comps basically exploded and we are seeing.

<unk> been high double digit.

Comps in the dress category. So Thats just one example of what we went through in Q3.

Your next question will come from the line of Matthew Boss with Jpmorgan. Please proceed with your question.

Great. Thanks <expletive>.

Nick could you elaborate on the underlying health of the consumer you had an interesting comment to kick off the call and then on quarter to date. This acceleration in same store sales across brands as we enter holiday do you see this as a potential pull forward of sales or do you think this foreshadows a potential double dip holiday.

The consumer buys early and late just curious your overall thoughts.

Okay, Matthew I'll try on that.

If you take a look at some of the.

Surveys that are out there like the the Michigan.

The consumer sentiment survey.

You get an impression that we're already in a recession.

But I have to tell you that's not what we're seeing at all.

It couldnt be more different to our customers.

Seem to be upbeat and they are definitely in a mood to buy.

She seems to be trading up not down.

She wants to be.

And functions and with friends.

Doing the things that she used to do in a normal life.

I think the consumer is strong.

And a positive mood.

Most of the consumers that we're dealing with the financial means.

To continue to purchase so we can augurs well for our prospects during this holiday.

And with that some macro shock that I can't really see right now.

I think that mood should continue into the first quarter of next year.

And your second question was.

So quarter to date trends, okay, well I'll give you a rundown of that.

Our total retail segment comp for Q4 is currently above 20%.

Europe's a little stronger than North America.

All brands are producing positive comps above their Q3 print.

Once again free people is mid double digit positive and.

<unk> movement is helping that.

That brand.

Anthropologie comps are in the high Twenty's.

And the urban Outfitters brand is high single digit positive.

We look at it by channel.

Total digital comps are mid double digit positive while store comps are actually low single digit, but positive which is a change from what we've seen in the past.

I will.

So everything looks very good right now, but one of them.

Please remember we are early in the season and.

And we don't know how much.

Sales volume has been pulled forward due.

Due to earlier Thanksgiving, but we're quite confident that some ads.

The heaviest volume days are ahead so.

The current non comp numbers could change.

But I have to say right now as we sit here today, we feel pretty good about our prospects for Q4 and are hoping that we'll be able to record another.

Our record results.

Your next question comes from the line of Paul Lajoie from Citi. Please proceed with your question.

Okay. Thanks, guys.

So as you think about the first half of 'twenty. Two how are you thinking about your unit buys by brand and I am curious how your answer would be different ethical supply chain for a fully functioning.

Okay Paul.

One of the one of the differences.

We're positioning fabric.

Earlier, and we're positioning fabrics too.

And we're buying more of the fabric.

<unk> for multiple styles and multiple iterations of the same style. So in other words, we're going in and buying more fabric and getting better prices doing it earlier, so that we can achieve.

Non inflationary prices on the fabric.

And then the other couple of other things that we're doing.

Buying what we're trying to.

Buy more product of certain styles.

This car is a couple of the lower volume styles at the end of the tail.

So to do this we think we can achieve better news on those things that we buy higher volume of this as a matter of fact, we know we can.

No.

How would it change if we didn't have the supply chain.

Well as you know over the last <unk>.

Six seven years, we have consistently talked about.

Keeping our inventory as lean as possible.

Testing and learning and going back in quickly.

And.

Getting a buying more of certain items or things that are like the certain items that are selling.

And replenishing that way.

Right now we don't have the choice of doing that because the supply chain is anywhere from four to six weeks longer than it was two years ago.

Yeah.

Your next question will come from the line of Marc Alf Swogger from Baird. Please proceed with your question.

Thank you for taking my question good afternoon.

Do you have an estimate for how much the inventory flow challenges might have weighed on sales growth this quarter.

Bigger picture.

It looks like sales are on track for maybe mid teens growth.

This year do you anticipate any pressure next year as we lap stimulus and that's pretty intense pent up demand or how are you thinking about the controllable levers with things like the free people movement anthro living versus maybe the broader macro setup into next year. Thank you.

Hey, Mark I can take the first part of your question relative to how much sales. We think we work I mean, obviously, we don't have a.

Perfect answer there, but I think we can comfortably say that we probably lost a couple of hundred basis points.

Really honestly, probably all three brands.

Bye bye by some of the supply chain challenges.

We saw in the third quarter.

It ticked up a little bit of that consumer demand next year in his first of all.

Thanks, a lot Brian.

Crystal ball next.

Next year.

I believe that the sales demand will continue.

I think it is slowly slowly decreasing budd.

I don't I don't expect any big changes.

What could impact that.

Don't want to go into all the <unk>.

Possibilities of bad things happening.

And there are some there inflation being one but I think that.

For the first and second quarters, I think we are fairly confident.

The consumer is still going to be fairly powerful.

Your next question will come from the line of Dana Telsey from Telsey Advisory Group. Please proceed with your question.

Good afternoon, everyone.

<expletive> has in the last call you talked about taking price how do you see taking price is it expanded beyond the urban division and where.

Where do you see pricing going and then also anything in terms of how youre thinking about the real estate profile for next year in terms of openings and closings. Thank you.

Dana.

We are gently.

Repeat the word gently.

Raising some prices across.

All categories and all brands.

And with that is one of our <unk>.

The answers to how are we going to operate in this inflationary environment.

We have a number of other.

The initiatives that we're doing and I'll, let Frank talk about them in a second.

But I will talk about the real estate first and the real estate.

We opened 56 stores this year and closed.

20 <unk>.

For a net gain of 35.

Over half of those stores were free people movement stores, so rather small but highly productive.

When we think about next year.

We are going to play.

Planning to open.

Likely the same number of net new stores.

Budd.

We are opportunistic and what we're finding is that there are still.

Pretty good lease opportunities out there to be had so.

That could could change.

As we move into the back half of the year.

And Dana this is a this is Brian you had asked about price obviously is one of the.

Strategies and opportunities to offset inflation I think as we as we sit here today.

And look forward into into next year, we certainly think in patient is going to continue.

Probably in multiple forms right, whether it be freight raw materials and labor just to name a few.

I think price is one of our strategies.

Talk about sort of gently raising prices.

Also we are conscious of wanting to protect that opening price point.

And all of our at all of our brands. We think that that's critically important in addition to that I think you'd mentioned earlier, we are going to extend our lead times in certain categories. This will enable us to increase our penetration transit excuse me of Ocean transit versus air, which obviously favorably impacts our freight costs.

Going to increase the depth of product buys in certain areas.

This is in order to obtain more favorable pricing.

As <expletive> mentioned earlier, we are going to leverage earlier and deeper fabric positioning across more styles and b provides enabling more favorable favorable pricing there.

And then lastly, we're also going to further utilize our CAD system and we believe that that's going to be able to increase and cost efficiencies and fabric samples freight as well as our solid adoption rate so as it relates to the inflation in IMU.

New pressures for next year. It really is a multipronged approach for US is not something where we just are looking to take price across the board and pass it all along with consumer we think there's a lot we can do internally.

Hopefully mitigate mitigate some of those pressures. Thank you.

Your next question will come from the line of Janet Kloppenburg from J J K Research. Please proceed with your question.

Hi, everyone and congratulations on the great progress.

Maybe just a couple of high high high.

Last time you guys.

Wondering if you could talk a little bit about your satisfaction with the.

The improvement in the apparel business in Anthropologie, and perhaps where you are in that journey in terms of getting it to where you want it to be and of course.

Tricia.

Your voice is also important in that question and Frank if you could help us understand the impact on gross margin in the third quarter PCP.

The first half and how we should be thinking about the freight impact.

And not only in the fourth quarter, but.

What that looks like.

For the first half as well just so we could model.

Thank you our EBIT margins for next year, maybe if you could give us a framework that would help thank you.

Well Janet.

As for apparel at Anthropologie.

I would say that they are doing an incredibly good job I don't want to make Tricia blush I know I know you can't see it.

On the line, but.

She is sitting right next to me so I don't.

I want to be cautious with our own I'm not too effusive, but.

Things are very good at Anthropologie, and both the apparel and home areas.

And I would as I pointed out before.

<unk> pointed out the dress business is just outstanding right now and being driven not just by occasion dresses, but by party dresses, which anthropologie really pattern.

Hasn't done a lot around until recently and I think the other thing.

I think is very important in driving the.

Anthropologie apparel business is the inventory that the team is now creating.

And the.

All of the marketing efforts that they are doing I think that that is having a very.

Significant effect on Anthropologie apparel sales.

Im delighted with their sales.

I think that.

I'm not suggesting there are areas that they couldnt do better I mean, as a retailer we always think that.

But overall I think.

Gibbs Tricia.

For not just the effort, but the results.

So I don't know what Tricia, if you want to add anything to that she's very red right now.

L a blessing.

I think we're.

Where I'm coming from I think we're at the early stages of establishing some key categories as <expletive> mentioned.

We're really leaning in heavily into establishing that somewhere on the shoes that we just launched shoes in 20 stores and take that tomorrow stores overall.

I think that the biggest opportunity Janet is thinking about the vacation piece of the business as well as some of our cash flow side.

Can see that in the strength and the investments that we made in Q3 and denim and just the investments that we've made in some key categories overall.

I think the assets of the imagery are allowing us the team has done a fantastic job I agree and allowing us to hire new anthropologie apparel customer and <unk>.

<unk> two.

I think our existing more loyal customer spending more with us at the same time, so I think.

I believe we're at the early stages of continued growth in the Anthropologie apparel and happy with the way. The team has performed and what we were able to deliver and this is Mac I'd like to add that.

We're having a lot of fun and Anthropologie right now.

This leadership foreseeing that the customer has really gravitated towards fashion.

And we're really opening the doors, whether it's with products or the imagery and we've taken a lot more risks this year than we have in the past and she's loving it.

All the teams are having a lot of fun. So it's been great.

Janet for the second part of your question our smelter. Thank you. Thanks, Dan.

Janet when you to answer your question about free.

Inbound freight specifically when we looked at our Q3 gross profit and how compared to Q2.

A lot of the difference really is the increased freight inbound freight so when you compare Q3 and Q2, our markdown favorability with very similar versus prior year, but the headwinds that we experienced in Q3.

Were greater and those being specifically the inbound freight inflation, which lowered our MMU. In addition, our gross profit was also brought down by increased delivery deleverage from higher carrier cost and greater logistics costs.

Okay.

Your next question will come from the line of Marni Shapiro from the retail tracker. Please proceed with your question.

Hey, guys best of luck with holiday in case I forget at the end of the stores look beautiful now.

Martin just can you talk a little bit about two things one just on the delivery delays can you just.

<unk> did you see it across apparel more than home and accessories, it felt that way and across all the brands equally.

And then if.

If you guys could just talk a little bit about your third party fulfillment or marketplace I've seen you've layered in.

A bunch of new brands, and new things, even like fine jewelry under free people and Anthropologie site at much higher price points I'm curious, how you feel about that marketplace business and if it's something that you're looking to grow in 2022.

Okay, Marni I'll start with the delivery delays.

Probably the biggest one of the quarter.

It was actually it was in Q2, but it has affected Q3.

Was when Vietnam was forced to close entirely.

For most of the month of July.

And so all of the product that we had on order and by the way Vietnam is the third largest producing.

Producing country.

<unk> urban so.

All of that product was just put on hold for the better part of the month of July So all the product that would have come in in August.

Through mid May.

<unk> September.

Was about 30 days late so that was the.

The biggest problem and then of course, all the things that.

I'm sure you know very well from talking to a lot of people about.

Port delays and container problems.

That impacted us as well from all countries not just Vietnam.

So I think that what we saw was.

Big dip in.

We were light in apparel to begin with as Frank said.

Going into the <unk>.

The quarter in August, but there was a big sort of Sag a dip in the middle of the quarter. When all of those factors that I just talked about took hold and then we have received so most of that now.

At the end of October and the beginning of November and we are seeing the benefit of that in the in the comp sales.

Great.

Sure.

I don't know Frank's estimate of a couple of hundred basis points.

Of sales that we missed is correct, but I can tell you that I believe it's at least that if not more.

Yeah.

Our last question comes from the line of Simeon Siegel from BMO capital markets. Please proceed with your question.

Thanks, everyone and good afternoon, I'm curious if you have any thoughts on lower <unk> I think you mentioned that stores I get the traffic pretty surprised at lower conversion <unk> I don't know if that was compared to 19 or 20, but is there any thoughts or color. There and then frankly I mean did you guys comment on what percent of <unk> inventory was in transit. Thanks, So much and happy hour.

Thanks.

Thanks, Damien and same to same to you.

<unk> was very very small.

And I can tell you I think thats, probably directly related to lower promotions.

Typically we see that whether it be online or in stores. When you lower promotions that it typically has a impact on UPC.

So with the brand's hosting.

<unk> thousand 30, 50% Reg price comps in the quarter with significantly reduced promotions I think that was the largest driver there and really the primary driver there of any variance.

And then as far as the inventory in transit goes I think our total inventory was up roughly 18% and nobody's going to correct me if I'm wrong, I think capex, where it was actually up 7%. So it gives you a sense.

And there was a pretty healthy portion of inventory still coming in and being in transit.

It came in.

Sorry about that about a quarter a quarter of our increased inventory. Thank you for the inventory.

Was sitting there in transit and that is then started to come in through our distribution centers now in the stores and be available.

For for sale for digital and we think also is.

Probably due in part to the consumer shifting up earlier as well as us having more inventory more inventory to sell is partially a result of what we're seeing here in acceleration of sales for all three brands.

Okay, Yeah, and I wanted to go back Marni ask.

Question about marketplace.

So Sheila can you talk at all about that or Tricia sure I can I can start.

And then I feel like marketplace has been a key strategy for us.

The different brands free people and urban for different reasons.

It gives us a chance to expand our lifestyle offerings really test out opportunities.

And I think there's something to be built on as we continue to go after our direct to consumer business. So we think of it as a very supportive arm of our grocers to DTC.

And for Anthropologie, I'll say, we've leveraged our marketplace historically, mostly for anthro living category.

But the team is working actively on developing our choice count expansion and apparel categories footwear, and the opportunities to be able to leverage market place to expand our assortment.

On the apparel side, okay. Thank you.

And I believe that concludes.

Recall I would certainly extend my warm wishes to all of you and hope you have a wonderful Thanksgiving. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.