Q3 2024 Urban Outfitters Inc Earnings Call

November 21, 2023

Okay.

Good day, ladies and gentlemen, and welcome to the urban Outfitters, Inc. Third quarter fiscal 'twenty four earnings call.

At this time all participants are in a listen only mode.

We will conduct a question and answer session and instructions will follow at that time.

As a reminder, this conference call is being recorded.

Now like to introduce all of them are call it executive director of Investor Relations.

Paula you may begin.

Yeah.

Good afternoon, and welcome to the U R. B N third quarter fiscal 'twenty 'twenty four conference call.

This afternoon, the company issued a press release outlining the financial and operating results for the three and nine month period ended October 31 2023.

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

On today's call you will hear from Frank Conforti, co President and C. L O U R E N J.

Dave Hayne, Chief Technology Officer, and president of newly Sheila.

Sheila Harrington Global Chief Executive Officer of free people and urban Outfitters.

Melanie Marine F, Ron Chief Financial Officer U R. P M.

And Richard Hayne, Chief Executive Officer, you are be up.

Following that 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 <unk> com.

I will now turn the call over to Frank.

Thank you Elena.

And good afternoon, and thank you to everyone, who joined our call today.

I will begin my commentary with comments on our operating results for the third quarter and then discuss more detailed notes by brand.

Overall, the third quarter performed largely in line with our expectations as discussed on the August call.

You are again delivered strong sales growth of 9% to a record $1 3 billion for.

For the third quarter.

European sales growth was driven by 6% retail segment comp a robust growth from newly which added $30 million in revenue during the quarter.

Retail segment comp was driven by high single digit comps in the DTC channel and mid single digit comps in stores.

Sales comps in both channels were the result of higher traffic and increased AUR.

The Anthropologie free people and FP movement brand all produced double digit sales growth in stores and online with FP movement, leading the way with a comp sales increase of 49%.

Each of these brands achieved record third quarter brand revenue, which more than offset a negative comps at the urban outfitters brand.

European Bottomline results were even more impressive than our strong sales growth.

Total European operating income towards 90% higher than the prior year to $109 million and earnings jumped 123% to $83 million or <unk> 88 per diluted share.

Our earnings growth was driven in part by 27% increase in gross profit dollars, while gross profit rate surged by over 500 basis points.

The improvement in gross profit rate was due to significantly improved initial margins as well as lower markdown rates at all brands.

I will now provide more details by brand with a little help from Dave Hayne unduly.

Thank you Frank and good afternoon, everyone.

I'm happy to provide a brief update on our rental subscription business newly.

Judging by our Q3 results our model of a monthly rental subscription certainly seems to be resonating with our target customer.

We often hear from new subscribers that they first learned about newly from their friends or family.

After a month or two of renting from us. They then become vocal advocates for renting and go on to tell all their friends about newly.

It is this viral word of mouth paired with an attractive value proposition and strong execution.

That has helped us grow quickly in our first few years of business and.

In Q3 was a continuation of this trend.

In the third quarter newly drove $65 $5 million in revenue, which was an increase of 86% from last year.

This revenue growth was driven by a net increase of nearly 39000 subscribers in the quarter.

Up to a total of 198000 active subscribers at quarter's end.

As you May remember from our second quarter call, we spoke about two milestones relating to the newly business.

One that we thought it was possible we could reach 200000 subscribers by the end of the year.

We have now achieved in November.

And two that we believed we would see our first quarter of profit in the back half of this year.

Today I am very pleased to share that newly saw an operating profit in the third quarter.

This is a goal of the team has been pushing very hard to achieve and it makes me proud to see everyones hard work recognized today.

As we look forward there is much to be excited about <unk> future.

With the strong partnership of our sister brands Anthropologie free people FP movement, and urban outfitters as well as over 400 other partner brands.

We have curated what we believe is the most compelling rental clothing assortment on the market.

With the help of our robust digital platform driving both the customer experience and fulfillment center operations.

Newly is very well positioned to further enhance our rental program with exciting new features that can drive higher customer value.

And the opening of our re more misery fulfillment center in Q4 provides the business with the urgently needed operating capacity to grow well into the future.

<unk> in total over three times, our current subscriber count.

So I'm very excited today to be reporting our first profit as a young company with the best rental assortment in the business.

With a homegrown digital platform that empowers us to drive more program value and with the infrastructure to realize continued growth.

And most importantly, with an incredible team to help us realize this future.

Thank you I will now turn the call back over to Frank.

Thank you, Dave Congratulations to you and the entire newly team on this incredible milestone.

I know, we're all confident there are many more notable milestones pickup.

Now moving on to Anthropologie.

The Anthropologie team delivered an exceptionally strong 13% retail segment comp in Q3.

This increase was driven by double digit positive store and digital comps.

Both store and digital comps were driven by increased traffic and strong growth in regular price sales.

Strong sales improvements in ICU and low third quarter markdown rates, all led to record third quarter operating profit dollars for Anthropologie.

The impressive quarterly performance was largely driven by apparel and accessories.

Within apparel, the Anthropologie customer continues to respond favorably to fashion newness.

In the quarter Anthropologie launched its largest marketing campaign to date falling for anthro.

Leveraging a range of talent, including celebrity CV, Tonkin brand ambassadors and Influencers.

That campaign was a resounding success.

Resulting in strong increases in brand impressions.

<unk>.

And new customer growth.

The brands incredible execution across marketing product and operations has helped to drive over 25% growth in new customers in North America.

The strength across all apparel and accessory categories, along with new customer acquisition has resulted in a nicely positive start to the holiday season.

Turning to free people.

Free people delivered yet another historically exceptional quarter.

Once again, achieving record sales and profits in the third quarter.

Retail segment comps at free people finished the quarter up a robust 23%.

The free people brand produced a strong 18% comp and FP movement brand produced an impressive 49% comp.

Total retail segment comp was driven by double digit comps in the store and digital channels.

These double digit comps were driven by strong traffic growth in both channels due in part to excellent marketing product and operations execution.

The strength of the free people Assortments marketing campaigns and store experience has continued in the fourth quarter.

Resulting in a strong retail segment start to the holiday season.

Free people wholesale segment sales decreased 4% during the third quarter.

The decrease in sales was the result of weakness in department store counts, partially offset by growth in specialty store accounts.

Although wholesale sales remained slightly negative profitability has returned to a healthy level.

Now moving on to urban Outfitters.

Urban recorded a negative 14% retail segment comp in Q3.

You always negative comp was a result of disappointing performance in North America and Europe.

In North America.

Comp store and digital channel sales were low double digit negative.

Our brand is experiencing some improvements in their assortment and marketing execution, but not enough to move the needle just yet.

In Europe, the weakness was concentrated in the U K, while the rest of Europe continued to see positive retail segment comps.

Due to the weaker than expected sales during the third quarter as well as forecast for the fourth quarter <unk>.

Inventory levels at the urban Outfitters brand are elevated versus where we would like them to be.

These inventory levels will lead to higher markdowns than originally planned during the holiday season for the brand.

I will now turn the call to Sheila Harrington, who will speak to the free people free people movement and urban Outfitters brands.

Thank you Frank and good afternoon, everyone I'm pleased to provide an update for that free people.

Matt and urban Outfitters brands.

First I will discuss free people and FP movement.

As Frank reported the total free people brand had an exceptional quarter with total brand revenue up 18%.

The consistently strong growth over the past few years at free people can be attributed to the teams maniacal focus on the consumer and use of creativity and product experience and marketing.

We believe the brand can continue to achieve.

Growth by expanding its reach and product offering.

This jordan into select labels, including intimately FP press and we have the free along with our core free people label will allow us to complete the consumers' lifestyle Lux and welcome more people into the brand.

We have a free enjoyed robust growth this quarter.

We the free label offers heritage inspired staples, which captured the spirit of SP through hand touch details and wash.

The free label includes several product categories, but we believe the significant growth opportunity exists in denim accessories and footwear.

It currently accounts for over 20% of the brand's retail segment net sales and is experiencing outside growth.

We plan for this label and the denim category, particularly to be a meaningful part of our continued growth.

As mentioned marketing is a key factor in Fps growth the brand launched several successful campaigns during the quarter and throughout the year targeting consumers across multiple social platforms and achieved double digit growth of new customers in Q3.

Free People's revenue is currently concentrated in North America, with 148 stores and a strong digital business. However, we believe it's unique aesthetic and strong fashion handwriting free people has the opportunity to be a larger global brands.

Just over five years ago, we opened our first European store in Amsterdam today, we operate 12 stores in Europe with locations in the Netherlands, France and the UK.

Our total international business grew by 34% and was profitable in Q3.

We believe that strong growth could continue over the next several years.

Moving on to FP movement.

SP movement, our first women's activewear at the intersection of fashion and function and looks to redefined the female activewear market by infusing a strong feminine voice into a business long dominated by male sensibilities.

The FP movement design and buying teams have found unique opportunities to express this feminine voice and define the brand successfully. One example is the creation and marketing of the righteous Rumsey, a one piece performance product the team created to capture white space in the activewear market.

The team continues to develop and strive for excellence performance pieces from studio Ron and outdoors.

After experimenting with shop in shops in the free people stores for several years, we decided to open our first Standalone movement store in 2020.

Since then we've opened additional stores and currently have 37 locations in the U S.

Four wall performance has greatly exceeded our expectations sales productivity per square foot as well as overall store profitability of the Standalone movement stores are performing at similar levels to the free people brand despite movement being a young brand that still bouncing brand awareness.

Given the success of the current store fleet, we plan to open at least 25 additional FP movement stores in fiscal year 'twenty five.

The wholesale team delivered over 60% year over year growth this quarter, while achieving this growth. They also ensure that we are selling to the correct partners, who align with our brand aesthetics and value.

The marketing and digital teams not only connected with our consumers across various platforms and with strong brand athletic investors, but they also connected with customers in person through experiential events in local markets such as organized runs and work out events.

These efforts led to over 50% new customer growth for the FP movement brand in the quarter.

The success of FP movement continues to build across all three distribution channels retail digital and wholesale total revenues grew by 55% in the third quarter.

We are still in early stages of growth, but our eyes are on the goal of achieving $1 billion in annual revenue.

Thanks to Meg and the teams at both free people and FP movement for helping produce such amazing results in Q3, and your continued passion for the brand and our consumer.

Turning to the urban Outfitters brand on our last call. We noted some improvement in women's and men's apparel comps in stores. During the early back to school season, while the trend in apparel comps did improve and then stores. Our men's business was positive for the quarter total retail segment comp improvement first.

Short of our goals.

We know there is much more work to be done.

Negative traffic trends within stores and online remains our single largest challenge and we know we have declined and consideration for our target consumer.

In order to change the trajectory of the urban Outfitters business. Our teams have identified three priorities. They are curating, the right mix of products from meaningful national and emerging brands, improving the relevancy of our internally generated brand products and connecting with and inspiring our customers where they are.

Let me expand on each of these priorities.

First urban Outfitters has always been a brand of brands, we rely on offering a compelling assortment of national and emerging brands to drive traffic and sales.

We need to modernize our brand offering to be more relevant to our Gen Z consumer.

This has been an important part of differentiating urban from its competitors and we believe this assortment has been off pitch since the pandemic.

Some successes in our current business with popular brands brand collaborations and unique offerings within our external brands reinforced this belief.

Each merchant team across all divisions is currently reviewing their brand portfolio and working with new brands to build the most relevant next possible.

Yeah.

Second the continued development and evolution of our internal proprietary products remains critical to our long term growth and profitability.

<unk> own brand product provides us with the ability to store and to the right items for our consumers with the right price architecture.

Recent successes within the apparel business support when we get the price value correct. We see strong response from the consumer.

This fall, we were able to the store into a more feminine sensibility with labels, such as kimchi blue and silence and noise.

Imminent attribute showed higher productivity and drove an outside percentage of women's apparel.

Third is how and where we connect with our consumer historically urban outfitters has been known to be early adopters and fashion and in marketing.

We got behind prior to the pandemic and Miss the opportunity to follow our consumers when they changed their platform preferences.

We need to develop inspiring and relevant content to meet the consumers where they are yet on Youtube tick tock or in our stores.

We have begun to see progress with sequential improvement throughout the quarter on new reactivated and total digital customers.

Barbara gaining momentum rebuilding this relationship with the consumer will take time.

I am convinced that our laser focus on our target consumer and executing on our three priorities will lead to a return to long term growth and profitability for the brand.

I'm grateful for our teams for their commitment and dedication to urban outfitters.

Now turning your attention to the urban brand in Europe.

Total retail segments in Europe delivered growth in Q3.

Positive retail segment sales were driven by new store openings, while comp sales were negative.

Geography business on the mainland West Comped positive in both channels, while sales in the U K were more challenged.

We believe our connection with our consumers across Europe remains strong and we have an opportunity to continue to grow our brand in this region.

<unk>, our first flagship urban outfitter store opens in Madrid on Grand Villa, which boasts one of the highest pedestrian traffic counts in the city.

The stores house, and a repurpose cinema and commence unparalleled street visibility strategic openings such as this will be key to increasing the urban brands name recognition, which should also drive greater digital penetration.

Congratulations to our European teams on this momentous opening along with the other first market openings this past year.

And I would like to say, thank you to our total urban outfitters global teams for their passion hard work and drive to service our consumer both in stores and digitally around the world.

I will now turn the call over to Melanie.

Thank you Sheila and good afternoon, everyone now I will discuss our thoughts on the fourth quarter and fiscal year 'twenty for financial performance consumer.

Demand in October slowed slightly versus the first two months of the third quarter.

November sales have started off similar to October.

Based on the start to the quarter, we believe fourth quarter total company sales growth could be in the mid single digits.

Sales growth in Q4 could result from low single digit growth in retail segment comp sales and high double digit growth of newly segment sales versus last year.

Both in the retail and newly segments is likely to be partially offset by sales decline in our wholesale segment similar to Q3.

Now onto gross profit margin.

Based on current sales performance and plan, we believe <unk> gross margin rate for the fourth quarter could improve by approximately 300 basis points compared to the prior year fourth quarter.

The increase in gross profit margin could be primarily driven by higher initial product margins from lower inbound freight as well as cross functional initiatives, which will favorably impact product margins.

Now moving on to SG&A expenses.

We believe SG&A growth for the fourth quarter could increase in the high single digits.

Our planned growth in SG&A could be primarily driven by higher overall payroll due to increased store payroll expenses and higher incentive pay from improved company performance. In addition, we expect marketing expenses could be higher versus last year to support growth in customers and sales.

As always if sales performance fluctuates, we maintain a certain level of variable SG&A spending that we can adjust up and down depending on how our business is performing.

We are currently planning our effective tax rate to be approximately 26, 5% for the fourth quarter.

Now moving on to inventory, we believe that inventory levels in the fourth quarter could grow at a rate below sales growth. We have made significant progress this year controlling our inventory to sales ratio and expect to continue that trend into next year.

Capital expenditures for the fiscal year are planned at approximately $235 million. This spend is primarily related to investments in additional distribution facilities earlier.

Earlier this year, we opened our highly automated omni fulfillment facility in Kansas City, Kansas.

In addition, we're investing in a new rental fulfillment facility in Missouri with the Kansas City region.

We are targeting to open this facility in the beginning of fiscal year 'twenty five.

Lastly, we will be opening approximately 27, new stores and closing approximately 22 stores during fiscal year 'twenty four.

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 I'm pleased to turn the call over to <expletive>.

Thank you Mel and good afternoon, everyone.

<unk> heard from my colleagues four of our five brands delivered outstanding results in Q3.

The free people FP movement, and Anthropologie brands, all set new third quarter records for both sales and profits.

Newly brand posted record active subscribers and revenues, adding $30 million in additional revenues during the quarter.

Newly also achieved a huge milestone in Q3 by recording their first quarterly profit.

All of this as they celebrated only their fourth anniversary since launching the concept.

Moving on to an overview of our fourth quarter prospects. There has been much market chatter about a slowdown in consumer spending.

As Melanie reported our brands did experience a slight moderation in demand beginning in early October.

I want to emphasize the word slight.

November to date business is in line with October results and customers continue to choose fashion newness.

As their preferred purchase.

And are willing to pay full price for what they want.

We're still planning Q4 retail segment comps at both the Anthropologie and free people brands to remain double digit positive and the urban brand to show some improvement but remain negative.

Our Q4 plan calls for the company's total retail segment to produce comps of 3%.

As we prepare to enter our fiscal year 2025, we enjoy to young brands, which has produced strong revenue growth. This past year and several larger brands that drove excellent comps and we believe we will continue to attract new customers and gain market share.

Together these should drive nicely positive retail segment comps in FY 'twenty five.

In addition, we possess the opportunity to further improve merchandize margins, while holding the line on SG&A increases.

This bodes well for profitability.

So we remain encouraged that FY 'twenty five could produce solid growth in sales and profits.

We are of course acutely aware that our single largest opportunity to improve the bottom line rests with our ability to turn on the urban brand around.

To that end and as Sheila discussed we are highly focused on building the team improving the product offering and strengthening our marketing efforts.

We have made significant progress in our search for our brand President which is a critical step in moving forward.

Looking further into the future.

I believe we are witnessing the beginning of another watershed period in retail.

Like the impact E Commerce had beginning in the early two thousands and mobile commerce had the following decade.

Current advances in machine learning technology.

The promise to transform the business of retail once again.

Data science and artificial intelligence.

Potential deliver much shorter product lead times.

More accurate demand forecasts.

Better allocations more personalized marketing and optimized inventory planning.

Many other benefits.

These technologies should improve efficiency reduce waste and provide cost savings across a wide range of functions.

Our brand teams and I are especially excited by the potential for genders of AI to augment and enhance our already superb creative capabilities.

We expect to give you an annual update and appraisal of our progress in realizing the benefits of these amazing new tools.

In closing.

Our brand and shared service leaders and their merchant creative and operating teams and our 24000 associates worldwide.

Their efforts produced another outstanding quarter and I thank them.

I am constantly humbled by their remarkable dedication and creativity.

I also recognize and thank our many partners around the globe and finally I. Thank our shareholders for their continued support.

That concludes our prepared remarks.

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

Thank you.

Ladies and gentlemen to ask a question. Please press star one on your telephone and then wait to hear your name announced to withdraw your question. Please press star one again.

We ask that you limit yourself to one question per caller. Please.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Lorraine Hutchinson with Bank of America. Your line is open.

Thank you good afternoon, how much of a headwind does the urban outfitters weakness posed to your fourth quarter gross margin and then separately. How are you planning receipts for that brand for the first half of next year.

Hi, Lorraine I can take the first half of your question.

The headwind is baked into our forecast so it is contemplated.

And our plans.

Being able to achieve over 300 basis points gross profit margin improvement in the fourth quarter.

Also just wanted to point out in that.

And that plan that is off.

Sort of what I would call an adjusted Q4. It does not include the $5 $4 million of impairment that was in the fourth quarter of last year. If you were to include that impairment our gross profit margin improvement.

Could likely come in over 340 basis points of improvement, but we normally just just adjust that out.

And then as it relates to inventory I think you can take that I can take that.

Hello, Randy.

As we believe that the business can improve and small amount quarter over quarter, we want to make sure that we manage our inventory accordingly and that we don't.

Yes.

Basically.

Btu aggressive one way or the other and we feel like as we move throughout the first half of the year, we will start to see sales outpaced inventory level.

Do you want to make sure that begin the store compelling assortments back in queue.

So we definitely feel like it's going to be an EU versus an immediate reaction.

Thank you.

Please standby for our next question.

Sure.

Our next question comes from the line of Matthew Boss with Jpmorgan. Your line is open.

Great. Thanks.

On the positive reaction to our Assortments and marketing that you cited into holiday deck.

Could you just elaborate on recent trends you've seen in November across banners, maybe any key color by category that you are anticipating in holiday and then Melanie could you just speak to gross margin drivers in the fourth quarter and just any opportunity remaining as we move into FY 'twenty five on the gross margin front.

Sure I'd be pleased to do that Matt.

Retail segment comp performance, so far in Q4.

Very similar to <unk>.

Our results in October as Melanie discussed.

October results were slightly and again I want to emphasize that we're slightly.

Below Q3 total results.

The biggest difference has been free people, which is now posting.

Comps in the high teens, rather than the stratospheric mid twenties.

<unk> in Q3.

Meanwhile, the urban brand in North America has seen some comp improvement to date.

But it's still negative.

You wrap that all together, we believe total you RBN Q4 retail segment comps.

Should come in at approximately 3%.

And then Matt as it relates to gross profit margin I think.

Over 300 basis points of improvement in the fourth quarter is largely going to be driven by IMU improvements.

And thats really across all of our all of our brands.

Really starting to realize the normalization of inbound supply chain costs as well as just the benefit of it.

Several cross functional initiatives.

And that we're seeing across our across the entire enterprise.

As we look forward into fiscal 'twenty five we do think that there is room for continued gross profit margin expansion.

Again, I think part of that would be driven by improved INU across all banners.

Yes.

Obviously still won't be reaping the benefits of the inbound transportation costs coming down, but also and more importantly, the incremental benefits continuing cross functional initiatives that we have that.

Let onward.

And then secondarily I think we do think that we'll start to see.

Some improvement potentially from a markdown rate perspective, largely being driven by the urban Outfitters brand and then lastly, we think we can start to see a little bit.

Improvement in benefits of the new distribution facility that we built in Kansas that is now up and running and as that begins to start to reach.

A full allocation will start to see those benefits in.

Not just logistics and delivery expense moderate throughout that throughout the year and then hopefully build on those as to have continued benefits in the following year as well. So I think there is a new opportunity across all three brands.

Healthy amount of markdown opportunity at the urban Outfitters brand and I think you could start to see some logistics and delivery expense opportunity due to that new facility in Kansas.

All leading to some nice opportunity in fiscal 'twenty five.

Thank you.

Please standby for our next question.

Our next question comes from the line of <unk> with Citi. Your line is open.

Hey, Thanks, guys.

I'm curious how you view the potential turnaround at urban outfitters in the context of <unk>.

Our fashion trends or do you think performance there is about non interpreting fashion correctly or is there something more structural in terms of store size number and the number of store locations are.

Just a number and location of stores.

The competitive set just how you're thinking about the turn there and then separately you talked about machine learning efficiency tools is there a big cost that is tied to that coming up in the future for you guys or is that something you already have.

At your fingertips, just curious what that looks like thanks.

I'll start with the second part first.

Certainly we don't have.

AI and machine learning.

At our fingertips.

We will invest in over time.

And.

We will make steady progress.

As I said, it's very much like some of the other initiatives that happened like.

E Commerce in the early nineties.

We didn't jump into that full throttle.

1990, we started it.

Got some feedback.

About what worked what didn't work invest in a little bit more.

And.

I think we're fairly out of the curve then.

We expect to be.

Somewhere near or at the beginning.

In this endeavor as well.

Yes.

As it relates to.

Turning the urban brand around I think Sheila gave a fairly comprehensive.

This rotation about how we plan to do that.

The one thing that you didn't talk about that I do want to emphasize.

We think.

Hiring a president for urban Outfitters.

Key component.

And we've made.

Significant progress.

Toward that end.

And I think you might hear something in the next.

A few months.

No.

That would be one thing and then we have to improve.

Improve our product offering and we have to improve most importantly, our marketing.

I think the product offering.

Thank you.

<unk> seen as <unk>.

Shifting.

And fashion.

Ray more feminine walk.

And Tim and Lumpiness performing quite well.

And.

We will increase the penetration of some an entity in our assortment.

This is not an while we've always had permanent this is not something that.

Urban outfitters.

Particularly known for.

It's not like.

Free people are asked apology brands, which are much more highly than five minutes.

So I think in that sense.

And I was wondering a little against the side, but I don't want to.

Put that out there as an excuse or.

Job is to always have new products that our customers want.

I think in terms of the.

The marketing I think.

That is.

Excuse me Sir.

Is and was a missed and that we didn't move along with the customer and appear where the customer wants.

Residing.

Areas like Tech talk and we didn't.

Firstly announcement.

Two.

As one of our main platforms.

We did.

Have an awful large exposure on Instagram and we made on that platform.

As we move along.

And have better marketing and show up where the customer is.

We will.

<unk> our March toward.

Greater.

Penetration of.

Digital customers.

And improve our sessions.

So I think that does it.

As for the next question yes.

Yeah.

Thank you.

Please standby for our next question.

Yes.

Our next question comes from the line of Alex <unk> with Morgan Stanley. Your line is open.

Okay.

Perfect. Thanks, a lot for taking the question I wanted to focus on the urban banner as well. Thanks, a lot for the color on the initiatives.

With those in place how do you think about the timeline for the urban outfitters and function from here and what are the key metrics. We're watching in the meantime, and then secondly, just on profitability for that business I am having trouble thinking about where it sits versus history and how much of a drag it has on the total business. So perhaps if you could just kind of.

Outlines the puts and takes on that piece to it would be super helpful. Thanks, a lot.

Okay, Alex I'm going to take the first part of that question I think when we think about how long it will take to churn the urban Outfitters brand.

We're thinking about how we are measuring that I think we wanted to do it in a very healthy way and look for improvement month over month and quarter over quarter, because we have lost our consumer we're staying highly focused on the 18th 25 years.

Urban Outfitters consumer and we feel like with laser focus on the consumer we will gain that customer back we are hyper focused on the consumer.

Mr Way, we need to really get that consumer back and through our marketing efforts, whether its engagement and different social platforms. We're looking for that we are listening hard to the consumer there as well as what changed.

They're reacting too in terms of product offering so.

Not only from a top line sales perspective.

Philosophy.

As we look at it from a merchant and also trying to lift that much harder to what we do on where I think the.

The most.

So quarter over quarter improvement.

Q4 for a long term healthy returns for urban outfitters growth.

And Alex this is <expletive>.

Stocking I think that you asked about metrics.

I know that Sheila.

As always watching and watching extremely carefully.

The number of sessions on a daily basis and store traffic.

And I think those two metrics, we can see those improve.

We will know that we are on the right track and sales will follow.

Frank do you want to think the latter part of the question.

Obviously your profitability has fallen pretty meaningfully from where they've historically run it I think.

Nice nice.

Thing is with the strength of our other four businesses, we've been able to more than compensate for that and drive really really healthy operating profit gains.

And then that leaves for the opportunity for urban does begin to turn their business around for them to then contribute to incremental growth in fiscal 'twenty five and beyond.

And then begin to recapture from some from where they were.

Thank you.

Please standby for our next question.

Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Your line is open.

Hi, Good afternoon, everyone. As you think about the strength of some of the smaller businesses like free people movement and that now newly with reaching profitability earlier, what do you think the opportunity for them is and just early thinking about framing 2024 and the.

The incremental improvement potentially two gross or operating margins from those businesses and lastly, just on the gross margin discussion of the higher IMU and lower markdowns.

Their opportunity to continue this going forward.

In this environment or is there any changes that you see in the structure of <unk> or markdown cadence. Thank you.

Okay, Dana I'll take the <unk>.

First part of that question and then pass it along both to Sheila who will talk about free people movement and today.

No.

I'm glad you asked the question because we.

Collectively here you RBN are extremely excited about what you've called the smaller businesses, because we think well be smaller for that long.

We think both newly and free people movement have an opportunity to be $1 billion plus brands.

And I can't tell you that's kind of happened in FY 'twenty five cuts I know it won't but I think.

It's going to happen much quicker than any of our other brands reached $1 billion.

And so <unk> would you like to talk about movement sure I'll start.

Yes, we're excited about ethane event.

The metrics that we're reading just indicate that we should invest.

With as much speed as we possibly can which Nick has been encouraging us to do all along.

And with the economies of scale.

And that scale it comes to <unk>. So I do think as we continue to grow the FP movement brand with.

Nearly doubling our store count with at least 25, new stores next year, and a robust digital and marketing strategy.

Attached to attracting new customers still.

There is only upside in terms of iron from the depth of our buys frankly.

And there's a lot of strategy as that happens and long works to be able to take advantage of that scale Dana.

Okay, Dave do you want to take nearly yes sure Dana Thanks for the question.

We've been having a lot of fun building the newly the newly business, we see a lot of opportunity with the newly business to continue to grow.

It's been really interesting to learn a new business and theres been a lot of interesting learnings from it I think one of the most interesting learnings that we've seen is that we are.

We're really growing a new market, we don't see ourselves necessarily always stealing share in the newly business. We feel like we're growing in new market and rental is a new concept that people have to learn.

The indicators that kind of gives us that impression is that when we see we.

We survey all of our new subscribers and when we see new subscribers joined newly.

Roughly 60% of them have never rented from anybody before so it really feels like we're bringing new customers into a new consumption model, which.

Just gives us a lot of excitement for the future and where this can go as more and more people come upon the idea of renting. So I think that's a really exciting thing and then I think also as we continue to scale on the infrastructure, that's going to be supporting newly.

Our next warehouse in <unk>, Missouri should allow us to really.

To drive down a fair amount of our variable costs across our delivery.

Shipping costs. So those types of things are just going to allow us to continue to leverage as we continue to grow so sometimes we're doing.

Okay. Thanks, Dana this is Frank what's really exciting is when you think about our goal of getting to a 10% operating profit and obviously.

Knock on wood, we've made some really nice progress in the first three quarters. This year and think we're going to continue to make progress towards that goal in the fourth quarter and rounding out fiscal 'twenty. Four then you start to think about.

The levers that can that can get us there that we can pull on we do talk about improved INU across all three brands. There is nothing structurally that we believe that we're done yet and driving IMU improvement can you talk about newly reaching their milestone of hitting operating profit and being able to build upon that into fiscal 'twenty five.

Going forward you talk about FP movement, which is producing 55% growth just now in the third quarter and then double digit operating profit rate right. So as they're going to continue to.

Have outpaced growth versus some of our other businesses and meaningfully contribute to our operating profit growth.

We talked about urban outfitters currently not running where they historically have but as that business begins to turnaround contributing into our operating profit growth next year as well.

There is really just a lot of a lot of opportunity across the table for us to build upon the progress that we've made this year and hit that 10% operating profit goal and continue to run their own on a longer term basis.

Thank you.

Please standby for our next question.

Yeah.

Our next question comes from the line of Janet Kloppenburg with J J K Research Associates. Your line is open.

Good evening and.

Thanks, Elisha chronic like quarter.

Thank you Jim.

Jack when you think about.

Free people movement and its success chicken Sheila.

On June two.

Do you think that we should anticipate an acceleration of store openings.

For that brand.

The free people store openings continue and should we think that that's an opportunity for unit expansion too.

To accelerate as we look as we look forward.

And then.

Just on the recent sales slowed down.

Could you and I know its flight deck.

Historical.

So I just wanted to understand if it was attributable to sort of.

One little weather in many markets or.

Any sort of geographical or category dispersions that youre seen thanks, so much.

Okay, Janet I'm going to ask Sheila I'll talk about first because I know she's really excited free people movement.

He is planning to open a lot of new stores Sheila yeah. So we have.

Our strong pipeline currently ready to go for next year. So 25. It we are seeing at least 25.

I think that's the most amount of store at least in my growth. The free people brand family that we've experienced so I would say that we see that growth knock on wood continuing for several years.

Frankly, as we explore new markets, where we're actually in a couple of markets that free people is not and with FP movement as well.

This isn't at the cost of the growth at free people as I spoke about we have a lot of growth internationally.

And digitally style to do with the free people brand itself. So we see both brands growing independently, obviously FP movement on an accelerated level.

Towards our $1 billion goal as far as the slowdown of free people.

Q3 ended the 14th quarter of sequential positive FTE.

Retail segment growth.

27%, if we exclude that one quarter a couple of years ago in fiscal 'twenty one.

And we're just up against more challenging positive comparisons.

And frankly.

Extremely strong that.

The buying team the design team and our marketing teams are all on the pulse of the right fashion trends.

And so we remain extremely optimistic and positive going into the fourth quarter I think this time of year as always.

Wanted to pause on but where we're seeing very strong results to date and we have no reason to believe our momentum is going to be interrupted.

Shannon I just wanted to add any real quick on the FP movement stores.

Some really impressive stats.

When you think about the fact that it is.

Still a very young brand that is growing in awareness and the fact that their sales and profit productivity is on par with the free people brand in such early days to have that strength and success in those in those doors really leaves us very confident and excited about <unk> excited about that store growth and that's why.

So we've talked about 25 at least if not more just because we've been really impressed over the first couple of years at how well those stores it performed especially given the.

The continued awareness that we're starting to build upon but obviously much less than where they were pre people a collection brand Sam.

And Janet.

I can tell you, we all sit around and talk.

A good deal about.

What you what we have discussed is a slight and against life.

Slowdown in October.

We threw out there some potential reasons.

The weather.

Right.

Sure.

I see.

Student loan repayment.

And like.

Harder comparisons.

And I think we've just kind of.

We don't think necessarily there are any of them of course, the heavier harder comparisons are real and so.

That's got to be a factor stool.

Student loans.

How could that possibly be positive.

It only could steel.

Away from purchasing so that could be a factor.

Quite frankly, we just cant come up with one.

We feel is so compelling that we can attribute.

This slight slowdown to it.

What I will tell you as it were.

We're very convinced given the.

The behavior of the customer.

But it isn't.

Is the beginning of the dreaded onward.

We don't think there's any sense, we can see in our business.

The consumer pulling back she's very engaged with the brand she is buying full price and she is buying fashion.

Those are very unusual in my experience it.

For the beginning of a recession.

I don't think that we should forget about that.

I think our businesses are healthy customers healthy.

And we believe that we're going to have an excellent holiday season.

Thank you.

Our last question will come from the line of Mark.

<unk> Shapiro with the retail tracker.

Thank you for taking my call under the wire and if I don't.

So I don't forget happy Black Friday to everybody.

Dave I have a quick.

I have a question for you on new leaks, congratulations on turning to profitability and starting a new business is very difficult and one of the most expensive part of that is the customer acquisition cost. So I'm curious if we can dig into that just a little bit have they come down at all or are they higher low rate relative to the industry.

Are you able to tap into our draft off of really I guess free people at anthro to bring customers into newly they're just a little you know what that looks like.

Yes, sure Marty Thanks for the question and thanks for all the kind words.

Our customer acquisition costs have been.

Over the last few years actually have been a lot less than what we originally thought they were going to be when we originally started the business. So we've been very happy about that.

I think our team has been very creative about how they go about marketing.

<unk>.

Leveraging a lot of work reported mouse, which has been something thats been a huge driver for the business.

Putting in place things like referral programs that allow people to incentivize that word of mouth.

It's been a big driver for us.

Do spend across some social platforms and in those in those platforms. We are spending creatively across things like ambassador programs and Influencer programs.

So I would say that we've been very happy with what our customer acquisition costs look like.

There is.

And I need to continue to draft off where we've been a lot of the good work we've been doing we do.

We don't.

It dropped off the other brands like you were suggesting really at all from a marketing standpoint, what I would say is we draft off the other brands.

Much from a product standpoint, and that's a huge benefit in the platform.

We have the luxury of working with some sister brands that produce amazing product that customers would love to rent and do lots of rent. So I think that is.

A huge customer acquisition source that we have that.

That is a big benefit for us the fact that.

As apology and free people and urban Outfitters product is on our platform is just something that is also an attractive thing that brings in new customers. So I think all of that combined has been.

One of the big reasons for the success so far.

Okay, I think that wraps up today's call. Thank you all very much for joining I wish you all the most.

Joining us Thanksgiving.

Don't Overeat becomes Black Friday is the next thing we all have to be honest the source.

Lately.

Okay.

Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

[music].

Okay.

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Yeah.

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Yeah.

[music].

Good day, ladies and gentlemen, and welcome to the urban Outfitters, Inc. Third quarter fiscal 'twenty four 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.

As a reminder, this conference call is being recorded.

I would now like to introduce all of them are call up executive director of Investor Relations Ms. Mccullough you may begin.

Good afternoon, and welcome to the U R. B N third quarter fiscal 2024 conference call.

Earlier this afternoon the company issued a press release outlining the financial and operating results for the three and nine month period ended October 31 2023.

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 to differ materially from projected results is contained in the companys filings with the Securities and Exchange Commission.

On today's call you will hear from Frank Conforti, co President and C. O O U R. P M.

Dave Hayne, Chief Technology Officer, and president of newly Sheila.

Sheila Harrington Global Chief Executive Officer of free people and urban Outfitters.

Melanie Marine Efron, Chief Financial Officer U R. P M.

And Richard Hayne, Chief Executive Officer, you are be up.

I will now turn the call over to Frank.

Thank you Anna.

Good afternoon, and thank you to everyone, who joined our call today.

I will begin my commentary with comments on our operating results for the third quarter and then discuss more detailed notes by brand.

Overall, the third quarter performed largely in line with our expectations as discussed on the August call.

European delivered strong sales growth of 9% to a record $1 3 billion for the.

Third quarter.

European sales growth was driven by a 6% retail segment comp a robust growth from newly which added $30 million in revenue during the quarter.

Retail segment comp was driven by high single digit comps in the DTC channel and mid single digit comps in stores.

Sales comps in both channels were the result of higher traffic and increased AUR.

The Anthropologie free people and FP movement brand all produced double digit sales growth in stores and online with FP movement, leading the way with a comp sales increase of 49%.

Each of these brands achieved record third quarter brand revenue, which more than offset a negative comps at the urban outfitters brand.

You are b and bottom line results were even more impressive than our strong sales growth.

Total European operating income sort of 90% higher than the prior year to $109 million and earnings jumped 123% to $83 million or <unk> 88 per diluted share.

Our earnings growth was driven in part by a 27% increase in gross profit dollars, but gross profit rate surged by over 500 basis points.

The improvement in gross profit rate was due to significantly improved initial margins as well as lower markdown rates at all brands.

I will now provide more details by brand with a little help from Dave Hayne unduly.

Thank you Frank and good afternoon, everyone.

I'm happy to provide a brief update on our rental subscription business newly.

Judging by our Q3 results.

Our model of a monthly rental subscription certainly seems to be resonating with our target customer.

We often hear from new subscribers that they first learned about newly from their friends or family.

And after a month or two of them are renting from us. They then become vocal advocates for renting.

And go on to tell all their friends about newly.

It is this viral word of mouth paired with an attractive value proposition and strong execution.

That has helped us grow quickly in our first few years of business and.

In Q3 was a continuation of this trend.

In the third quarter newly drove $65 $5 million in revenue, which was an increase of 86% from last year.

This revenue growth was driven by a net increase of nearly 39000 subscribers in the quarter.

Up to a total of 198000 active subscribers at quarter's end.

As you May remember from our second quarter call, we spoke about two milestones relating to the newly business.

One that we thought it was possible we could reach 200000 subscribers by the end of the year.

We have now achieved in November.

And two that we believed we would see our first quarter of profit in the back half of this year.

Today, I'm very pleased to share that newly saw an operating profit in the third quarter.

This is the goal of the team has been pushing very hard to achieve and it makes me proud to see everyones hard work recognized today.

As we look forward there is much to be excited about <unk> future.

With the strong partnership of our sister brands Anthropologie free people FP movement, and urban outfitters as well as over 400 other partner brands.

We have curated what we believe is the most compelling rental clothing assortment on the market.

With the help of our robust digital platform driving both the customer experience and fulfillment center operations newly is very well positioned to further enhance our rental program with exciting new features that can drive higher customer value.

And the opening of our re more misery fulfillment center in Q4 provides the business with the urgently needed operating capacity to grow well into the future.

Supporting in total over three times, our current subscriber count.

So I'm very excited today to be reporting our first profit as a young company with the best rental assortment in the business.

With a homegrown digital platform that empowers us to drive more program value and with the infrastructure to realize continued growth.

And most importantly, with an incredible team to help us realize this future.

Thank you I will now turn the call back over to Frank.

Thank you, Dave congratulation to you and the entire newly team on this incredible milestone.

We are all confident there are many more notable milestones pickup.

Now moving on to Anthropologie.

The Anthropologie team delivered an exceptionally strong 13% retail segment comp in Q3.

This increase was driven by double digit positive store and digital comps.

Both store and digital comps were driven by increased traffic and strong growth in regular price sales.

Strong sales improvements in ICU and low third quarter markdown rates, all led to record third quarter operating profit dollars for Anthropologie.

The impressive quarterly performance with low volatility driven by apparel and accessories.

Within apparel, the Anthropologie customer continues to respond favorably to fashion newness.

In the quarter Anthropologie launched its largest marketing campaign to date falling for anthro.

Leveraging a range of talent, including celebrity Phebe, Tonkin brand ambassadors and Influencers.

That campaign was a resounding success.

<unk> and strong increases in brand impressions sessions and new customer growth.

The brands incredible execution across marketing product and operations has helped to drive over 25% growth in new customers in North America.

The strength across all apparel and accessory categories, along with new customer acquisition has resulted in a nicely positive start to the holiday season.

Turning to free people.

Free people delivered yet another historically exceptional quarter.

Once again, achieving record sales and profits in the third quarter.

Retail segment comps at free people finished the quarter up a robust 23%.

The free people brand produced a strong 18% comp and FP movement brand produced an impressive 49% comp.

Total retail segment comp was driven by double digit comps in the store and digital channels.

This double digit comps were driven by strong traffic growth in both channels due in part to excellent marketing product and operations execution.

The strength of the free people Assortments marketing campaigns and store experience has continued in the fourth quarter.

Resulting in a strong retail segment start to the holiday season.

Free people wholesale segment sales decreased 4% during the third quarter.

The decrease in sales was the result of weakness in department store counts, partially offset by growth in specialty store accounts.

Although wholesale sales remained slightly negative profitability has returned to a healthy level.

Now moving onto urban outfitters.

Urban recorded a negative 14% retail segment comp in Q3.

You always negative comp was the result of disappointing performance in North America and Europe.

In North America.

Comp store and digital channel sales were low double digit negative.

The brand is experiencing some improvements in their assortment and marketing execution, but not enough to move the needle just yet.

In Europe, the weakness was concentrated in the U K, while the rest of Europe continued to see positive retail segment comps.

Due to the weaker than expected sales during the third quarter.

As well as forecast for the fourth quarter inventory levels at the urban Outfitters brand are elevated versus where we would like them to be.

These inventory levels will lead to higher markdowns than originally planned during the holiday season for the brand.

I will now turn the call to Sheila Harrington, who will speak to the free people free people movement and urban Outfitters brands.

Thank you Frank and good afternoon, everyone I am pleased to provide an update for that free people.

As Matt and urban Outfitters brands.

First I will discuss free people and FP movement.

As Frank reported the total free people brand had an exceptional quarter with total brand revenue up 18%.

The consistently strong growth over the past few years at free people can be attributed to the teams maniacal focus on the consumer and use of creativity and product experience and marketing.

We believe the brand can continue to achieve growth by expanding its reach and product offering.

We have a free enjoyed robust growth this quarter.

The free label offers heritage inspired staples, which capture the spirit of SP through a hand touch details and wash.

The free label includes several product categories, but we believe the significant growth opportunity exists in denim accessories and footwear.

It currently accounts for over 20% of the brand's retail segment net sales and is experiencing outside growth.

We plan for this label and the denim category, particularly to be a meaningful part of our continued growth.

As mentioned marketing is a key factor in <unk> growth the brand launched several successful campaigns during the quarter and throughout the year targeting consumers across multiple social platforms and achieved double digit growth of new customers in Q3.

Free People's revenue is currently concentrated in North America, with 148 stores and a strong digital business. However, we believe it's unique aesthetic and strong fashion handwriting pre people has the opportunity to be a larger global brand.

Just over five years ago, we opened our first European store in Amsterdam today, we operate 12 stores in Europe with locations in the Netherlands, France and the UK.

Our total international business grew by 34% and was profitable in Q3.

We believe that strong growth could continue over the next several years.

Moving on to FP movement.

P movement, our first women's active wear at the intersection of fashion and function and looks to redefine the female activewear market by infusing a strong feminine voice and trade business long dominated by male sensibilities.

The team continues to develop and strive for excellence performance pieces from studio Ron and outdoors.

After experimenting with shop in shops in the free people stores for several years, we decided to open our first Standalone movement store in 2020.

Since then we've opened additional stores and currently have 37 locations in the U S.

Given the success of the current store fleet, we plan to open at least 25 additional FP movement stores in fiscal year 'twenty five.

Our efforts led to over 50% new customer growth for the FP movement brand in the quarter.

The success of FP movement continues to build across all three distribution channels retail digital and wholesale total revenues grew by 55% in the third quarter.

We are still in early stages of growth, but our eyes are on the goal of achieving $1 billion in annual revenue.

Thanks to Meg and the teams at both free people and FP movement for helping produce such amazing results in Q3, and your continued passion for the brand and our consumer.

Short of our goals.

We know there is much more work to be done.

Negative traffic trends within stores and online remains our single largest challenge and we know we have declined and consideration for our target consumer.

In order to change the trajectory of the urban Outfitters business. Our teams have identified three priorities, they're curating the right mix of products from meaningful national and emerging brands, improving the relevancy of our internally generated brand products and connecting with and inspiring our customers where they are.

Let me expand on each of these priorities.

First urban Outfitters has always been a brand of brands, we rely on offering a compelling assortment of national and emerging brands to drive traffic and sales.

We need to modernize our brand offering to be more relevant to our Gen Z consumer.

This has been an important part of differentiating urban from its competitors and we believe this assortment has been off pitch since the pandemic.

Some successes in our current business with popular brands brand collaborations and unique offerings within our external brands reinforced this belief.

Each merchant team across all divisions is currently reviewing their brand portfolio and working with new brands to build the most relevant next possible.

Yeah.

Second the continued development and evolution of our internal proprietary products remains critical to our long term growth and profitability.

<unk> own brand product provides us with the ability to store and to the right items for our consumers with the right price architecture.

Recent successes within the apparel business support when we get the price value correct. We see strong response from the consumer.

This fall, we were able to the store into a more feminine sensibility with labels such as kimchi Blue and silencer noise. This feminine attribute showed higher productivity and drove an outside percentage of women's apparel.

Third is how and where we connect with our consumer.

Historically urban outfitters has been known to be early adopters and fashion and in marketing.

No we got behind prior to the pandemic and Miss the opportunity to follow our consumers when they changed their platform preferences.

We need to develop inspiring and relevant content to meet the consumers where they are on Youtube tick tock or in our stores, we have begun to see progress with sequential improvement throughout the quarter on new reactivated and total digital customers.

Barbara gaining momentum rebuilding this relationship with the consumer will take time.

I am convinced that our laser focus on our target consumer and executing on our three priorities will lead to a return to long term growth and profitability for the brand.

I am grateful for our teams for their commitment and dedication to urban outfitters.

Now turning your attention to the urban brand in Europe.

Total retail segments in Europe delivered growth in Q3 positive retail segment sales were driven by new store openings, while comp sales were negative by geography business on the mainland and west comp positive in both channels, while sales in the U K were more challenged.

We believe our connection with our consumers across Europe remains strong and we have an opportunity to continue to grow our brands in this region.

Moro our first flagship urban Outfitter store opens in Madrid on Grand Villa, which boasts one of the highest pedestrian traffic counts in the city.

The stores house, and a repurpose cinema and commands unparalleled street visibility strip.

Strategic openings such as this will be key to increasing the urban brands name recognition, which should also drive greater digital penetration.

Congratulations to our European teams on this momentous opening along with the other first to market openings this past year.

And I would like to say, thank you to our total urban outfitters global teams for their passion hard work and drive to service our consumer both in stores and digitally around the world.

I will now turn the call over to Melanie.

Thank you Sheila and good afternoon, everyone now I will discuss our thoughts on the fourth quarter and fiscal year 'twenty for financial performance.

Consumer demand in October slowed slightly versus the first two months of the third quarter.

November sales have started off similar to October.

Based on the start to the quarter, we believe fourth quarter total company sales growth could be in the mid single digits.

Sales growth in Q4 could result from low single digit growth in retail segment comp sales and high double digit growth of newly segment sales versus last year.

And the retail and newly segments is likely to be partially offset by sales decline in our wholesale segment similar to Q3.

Now onto gross profit margin.

Based on current sales performance and plan, we believe <unk> gross margin rate for the fourth quarter could improve by approximately 300 basis points compared to the prior year fourth quarter.

Now moving on to SG&A expenses, we believe SG&A growth for the fourth quarter could increase in the high single digits.

Our planned growth in SG&A could be primarily driven by higher overall payroll due to increased store payroll expenses and higher incentive pay from improved company performance.

In addition, we expect marketing expenses could be higher versus last year to support growth in customers and sales.

As always if sales performance fluctuates, we maintain a certain level of variable SG&A spending that we can adjust up and down depending on how our business is performing.

We are currently planning our effective tax rate to be approximately 26, 5% for the fourth quarter.

Capital expenditures for the fiscal year are planned at approximately $235 million. This spend is primarily related to investments in additional distribution facilities.

Earlier this year, we opened our highly automated omni fulfillment facility in Kansas City, Kansas. In addition, we're investing in a new rental fulfillment facility in Missouri with the Kansas City region. We are targeting to open this facility in the beginning of fiscal year 'twenty five.

Lastly, we will be opening approximately 27, new stores and closing approximately 22 stores during fiscal year 'twenty four.

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 I'm pleased to turn the call over to <expletive>.

Thank you Mel and good afternoon, everyone.

As you've heard from my colleagues four of our five brands delivered outstanding results in Q3.

The free people FP movement, and Anthropologie brands, all set new third quarter records for both sales and profits.

Newly brand posted record active subscribers and revenues, adding $30 million in additional revenues during the quarter.

Newly also achieved a huge milestone in Q3 by recording their first quarterly profit.

All of this as they celebrated only their fourth anniversary since launching the concept.

Moving on to an overview of our fourth quarter prospects theres been much market chatter about a slowdown in consumer spending.

As Melanie reported our brands did experience a slight moderation in demand beginning in early October.

I want to emphasize the word slight.

November to date business is in line with October results and customers continue to choose fashion newness as their preferred purchase and are willing to pay full price for what they want.

We're still planning Q4 retail segment comps at both the Anthropologie and free people brands to remain double digit positive and the urban brand to show some improvement but remain negative or.

Our Q4 plan calls for the company's total retail segment to produce comps of 3%.

As we prepare to enter our fiscal year 2025.

We enjoy to young brands, which has produced strong revenue growth this past year and several larger brands that drove excellent comps and we believe we will continue to attract new customers and gain market share.

Together these should drive nicely positive retail segment comps in FY 'twenty five.

In addition, we possess the opportunity to further improve merchandize margins, while holding the line on SG&A increases this bodes well for profitability.

So we remain encouraged that FY 'twenty five could produce solid growth in sales and profits.

We are of course acutely aware that our single largest opportunity to improve the bottom line rests with our ability to turn on the urban brand around.

To that end and as Sheila discussed we are highly focused on building the team improving the product offering and strengthening our marketing efforts.

We have made significant progress in our search for our brand President which is a critical step in moving forward.

Looking further into the future I believe we are witnessing the beginning of another watershed period in retail.

Much like the impact E Commerce had beginning in the early two thousands and mobile commerce had the following decade.

Current advances in machine learning technology holds the promise to transform the business retail once again.

Data science and artificial intelligence have the potential to deliver much shorter product lead times more accurate demand forecasting better allocations more personalized marketing and optimized inventory planning.

Among many other benefits.

These technologies should improve efficiency reduce waste and provide cost savings across a wide range of functions.

Our brand teams and I are especially excited by the potential for generative AI to augment and enhance our already superb creative capabilities.

We expect to give you an annual update and appraisal of our progress in realizing the benefits of these amazing new tools.

In closing.

Thank our brand and shared service leaders and their merchant creative and operating teams and our 24000 associates worldwide.

Their efforts produced another outstanding quarter and I thank them.

I'm constantly humbled by their remarkable dedication and creativity.

I also recognize and thank our many partners around the globe and finally I. Thank our shareholders for their continued support.

That concludes our prepared remarks.

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

Thank you.

Ladies and gentlemen to ask a question. Please press star one on your telephone and then wait to hear your name announced to withdraw your question. Please press star one again.

We ask that you limit yourself to one question per caller. Please.

Please standby, while we compile the Q&A roster.

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