Q4 2024 Urban Outfitters Inc Earnings Call
Operator: www.thevenusproject.com Good day, ladies and gentlemen, and welcome to the Urban Outfitters Inc. fourth quarter fiscal 2024 earnings call. At this time, all participants are on a listen-only basis. 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.
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Speaker Change: Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. Fourth quarter fiscal 2024 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 is being recorded.
Operator: As a reminder, this conference is being recorded. I would now like to introduce Oona McCullough, Executive Director of Investor Relations. Ms. McCullough, you may begin.
Speaker Change: I'd now like to introduce Oona Mccullough executive director of Investor Relations Ms. Mccullough you may begin.
Oona Mccullough: Good afternoon, and welcome to the URBN fourth quarter fiscal 2024 conference. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the three and 12 month periods ending January 31st, 2024. The following discussions may include forward-looking statements. Please note that actual results may differ materially from those stated.
Oona Mccullough: Good afternoon, and welcome to the U R beyond fourth quarter fiscal 2020 for a conference call earlier. This afternoon. The company issued a press release outlining the financial and operating results for the three and 12 month period, ending January 31 2024.
Oona Mccullough: 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.
Oona Mccullough: 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 Commission. On today's call, you'll hear from Richard Hayne, Chief Executive Officer, URBS; Frank Conforti, Co-President and COO, URBN; and Melanie Moraine-Efron, Chief Financial Officer, URBN. 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.urbn.com. I will now turn the call over to Dick.
Oona Mccullough: On today's call you'll hear from Richard Hayne, Chief Executive Officer, you are bad frankly.
Oona Mccullough: Frank Conforti co President and C O O U R. P M and Melanie Marine Efron, Chief Financial Officer, you are but yet.
Oona Mccullough: 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 Dot you or be a dot com I will now turn the call over to <expletive>.
Richard A. Hayne: Thank you, Oona, and good afternoon, everyone. Before we begin our prepared remarks, it's my pleasure to welcome Shea Jensen to today's call. As you know, Shea is our new president of Urban Outfitters North America. She comes with deep experience in the apparel and accessory category, having spent many years at Nordstrom and more recently as president of Good America. Shea has been in her new role here at URBN for three weeks, so she will not be answering any questions today but will be happy to respond to your questions on future calls. With that, I'll turn the call over to Frank to begin our discussion. Frank.
Oona Mccullough: Thank you Ron and good afternoon, everyone.
Oona Mccullough: Before we begin our prepared remarks, it's my pleasure to welcome Jay Johnson to today's call.
Jay Johnson: As you know Shay as our new President of urban Outfitters, North America XI.
Jay Johnson: He comes with deep experience in the apparel and accessory categories, having spent many years at Nordstrom and more recently as president of good American.
Speaker Change: She has been in her new role here at <unk> for three weeks. So she will not be answering any questions today, but we'll be happy to respond to your questions on future calls.
Speaker Change: With that I'll turn the call over to Frank to begin our discussion Frank.
Frank Conforti: Thank you, Dick, and good afternoon, everyone. Today I will begin the call discussing our total company fourth quarter results versus the prior year, followed by some more detailed notes from Brian. Please note, today I will be speaking to our financial results on an adjusted basis, which does not include non-recurring adjustments for asset impairments, lease abandonments, and a change in the revenue recognition method at newly. Each of these items is detailed in our press release, as well as the investor presentation that is posted to our URBN Investor Relations website. Now, on to our results.
Frank Conforti: Thank you <expletive> and good afternoon, everyone.
Frank Conforti: Today I will begin the call discussing our total company fourth quarter results versus the prior year, followed by some more detailed notes by brand. Please.
Frank Conforti: Please note today I will be speaking to our financial results on an adjusted basis, which does not include nonrecurring adjustments for asset impairments lease abandonments and a change in the revenue recognition method at newly.
Frank Conforti: Each of these items is detailed in our press release as well as the Investor presentation that is posted to our European Investor Relations Web site.
Frank Conforti: Now onto our results.
Frank Conforti: The fourth quarter performed largely in line with our thoughts as discussed on the third quarter call. Total company sales grew by 8% to a fourth quarter record of $1.5 billion, driven by a total retail segment comp increase of 5%, a new segment revenue increase of 69%, and Wholesale Segment Revenue Increase of 3%. The retail segment comp was driven by a high single-digit positive digital comp and a low single-digit store comp. Comps in both channels were primarily the result of higher traffic and transactions. January, and in particular, the second and third weeks of the month, were the weakest of the quarter as we saw a negative impact on store traffic and sales comp trends due to the winter storms and below-average temperatures across the country.
Frank Conforti: The fourth quarter performed largely in line with our thoughts as discussed on the third quarter call.
Frank Conforti: Total company sales grew by 8% to a fourth quarter record of one $5 billion driven by a total retail segment comp increase of 5%.
Frank Conforti: And you'll be segment revenue increase of 69% and.
Frank Conforti: In wholesale segment revenue increase of 3%.
Frank Conforti: The retail segment comp was driven by a high single digit positive digital comp and a low single digit store comp.
Frank Conforti: Constant both channels were primarily the result of higher traffic and transactions.
Frank Conforti: January and in particular, the second and third weeks of the month, where the weakest of the quarter as we saw a negative impact on store traffic and sales comp trends due to the winter storms and below average temperatures across the country.
Frank Conforti: It was nice to see sales trends bounce back when the weather became more favorable. For the quarter, the Anthropologie, Free People, and FP Movement brands all produced double-digit retail segment comp sales, with FP Movement leading the way with a 45% increase. Newly also delivered robust double-digit revenue growth due to a significant increase in subscribers versus the prior year. All four of these brands achieved record fourth quarter revenue, which was partially offset by negative comp at the Urban Outfitters brand. The growth in wholesale segment revenue was due to an increase in regular price channel sales at Free People, which was partially offset by a decline in sales at Urban Outfitters. Gross profit dollars increased 20% to $452 million, while our gross profit rate increased by 293 basis points to 30.2%.
Frank Conforti: It was nice to see sales trends bounce back when the weather became more favorable.
Frank Conforti: For the quarter, the Anthropologie free people and FP movement brands, all produced double digit retail segment comp sales with FP movement, leading the way with a 45% increase.
Frank Conforti: Newly also delivered robust double digit revenue growth due to a significant increase in subscribers versus the prior year.
Frank Conforti: All four of these brands achieved record fourth quarter revenue, which was partially offset by negative comps at the urban Outfitters brand.
Frank Conforti: The growth in wholesale segment revenue was due to an increase in regular price channel sales at free people, which was partially offset by a decline in sales at urban outfitters.
Frank Conforti: Gross profit dollars increased 20% to $452 million, while our gross profit rate increased by 293 basis points to 32%.
Frank Conforti: The improvement in the gross profit rate was primarily due to increased initial margins at free people and anthropologists. In fiscal year 24, all three brands made significant progress towards our 500 basis points IMU Improvement Goal and now have their sights set on completing the goal by Q4 of fiscal 25. Markdowns were flat for the quarter versus last year but were higher than planned in the month of January, as Urban Outfitters needed to promote more aggressively than planned to clear through excess inventory.
Frank Conforti: The improvement in the gross profit rate was primarily due to increased initial margins at free people and anthropologie.
Frank Conforti: In fiscal year 'twenty for all three brands made significant progress towards our 500 basis points IMU improvement goal and now have their sights set on completing the goal by Q4 of fiscal 'twenty five.
Frank Conforti: Markdowns were flat for the quarter versus last year, but were higher than planned in the month of January at urban outfitters needed to promote more aggressively than planned to clear through excess inventory.
Frank Conforti: As a result of the additional clearance at Urban Outfitters, their comp inventory is now down 3% on a year-of-year basis and in a better position heading into the spring selling season. Now moving on to SG&A expenses, for the quarter, SG&A increased 11% versus the prior comparable quarter and was de-leveraged by 58 basis points.
Frank Conforti: As a result of the additional clearance at urban Outfitters. Their inventory is now down 3% on a year over year basis and in a better position heading into the spring selling season.
Frank Conforti: Now moving on to SG&A expenses.
Frank Conforti: For the quarter.
Frank Conforti: SG&A increased 11% versus the prior comparable quarter and Deleveraged by 58 basis points.
Frank Conforti: The increase in expense and deleverage was primarily related to an increase in marketing and creative expenses to support increased sales and Continued Customer Growth, as well as higher incentive-based compensation costs due to the improved company performance. URBN's profit results were even more impressive than our strong sales. Total URBN operating income soared 90% above the prior year to $81 million, and earnings jumped 84%, to $66 million or $0.69 per diluted share
Frank Conforti: The increase in expense and deleverage was primarily related to an increase in marketing and creative expense to support increased sales.
Frank Conforti: And continued customer growth as well as higher incentive based compensation costs due to the improved company performance.
Frank Conforti: Europeans profit results were even more impressive than our strong sales growth total European operating income soared, 90% above the prior year to $81 million and earnings jumped 84% to $66 million or <unk> 69 per diluted share.
Frank Conforti: I will now provide more details by brand, starting with Anthropologie. The Anthropologie team delivered a strong 12% retail segment comp in Q4. This increase was driven by high single-digit positive store coms and low double-digit digital coms. By category, apparel and accessories delivered positive retail segment comps in the quarter, while home was flat.
Frank Conforti: I will now provide more details by brand starting with Anthropologie.
Frank Conforti: The Anthropologie team delivered a strong 12% retail segment comp in Q4.
Frank Conforti: This increase was driven by high single digit positive store comps and low double digit digital comps.
Frank Conforti: By category apparel, and accessories delivered nicely positive retail segment comps in the quarter, while home was flat.
Frank Conforti: The strong fourth quarter completed an impressive full year of low double digit sales comps for the brand.
Frank Conforti: The strong fourth quarter completed an impressive full year of low double-digit sales comps for the brand. The impressive sales growth and healthy margin expansion drove record operating profit dollars for the fourth quarter and full year. As we enter fiscal year 2025, the Anthropologie consumer remains optimistic and continues to respond positively to a broad range of occasion and casual categories. The team transitioned into spring early in January, and the customer is responding well to the fashion news. The Home category continued to see strength in the Gift and Entertainment category, which was partially offset by a decline in Furniture and Decor.
Frank Conforti: The impressive sales growth and healthy margin expansion drove record operating profit dollars for the fourth quarter and full year.
Frank Conforti: As we enter fiscal year 2025, the Anthropologie consumer remains optimistic and continues to respond positively to a broad range of occasion and casual categories.
Frank Conforti: The team has transitioned into spring early in January and the customer is responding well to the fashion newness.
Frank Conforti: The home category continued to see strength in the gift and entertainment category, which was partially offset by a decline in furniture and decor.
Frank Conforti: During the quarter the team's execution of the brand strategy to target a slightly younger customer continued to gain traction.
Frank Conforti: New customers in the quarter in North America increased by a remarkable 26%.
Frank Conforti: The strength in apparel accessories, and gift entertainment along with the new customer acquisition has us optimistic that the Anthropologie brand can continue to drive nicely positive comps in fiscal year 'twenty five.
Frank Conforti: Now I will call your attention to free people.
Frank Conforti: During the quarter, the team's execution of the brand strategy to target a slightly younger customer continued to gain traction. New customers in the quarter in North America increased by a remarkable 26%. The strength in apparel, accessories, and gift entertainment, along with the new customer acquisition, has us optimistic that the Anthropologie brand can continue to drive positively positive comps in fiscal year 25. Now I will call your attention to free people.
Frank Conforti: Once again, the free people team produced an outstanding quarter with retail segment comps, achieving an impressive 19% gain versus last year.
Frank Conforti: Retail segment comp was driven by double digit comp growth in both the digital and store channels.
Frank Conforti: During the quarter the brand achieved strong double digit growth across apparel accessories and movement.
Frank Conforti: The FP movement brand delivered another remarkable quarter, achieving 45% retail segment growth.
Frank Conforti: Record sales and improved margins helped free people delivered record fourth quarter and full year operating profit dollars.
Frank Conforti: Early customer response to the brand's spring trends has been strong and new and total customer counts continue to grow at a double digit rate.
Frank Conforti: Once again, the Free People team produced an outstanding quarter with retail segment comps achieving an impressive 19% gain versus last year. Retail segment comps were driven by double-digit comp growth in both the digital and store channels. During the quarter, the brand achieved strong double-digit growth across apparel, accessories, and movers. The SP Movement brand delivered another remarkable quarter, achieving 45% retail segment growth. Record sales and improved margins help Free People deliver record fourth quarter and full year operating profit dollars. Early customer response to the brand's spring trends has been strong, and new and total customer counts continue to grow at a double-digit rate. We believe the brand's retail segment performance could be nicely positive in fiscal year 2025. The Free People wholesale segment sales increased 8% during the quarter, driven by sales gains in department stores.
Frank Conforti: We believe the brand's retail segment performance could be nicely positive in fiscal year 2025.
Frank Conforti: The free people wholesale segment sales increased 8% during the quarter driven by sales gains in department stores.
Frank Conforti: Profitability improved significantly from the prior year when the brand had elevated closeout channel sales to reduce inventory levels.
Frank Conforti: We believe wholesale segment sales could be near flat in fiscal year 2025, while delivering improved profitability.
Frank Conforti: Now moving on to the urban Outfitters brand.
Frank Conforti: Urban recorded a 14% retail segment comp decline in the quarter.
Frank Conforti: You always negative comp was the result of disappointing performance in both North America and Europe.
Frank Conforti: Global retail segment comp declines were driven by double digit declines in both the digital and store channels and all product categories were negative.
Frank Conforti: When we last spoke we noted the UO brand had excess inventory entering into the holiday season.
Frank Conforti: This led to significantly higher markdowns during the fourth quarter.
Frank Conforti: The brand made significant improvement on these inventory levels and is entering fiscal year 2025, with leaner inventories than the prior year.
Frank Conforti: With new leadership in place and better inventory control, we believe the brand could deliver gradual comp sales improvements as the year progresses with the first quarter of fiscal 2025 likely looking similar to the fourth quarter of fiscal year 2024.
Frank Conforti: Finally, I will touch on the newly business.
Frank Conforti: Revenue and subscriber growth continued to outperform our expectations.
Frank Conforti: Segment profitability improved significantly from the prior year when the brand had elevated closeout channel sales to reduce inventory levels. We believe wholesale segment sales could be near flat in fiscal year 2025 while delivering improved profitability. Now moving on to the Urban Outfitters brand, UO recorded a 14% retail segment comp decline in the quarter. UO's negative comp was the result of disappointing performance in both North America and Europe.
Frank Conforti: For our rental business, we see the most significant growth in subscribers during the seasonally strong first and third quarters.
Frank Conforti: During the fourth quarter average subscribers ended at 195000 growing 56% versus the prior year and 6% versus the third quarter.
Frank Conforti: As you know we've reached full capacity in our Pennsylvania fulfillment center the.
Frank Conforti: The team began the process of transitioning to our second facility in <unk>, Missouri in the fourth quarter.
Frank Conforti: This transition led to incremental and some nonrecurring costs and logistics, which will continue into the first quarter and our beat in the second quarter.
Frank Conforti: This facility will support future subscriber growth by tripling the brand's capacity.
Frank Conforti: Global retail segment comp declines were driven by double-digit declines in both the digital and store channels, and all product categories were negative. When we last spoke, we noted the UO brand had excess inventory entering the holiday season. This led to significantly higher markdowns during the fourth quarter. The brand made significant improvement on these inventory levels and is entering fiscal year 2025 with leaner inventories than the prior year. With new leadership in place and better inventory control, we believe the brand could deliver gradual comp sales improvements as the year progresses, with the first quarter of fiscal 2025 likely looking similar to the fourth quarter of fiscal year 2024. Finally, I will touch on the Nuuly business.
Frank Conforti: We are pleased to announce the first stopes have now shipped out of framework and the brand will continue to ramp up capacity as the first quarter progresses.
Frank Conforti: Let me now review the many milestones we achieved in fiscal year 2024.
Frank Conforti: We delivered 8% sales growth, resulting in a new record of $5 $2 billion in sales.
Frank Conforti: Gross profit margin expanded by 370 basis points, culminating in operating profit growth of 70% or $162 million.
Frank Conforti: Which drove 86% growth in earnings per diluted share.
Frank Conforti: Four of our five brands delivered double digit sales gains as well as customer growth and our newest brand and concept newly delivered its first ever profitable quarter.
Speaker Change: We know there is always more work to be done and improvements to be made but I would be remiss, if I didn't congratulate and thank all of our employees for their extraordinary performance in fiscal year 2024.
Frank Conforti: Revenue and subscriber growth continue to outperform our expectations. For our rental business, we see the most significant growth in subscribers during the seasonally strong first and third quarters. During the fourth quarter, average subscribers ended at 195,000, growing 56% versus the prior year and 6% versus the third quarter.
Speaker Change: Thank you for your time I will now turn the call over to Melanie Marine F. Ron Our Chief Financial Officer.
Speaker Change: Thank you Frank and good afternoon, everyone on today's call I will discuss our thoughts on the first quarter and full fiscal year 'twenty five.
Speaker Change: As we begin FY 'twenty five we believe we could deliver low single digit comps for the full year and first quarter driven by nicely positive comps at Anthropologie and free people and mid double digit revenue growth at newly we believe that the UO brand fourth quarter comp will look similar to the fourth quarter with.
Frank Conforti: As you know, we have reached full capacity in our Pennsylvania Fulfillment Center, and the team began the process of transitioning to our second facility in Raymoor, Missouri, in the fourth quarter. This transition led to incremental and some non-recurring costs in logistics, which will continue into the first quarter and abate in the second quarter. This facility will support future subscriber growth by tripling the brand's capacity. We are pleased to announce the first coats have now shipped out of Raymar, and the brand will continue to ramp up capacity as the first quarter progresses.
Speaker Change: Gradual improvement as the year progresses.
Speaker Change: We believe that first quarter total company sales growth could be mid single digits.
Speaker Change: Sales growth in Q1 could result from mid double digit growth of new lease segment sales versus last year and retail segment comp sales growing in the low single digits.
Speaker Change: Our growth in the retail segment and newly segments is likely to be partially offset by a slight sales decline in our wholesale segment.
Frank Conforti: Let me now review the many milestones we achieved in fiscal year 2020. We delivered 8% sales growth, resulting in a new record of $5.2 billion in sales. Gross profit margin expanded by 370 basis points, culminating in operating profit growth of 70% or $162 million, which drove 86% growth in earnings per diluted share. Four of our five brands delivered double-digit sales gains as well as customer growth, and our newest brand and concept, Nuuly, delivered its first ever profitable quarter. We know there's always more work to be done and improvements to be made, but I would be remiss if I didn't congratulate and thank all of our employees for their extraordinary performance in fiscal year 2020. Thank you for your time.
Speaker Change: Based on the current sales performance and plan, we believe our gross profit margins for the first quarter could improve by approximately 25 basis points versus first quarter fiscal year 'twenty four.
Speaker Change: The increase in gross profit rate could be primarily due to higher initial product margins from cross functional initiatives, which will favorably impact initial product margins. We believe that improvements in the initial product margin could be largely offset by higher logistics costs in the first quarter.
Speaker Change: The planned increase in logistics costs is primarily driven by the transition and startup of the new newly rentals fulfillment facility in Missouri.
Speaker Change: As Frank mentioned this transition began at the end of fiscal year 'twenty, four and will continue into the second quarter, albeit to a lesser extent.
Speaker Change: When thinking about gross profit margins for the full year is important to remember our three year plan to recapture 500 basis points of initial product margin from the base established in the fourth quarter of fiscal year 'twenty two.
Melanie Moraine-Efron: I will now turn the call over to Melanie Moraine-Efron, our Chief Financial Officer. Thank you, Frank, and good afternoon, everyone. On today's call, I will discuss our thoughts on the first quarter and full fiscal year 25. As we begin FY25, we believe we could deliver low single-digit comps for the full year and first quarter, driven by nicely positive comps at Anthropology and Free People and mid-double-digit revenue growth at We believe that the UO brand first quarter comp will look similar to the fourth quarter with gradual improvement as the year progresses. We believe that the first quarter total company sales growth could be mid-single-digit.
Speaker Change: This plan was announced two years ago on this call.
Speaker Change: This year FY 'twenty five is the third year of our initiatives.
Speaker Change: In FY2023 in FY 'twenty four we made tremendous progress as a result of lower inbound freight costs and our cross functional initiatives to improve initial product margins and there still is more product margin opportunity to be realized.
Speaker Change: We believe that gross profit margins in FY 'twenty five could improve by approximately 50 to 100 basis points versus the full year fiscal 'twenty four.
Melanie Moraine-Efron: Sales growth in Q1 could result from mid-double-digit growth of new lease segment sales versus last year and retail segment comp sales growing in the low single digits. Our growth in the retail segment and new lease segments is likely to be partially offset by a slight sales decline in our wholesale sales. Based on the current sales performance and plan, we believe our gross profit margins for the first quarter could improve by approximately 25 basis points versus the first quarter of fiscal year 2015. The increase in gross profit rate could be primarily due to higher initial product margins from cross-functional initiatives, which will favorably impact initial product margins. We believe that improvements in the initial product margin could be largely offset by higher logistics costs in the first quarter. The planned increase in logistics costs is primarily driven by the transition and startup of the new rental fulfillment facility in Missouri. As Frank mentioned, this transition began at the end of fiscal year 24 and will continue into the second quarter, albeit to a lesser extent.
Speaker Change: In FY 'twenty five improved gross profit margins could be driven by higher initial product margins at all brands and the opportunity for lower markdowns at the urban Outfitters brand as a result of more tightly controlled inventory in the second half of the year.
Speaker Change: Based on our current sales performance and financial plan, we believe total growth in SG&A could outpace sales growth for the quarter and year.
Speaker Change: Deleverage of SG&A, primarily relates to the urban Outfitters brand.
Speaker Change: While we have reduced expenses at the urban Outfitters brand, we do not believe it is prudent to reduce expenses at the rate of negative sales performance at believe could occur in FY 'twenty five.
Speaker Change: The growth in SG&A, primarily relates to increases in marketing expenses to support growth in customers and sales in the free people FP movement, anthropologie and newly brands.
Speaker Change: In Q1, SG&A could grow in the low double digits, while the year will be much closer to our sales growth.
Speaker Change: We believe the delta between SG&A and sales growth rates will be larger in the first half of the year than the second half of the year.
Speaker Change: As always if sales performance fluctuate, we maintain a certain level of variable SG&A spending that we can fluctuate up and down depending on how our business is performing.
Melanie Moraine-Efron: When thinking about gross profit margins for the full year, it is important to remember our three-year plan to recapture 500 basis points of initial product margin from the base established in the fourth quarter of fiscal year 2020. This plan was announced two years ago on this call. This year, FY25, is the third year of our initiative.
Speaker Change: Our annual effective tax rate is planned to be approximately 24% for the year and 25% for the first quarter.
Speaker Change: Now moving on to inventory as a result of the more reliable supply chain with faster speed and increase reliability, we've been able to bring product in closer to demand in the past year. This has allowed us to speed up our product turns in FY 'twenty, four and manage to a lower weeks of supply.
Melanie Moraine-Efron: In FY23 and FY24, we made tremendous progress as a result of lower inbound freight costs and our cross-functional initiatives to improve initial product margins. And there still is more product margin opportunity to be realized. We believe that gross profit margins in FY25 could improve by approximately 50 to 100 basis points versus the full year fiscal 24. In FY25, higher gross profit margins could be driven by higher initial product margins at all brands and the opportunity for lower markdowns at the Urban Outfitters brand as a result of more tightly controlled inventory in the second half of. Based on our current sales performance and financial plan, we believe total growth in SG&A could outpace The deleverage of SG&A primarily relates to the Urban Outfitters brand.
Speaker Change: In the coming year, we will continue to be focused on increasing our product turns we believe that our inventory levels could grow at a rate below sales growth.
Speaker Change: As you may have noticed our FY 'twenty for capital expenditure came in approximately $35 million lower than planned spend FY.
Speaker Change: FY 'twenty for capital spend was lower than plan due to timing of FY 'twenty four project cash flows which have shifted into FY 'twenty five.
Speaker Change: For FY 'twenty five capital expenditure is planned at approximately $210 million, including $35 million of timing shift of capital spend from FY 'twenty four.
Speaker Change: The FY 'twenty five capital project spend is broken down as follows approximately 50% is related to retail store expansion and support approximately 25% is related to logistics capacity investments, including the newly rental fulfillment center in <unk>, Missouri, which Frank referenced and the remaining 25.
Melanie Moraine-Efron: While we have reduced expenses at the Urban Outfitters brand, we do not believe it is prudent to reduce expenses at the rate of negative sales performance that we believe could occur in FY25. The growth in SG&A primarily relates to increases in marketing expenses to support growth in customers and sales in the free people, FP movement, anthropology, and new brands. In Q1, SG&A could grow in the low double digits while a year will be much closer to our sales. We believe the delta between SG&A and sales growth rates will be larger in the first half of the year than the second. As always, if sales performance fluctuates, we maintain a certain level of variable SG&A spending that we can fluctuate up and down depending on how our business is performing. Our annual effective staff rate is planned to be approximately 24% for the year and 25% for the first quarter.
Speaker Change: 5% would be our normal capital investments supporting home office and logistics operations.
Speaker Change: We will be opening approximately 58, new stores and closing approximately 21 stores during fiscal year 'twenty five.
Speaker Change: Our net new store growth is being driven by growth in FP movement free people and Anthropologie stores.
Speaker Change: During FY 'twenty five we plan on opening 25, FP movement stores 13 free people stores and 14 Anthropologie stores.
Speaker Change: Based on our current plans, we plan to repurchase shares to at a minimum offset the dilution in FY 'twenty five.
Speaker Change: Of course share repurchase activity will be contingent on market conditions and board of director approval.
Speaker Change: 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.
Melanie Moraine-Efron: Now, moving on to inventory. As a result of the more reliable supply chain with faster speed and increased reliability, we've been able to bring products in closer to demand in the past year. This has allowed us to speed up our product turns in FY24 and manage to a lower week's supply. In the coming year, we will continue to be focused on increasing our product turns. We believe that our inventory levels could grow at a rate below sales. As you may have noticed, our FY24 capital expenditure came in approximately $35 million lower than planned.
Speaker Change: Now it is my pleasure to turn the call over to <expletive> Hayne, Chief Executive Officer of Europeans.
Hayne: Thank you Mel.
Hayne: Heard from Frank and Merle four of our brands Anthropologie free people.
Hayne: And early on.
Hayne: All delivered a strong Q4 performances and given their current trends I am optimistic about their prospects for this year.
Hayne: We believe each of these brands can continue to post healthy comps, albeit at a somewhat lower rate than last year.
Hayne: Our fifth brand urban Outfitters continued to fall short of our expectations with double digit negative comps in Q4.
Hayne: And they remain negative so far in February.
Hayne: Today I'll discuss the opportunities we see for sales growth this year.
Melanie Moraine-Efron: FY24 capital spend was lower than planned due to the timing of FY24 project cash flows, which have shifted into FY25. For FY25, capital expenditure is planned at approximately $210 million, including $35 million of timing shift of capital spend from FY24. The FY25 capital project spend is broken down as follows. Approximately 50% is related to retail store expansion and support. Approximately 25% is related to logistics capacity investments, including the new rental fulfillment center in Raymoor, Missouri, which Frank referenced. And the remaining 25% would be our normal capital investments supporting IT, the home office, and logistics. We will be opening approximately 58 new stores and closing approximately 21 stores during fiscal year 25.
Hayne: A few words about our current view of the consumer.
Hayne: Entering our fiscal year 2025, we enjoy two young fast growing brands.
Hayne: Plus two larger brands posted excellent comps and gained market share last year.
Hayne: For FY 'twenty five we are planning a similar outcome for these four brands, but expect comp sales to moderate slightly.
Hayne: In Q1, we are planning total retail segment comps to be around 3% and total European revenues to increase by mid single digits.
Hayne: I'll now discuss each brand starting with Anthropologie.
Hayne: Because for the anthro has been on modernizing the product assortment enhancing the store and digital selling environments and providing inspirational creative content.
Hayne: This has allowed the brand to grow its customer base across multiple age demographics with a particular emphasis on capturing additional customers under 40.
Hayne: To reach that younger customer the team modernize core categories like denim and dresses elevated the market brands offered an accentuated product categories that resonate, especially well with younger customers like.
Melanie Moraine-Efron: Our net new store growth is being driven by growth in FP Movement, Free People, and Anthropologie. During FY25, we plan on opening 25 FP Movement stores, 13 Free People stores, and 14 Anthropologie. Based on our current plans, we plan to repurchase shares to at least offset the dilution in FY25. Of course, share repurchase activity will be contingent on market conditions and the Board of Directors. As a reminder, the foregoing does not constitute a forecast but is simply a reflection of our current view. The company disclaims any obligation to update forward-looking statements.
Hayne: Intimate apparel accessories and shoes.
Hayne: These efforts saw great success in fiscal 'twenty, four and helped to drive a 12% comp increase.
Hayne: A 26% increase in new customers in Q4.
Hayne: Building on the success.
Hayne: For spring the team has expanded to new product concepts with dedicated shop in shops inside 50, Anthropologie stores and featured these concepts on Anthropologie Dot com.
Hayne: The first shop consist of vacation ready fashion essentials like fund dresses coverups sandals towards accessories in skincare.
Hayne: The second shop features an expanded range of intimates lounge wear sleeping beauty.
Richard A. Hayne: Now, it is my pleasure to turn the call over to Dick Hayne, Chief Executive Officer of URP. Thank you, Mel. As you heard from Frank and Mel, four of our brands, Anthropologie, Free People, FP Movement, and Nuuly, all delivered strong Q4 performance, and given their current trends, I'm optimistic about their prospects for this year. We believe each of these brands can continue to post healthy comps, albeit at a somewhat lower rate than last year. Our fifth brand, Urban Outfitters, continued to fall short of our expectations, with double-digit negative comps in Q4 and remain negative so far in February.
Hayne: Central's.
Hayne: These two concepts are enjoying outsized comp gains on helping to drive nicely positive retail segment comp increases in February.
Hayne: Overall, we believe the Anthropologie group can deliver mid single digit comps for the year and the first half.
Hayne: Moving to the free people brand, where FP movement continues to lead this brand's remarkable growth.
Hayne: Last year movement achieved retail segment growth of 53% and has continued to deliver powerful double digit retail segment comp growth in February this year.
Hayne: Movement continues to focus on growing its brand recognition and broadening its reach across all three channels of distribution.
Hayne: Last year movements 38, standalone stores far surpassed our performance expectations with every sales per square foot exceeding those at the average free people locations.
Richard A. Hayne: Today I'll discuss the opportunities we see for sales growth this year and say a few words about our current view of the consumer. Entering our fiscal year 2025, we have two young, fast-growing brands, plus two larger brands that posted excellent comps and gained market share last year. For FY25, we are planning a similar outcome for these four brands but expect comp sales to moderate slightly. In Q1, we are planning total retail segment comps to be around 3% and total URBN revenues to increase by mid-single digits. I'll now discuss each brand, starting with Anthropos.
Hayne: We believe this provides an opportunity to open many additional stores and increase the size of new stores to approximately 2600 gross square feet or 30% larger than the current fleet average.
Hayne: Our data confirms that opening new brick and mortar location not only augments brand recognition, but also list digital sales and the surrounding Zip codes.
Hayne: In FY 'twenty five the team plans to open an additional 25 movement stores.
Hayne: 66% increase over the current base.
Hayne: We believe that movement has the highest store count opportunity of all European brands, both in North America and globally.
Richard A. Hayne: The focus at Anthro has been on modernizing the product assortment, enhancing the store and digital selling environments, and providing inspirational, creative content. This has allowed the brand to grow its customer base across multiple age demographics, with a particular emphasis on capturing additional customers under 40. To reach that younger customer, the team modernized core categories like denim and dresses, elevated the market brands offered, and accentuated product categories that resonate especially well with younger customers. Mike Henneman Apparel, Accessories, and Shoes
Hayne: The wholesale channel provides movement with an additional method of building name recognition.
Hayne: Wondering with Premier activity based specialty accounts gives the brand additional credibility within the activewear space and helps to drive engagement.
Hayne: The free people collection business also plans to deliver solid growth. This.
Hayne: This year the team will execute a growth strategy centered on attracting additional digital customers through more robust marketing efforts, while expanding the product offering in areas like footwear and accessories.
Hayne: The brand is also expanding the sub brand freest, which concentrates on effortless sitar with a brief sensibility.
Richard A. Hayne: These efforts saw great success in fiscal 24 and helped to drive a 12% comp increase and a 26% increase in new customers in Q4. Building on this success, For spring, the team has expanded two new product concepts with dedicated shops and shops inside 50 anthropology stores and featured these concepts on anthropology.com. The first shop consists of vacation-ready fashion essentials like sundresses, cover-ups, sandals, shorts, accessories, and skin care.
Hayne: To that end in mid February the brand opened 2800 square foot free this pop up shop in Palm Beach, Florida that is generating sales significantly above our very optimistic plan.
Hayne: While it's still early days for this sub brand expanding the prius concept might provide yet another growth opportunity for the free people brand and the future stay tuned.
Hayne: I'll now turn your attention to newly.
Hayne: <unk> fast growing apparel rental business.
Hayne: Newly developed delivered an exceptionally strong fiscal year.
Hayne: Pacing expectations for both top and bottom line performance and recording its first profitable quarter in Q3.
Richard A. Hayne: The second shop features an expanded range of intimates, loungewear, sleep, and beauty. These two concepts are enjoying outsized comp gains and are helping to drive nicely positive retail segment comp increases in February. Overall, we believe the Anthropology Group can deliver mid-single-digit comps for the year and the first half. Moving to the Free People brand, where FP Movement continues to lead this brand's remarkable growth. Last year, Movement achieved retail segment growth of 53% and has continued to deliver powerful double-digit retail segment comp growth in February this year. Movement continues to focus on growing its brand recognition and broadening its reach across all three channels of distribution. Last year, MVMT's 38 standalone stores far surpassed our performance expectations, with average sales per square foot exceeding those at the average free people location.
Hayne: Faster than planned subscriber growth during the year accelerated the rins need to invest in a second fulfillment center.
Hayne: That center located outside Kansas City is now operational and will slowly ramp up fulfillment in the first quarter.
Hayne: Opening this facility has created additional onetime expenses, thus in Q4 newly incurred a small operating loss and we expect a slightly larger loss in Q1.
Hayne: However, we plan for the brands have returned to profitability in Q2 and be profitable for the full year.
Hayne: At full capacity the new facility will allow the total number of subscribers to more than triple from current levels.
Hayne: We are acutely aware that our single largest opportunity to improve <unk> bottom line is turning around the urban brand in North America.
Hayne: To that end, we are highly focused on building the team improving the product offering and strengthening our marketing offers.
Hayne: As I announced earlier Shay Janssen has joined the <unk> team as President of North America.
Hayne: Additionally, Dmitry Siegel has rejoined the team as chief Creative and digital officer.
Richard A. Hayne: We believe this provides an opportunity to open many additional stores and increase the size of new stores to approximately 2,600 gross square feet, or 30% larger than the current fleet average. Our data confirms that opening new brick-and-mortar locations not only augments brand recognition but also lifts digital sales in the surrounding zip code. In FY25, the team plans to open an additional 25 movement stores, a 66% increase over the current base. We believe that Movement has the highest store count opportunity of all URBN brands, both in North America and globally. The Wholesale Channel provides movement with an additional method of building name recognition.
Hayne: I believe these two leaders working with their teams and Sheila will spearhead the brand's Renaissance in North America.
Hayne: Our plan calls for the brand to deliver slow, but steady progress over the course of this year and reach flat comps in Q4.
Hayne: Turning now to the health of our customers.
Hayne: We believe they as a group are in good shape.
Hayne: They're not as exuberant as they were when first coming out of this pandemic.
Hayne: They don't have as many weddings and events to attend.
Hayne: They are less apt to move and have recently refurbished their living spaces.
Hayne: So demand for categories like dresses footwear and home furnishings are trending softer.
Hayne: But they do enjoy a secure job and are earning more money than ever.
Hayne: Tend to be optimistic want the latest fashion.
Richard A. Hayne: Partnering with Premier Activity-Based Specialty Accounts gives the brand additional credibility within the activewear space and helps to drive engagement. The Free People Collection business also plans to deliver solid growth. This year, the team will execute a growth strategy centered on attracting additional digital customers through more robust marketing efforts while expanding the product offering in areas like footwear and accessories. The brand is also expanding its sub-brand, Freest, which concentrates on effortless attire with a beach sensibility.
Hayne: Willing to spend some of those extra earnings to enjoy them.
Hayne: Their mood and financial condition to create an environment conducive to our brand success.
Hayne: Our job as always is to ensure that we give them the products and experiences that exceed their expectations.
Hayne: We believe we are poised to do just that.
Speaker Change: In closing I, Thank our brand and shared service leaders their merchant creative and operating teams and our 27000 associates worldwide.
Speaker Change: They delivered an outstanding record setting performance in FY 'twenty four.
Hayne: I also recognize and thank our many partners around the globe.
Richard A. Hayne: To that end, in mid-February, the brand opened a 2,800-square-foot Freest pop-up shop in Palm Beach, Florida, that is generating sales significantly above our very optimistic plan while it's still early days for this sub-brand. Expanding the Freest concept might provide yet another growth opportunity for the free people brand in the future. Stay tuned.
Speaker Change: Finally, I, thank our shareholders for their continued support.
Speaker Change: That concludes our prepared remarks, and I'll now turn the call over for your questions.
Speaker Change: Thank you as a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question Press Star one again.
Speaker Change: Time restraints, we ask that you. Please limit yourself to one question. Please standby, while we compile the Q&A roster.
Richard A. Hayne: I now turn your attention to Newly. URBN's Fast-Growing Apparel Rental, Newly delivered an exceptionally strong fiscal year, outpacing expectations for both top and bottom line performance and recording its first profitable quarter in Q3. Furthermore, faster than planned subscriber growth during the year accelerated the brand's need to invest in a second fulfillment center. That center located outside Kansas City is now operational and will slowly ramp up fulfillment in the first quarter. Opening this facility has created additional one-time expenses.
Speaker Change: And our first question will come from the line of Lorraine Hutchinson with Bank of America. Your line is open.
Lorraine Hutchinson: Thank you. Good afternoon. My question is on the urban Outfitters brand now that Shay and Dmitry are onboard how quickly can they impact the product and then the marketing message.
Speaker Change: I think Larry and I can take that.
Lorraine Hutchinson: Like jumping in San Dmitry are highly focused on our back to school timeframe and beyond.
Lorraine Hutchinson: Such kind of typical.
Lorraine Hutchinson: For the urban Outfitters brand.
Lorraine Hutchinson: Our focus is really on that.
Speaker Change: The larger impact Q3, although I can say, they're dissecting all parts of the business.
Richard A. Hayne: Thus, in Q4, the new facility incurred a small operating loss, and we expect a slightly larger loss in Q1. However, we plan for the brand to return to profitability in Q2 and be profitable for the full year. At full capacity, the new facility will allow the total number of subscribers to more than triple from the current level.
Speaker Change: Thanks, Ken.
Speaker Change: Immediately.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Matthew Boss with Jpmorgan. Your line is open.
Matthew Robert Boss: Great. Thanks, So <expletive> could you elaborate on the positive response that you cited to early spring offering.
Matthew Robert Boss: Then larger picture you spoke to the successful customer base expansion at Anthropologie I guess, what what do you see as key to the turnaround at the urban brand from here.
Richard A. Hayne: We are acutely aware that our single largest opportunity to improve URBN's bottom line is turning around the urban brand in North America. To that end, we are highly focused on building the team, improving the product offering, and strengthening our marketing. As I announced earlier, Shea Jansen has joined the UO team as President of North America.
Speaker Change: Okay, Matthew I'll try.
Matthew Robert Boss: To do both of those things.
Matthew Robert Boss: The key to the urban brand as we said all along.
Speaker Change: As having the leadership in place.
Richard A. Hayne: Additionally, Dimitri Siegel has rejoined the team as chief creative and digital officer. I believe these two leaders, working with their teams and Sheila, will spearhead the brand's renaissance in North America. Our plan calls for the brand to deliver slow but steady progress over the course of this year and reach flat comps in Q4. Now, to the health of our customers. We believe they, as a group, are in good shape. They're not as exuberant as they were when first coming out of the pandemic. They don't have as many weddings and events to attend.
Speaker Change: And secondarily I'm.
Speaker Change: I'm happy to announce that we're have undertaken a comprehensive brand review and we're looking at all areas of the business. So I can't tell you what.
Speaker Change: Going to come out of that review.
Speaker Change: I will say, having having the leadership in place.
Speaker Change: As the number one element that will help the Rand turnaround.
Speaker Change: Sorry.
Speaker Change: Great Oh spring spring.
Speaker Change: Well the way I judge that as sales and sales are trending.
Speaker Change: <unk> is in line with Q4 sales and so.
Speaker Change: I would say that she and.
Richard A. Hayne: They are less apt to move and have recently refurbished their living space, so demand for categories like dressier footwear and home furnishings is trending soft, but they do enjoy a secure job and are earning more money than ever. They tend to be optimistic, want the latest fashion, and are willing to spend some of that extra earnings to enjoy them. Their mood and financial condition create an environment conducive to our brand success. Our job, as always, is to ensure that we give them products and experiences that exceed their expectations. We believe we are poised to do just that. In closing, I thank our brand and shared service leaders, their merchant, creative, and operating teams, and our 27,000 associates worldwide. They delivered an outstanding, record-setting performance in FY24.
Speaker Change: Urban's Casey.
Speaker Change: Are responding.
Speaker Change: It very much in line with what they are responding to the prior year, which was very good. So we're seeing good comps.
Speaker Change: And.
Speaker Change: That's attributed to the selection in the <unk>.
Speaker Change: Short method the brand leaders have.
Speaker Change: I've done.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Adrienne <unk> with Barclays. Your line is open.
Adrienne: Great. Thank you very much good afternoon.
Adrienne: My question is for you.
Adrienne: On obviously urban Outfitters wondering if there is any thought that perhaps the usefulness are coming down and a drag on anthropologie maybe impacting.
Adrienne: They are at the higher end for urban and then.
Adrienne: What would what would make you kind of consider maybe rationalizing the store base at urban Outfitters, and then for Melanie on the gross margin can you just help us understand.
Operator: I also recognize and thank our many partners around the globe. Finally, I thank our shareholders for their continued support. That concludes our prepared remarks, and I now turn the call over to your questions. Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again.
Adrienne: Anthro and free people there does seem to be at peak operating margins profitability. So how much further do you think that's sustainable and how much further can the overall you are beyond gross margins go if you get a turn at UO. Thank you.
Speaker Change: Okay Andrea.
Speaker Change: Even though there is more than one question, there and we'll try to try to answer them.
Andrea: On an urban outfitters overlap with Anthropologie.
Andrea: Explore that a number of times.
Operator: Due to time constraints, we ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. And our first question will come from the line of Lorraine Hutchinson with Bank of America. Your line is open.
Speaker Change: Through focus groups and we have found is there's actually very little.
Speaker Change: There are some categories of product.
Speaker Change: Being that we sometimes see.
Speaker Change: Some overlap but I.
Speaker Change: I think thats fairly minor.
Speaker Change: I think theres more overlap between urban and free people.
Operator: My question is on the Urban Outfitters brand. Now that Shea and Dimitri are on board, how quickly, and Mark. Lorraine, I can take that.
Speaker Change: And given the current.
Speaker Change: Fashion proclivity for femininity.
Speaker Change: I think free people has always been known for.
Operator: I feel like jumping in. Shay and Demetria are highly focused on our back-to-school time frame and being such a pivotal point for the Urban Outfitters brand, so their focus is really on a larger impact in Q3, although I can say they're dissecting all parts of the business to affect as much as they can. Thank you. One moment for our next question, and that will come from the line of Matthew Boss with J.P. Morgan. Your line is open. Great, thanks.
Speaker Change: Femininity and we could see some bleed from urban customers into the free people brand.
Speaker Change: <unk> probably not.
Speaker Change: No.
Speaker Change: Brian This is Frank as it relates to gross profit.
Frank Conforti: I think we did say on our prepared remarks, we think all brands have.
Speaker Change: Continued IMU opportunity.
Speaker Change: So obviously that would that would add to gross profit and I think there's always.
Speaker Change: Markdown rate opportunity as it relates to just better inventory control and speed.
Operator: So, Dick, could you elaborate on the positive response that you cited for the early spring offering? And then, larger picture, you spoke to the successful customer base expansion at Anthropologie. I guess, what do you see as key to the turnaround at the Urban brand from here? Okay, Matthew. I'll try to do both of those things.
Speaker Change: Which can happen at all brands, but obviously the biggest impact that we're looking for this year is.
Speaker Change: For that to come from the urban Outfitters brand, but but but yes, we still think that there's still opportunity for all brands to improve upon their rates.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Paul <unk> with Citi. Your line is open.
Operator: The key to the urban brand, as we said all along, is having the leadership in place. And secondarily, I'm happy to announce that we have undertaken a comprehensive brand review. And we're looking at all areas of the, So I can't tell you what's going to come out of that review, but I will say having the leadership in place is the number one element that will help the RAND turnaround, and sorry, the Great. Oh, spring, spring!
Paul: Hi, Thank you for taking my question I guess as a follow up on that.
Paul: The IMU opportunity.
Paul: And all brands could you just dig in there a little bit about what exactly what will be some of the niches that are.
Paul: That can kind of improve the idea this year outside of <unk>.
Paul: Our.
Paul: Just trying to understand is that kind of product calculator. There is there anything you can dig in on the specific initiatives and then secondly on the free people movement business I know you recently entered.
Paul: Wondering how the business is performing there how many doors are you in.
Paul: And whether there's opportunity to expand into another.
Speaker Change: National retailers. Thank you.
Operator: Yeah, um, Well, the way I judge that is by sales, and sales are trending reasonably in line with Q4 sales. And so, I would say that she and, in Urban's case, he, are responding.
Speaker Change: And I'll try to start that with I am UN improvement.
Speaker Change: Our initiative.
Speaker Change: Hi.
Speaker Change: The majority of success due to reduced transportation costs.
Speaker Change: That reduced transportation costs.
Speaker Change: Was partially.
Operator: It's very much in line with what they were responding to the prior year, which was very good. So we're seeing good confidence, and... That's a tribute to the selection and the assortment that the brand leaders have. John.
Speaker Change: I do too.
Speaker Change: Reduced rates in Ocean and air freight over the last two years.
Speaker Change: So that drove a lot, but we have also driven.
Speaker Change: A lot of our airfreight that we used to do and converted that to ocean freight, which as you know is much less expensive.
Operator: Thank you. One moment for our next question, and that will come from the line of Adrienne Yih with Barclays. Your line is open. Great. Thank you very much. Good afternoon.
Paul: Any.
Paul: Addition to that.
Paul: We've increased our internal brand penetration, which.
Paul: A greater IMU.
Paul: And what we can get in the market.
Operator: Dick, my question is for you on, obviously, Urban Outfitters. Wondering if there's any thought that perhaps the youthfulness or coming down in age range on anthropology may be impacting sort of those at the higher end for Urban. And then what would make you kind of consider maybe rationalizing the store base at Urban Outfitters? And then for Melanie on the gross margin, can you just help us understand, you know, anthro free people seem to be at peak operating margin profitability, so how much further do you think that's sustainable and how much further can the overall URBN gross margins go if you get a turn at UO? Thank you. Okay, Adrienne, even though there's more than one question there, we'll try to try to answer them.
Paul: We have concentrated on the fill rates in our containers trying to get more product into each container.
Paul: We've looked at purchasing.
Paul: Our doing parts more fabric and yarn and other raw materials directly from the mills.
Paul: And then in addition to that we have.
Paul: Leveraged.
Paul: Multiple styles across the same fabric so that the fabric.
Paul: <unk> expense is less.
Paul: Going forward, we have additional process improvements.
Paul: Or will be a result of.
Paul: Better use of technology and automation.
Paul: Those are the things that we have done and are continuing to do.
Paul: Like Frank and Merle both said, we believe that.
Paul: 500 basis points that we're delivering in the three years is a great start, but there's more to come.
Speaker Change: Thank you.
Speaker Change: Sure I can.
Speaker Change: Uh huh.
Speaker Change: Regards commitment we've been really pleased with our partnership with Dick's Sporting goods.
Operator: On urban outfitters' overlap with anthropology, we have explored that a number of times through focus groups, and we have found that there's actually very little. Now there are some categories of product, like bedding, that we sometimes see some overlap, but I think that's fairly minor. I think there's more overlap between urban and Free People. And given the current fashion proclivity for femininity, I think that Free People has always been known for that femininity, and we could see some bleed from urban customers into the Free People brand. But anthropology, probably not.
Speaker Change: Given us a lot of credibility in this active lifestyle space.
Speaker Change: Along with very strong other brands in the market. So we feel really proud of how they take care of the brand and the product within the store space.
Speaker Change: And I think that partnership hopefully will continue to be very positive go forward.
Speaker Change: As far as the rest of our wholesale intentions with FP movement it focused around three areas.
Speaker Change: Lifestyle focused on outdoor specialty.
Speaker Change: Outdoor run and studio space and we believe each of these has.
Speaker Change: Huge opportunity within the wholesale channel.
Operator: Mel? And this is Frank, Adrienne. As it relates to gross profit, as I think we did say in our prepared remarks, we think all brands have continued IMU opportunities. So, you know, obviously, that would add to gross profit. And, you know, I think there's always a markdown rate opportunity as it relates to better inventory control and speed, which can happen at all brands. But obviously, the biggest impact that we're looking for this year is for that to come from the Urban Outfitters brand. But yes, we still think that there's still opportunity for all brands to improve upon their. Thank you. One moment for our next question. And that will come from the line of Paul Lejuez with Citi. Your line is open.
Speaker Change: Thrive and represent the brand very strongly.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Yes.
Speaker Change: And that will come from the line of Dana Telsey with Telsey Advisory Group. Your line is open hi.
Dana Lauren Telsey: Good afternoon, everyone. Thank you talked about the study that the urban Outfitters division is undergoing.
Dana Lauren Telsey: Using an external firm to do that strategic study with you what's the timeframe of when you expect to have the results of that study and as it holistic and examining every part of the business and then just lastly on the margins and inventory levels. What are you seeing from any issues in the Red Sea is that delayed us a.
Dana Lauren Telsey: <unk> home or how you're thinking about it. Thank you.
Dana: Okay Dana.
Dana: The urban Outfitters brand as I said, we have begun a comprehensive brand review.
Operator: Hi, thank you for taking my question. I guess a follow up on the IMU opportunity at all grades. Could you just dig in there a little bit about what exactly will be some of those initiatives that are set to kind of improve the IMU this year outside of UL? Just trying to understand, is that kind of product cost-related, or is there anything you could dig in on the specific initiatives? And then, secondly, on the free people movement business, I know you recently entered Dix; just wondering how the business is performing there. How many doors are you in, and whether there's an opportunity to expand into some other national retailers? Thank you. Okay, I'll try to start that with IMU improvement.
Speaker Change: We're looking at all aspects of the business from who the target customer is.
Speaker Change: To the store footprint and fleet size in all aspects of the brand March marketing.
Speaker Change: A number of other topics that we are doing under the review.
Speaker Change: We've listed about nine or 10, so far.
Speaker Change: And we think this study will take the better part of a few months and we're more than happy to update you on our progress in future calls.
Speaker Change: Dana This is Frank as it relates to the Red Sea and just wanted to note that we have included the.
Frank Conforti: The impacts.
Frank Conforti: The estimated impact of the Red Sea in our planned expenses for fiscal 'twenty five.
Frank Conforti: Those impacts are baked into our plan for the 50 to 100 basis points of gross profit margin improvement I think right now what we're seeing is reliability in the region, which is good and what that means is that we know where our ships are and what our costs are that wasn't the case.
Operator: Our initiative has had a majority of success due to reduced transportation costs. Now that reduced transportation costs, uh...wer partially...do have reduced rates in ocean and air freight over the last two years. So that drove a lot, but we have also driven a lot of our air freight that we used to do and converted that to ocean freight, which, as you know, is much less expensive. In addition to that... We've increased our internal brand penetration, which has a greater IMU. ...than what we can get in the market. We have concentrated on the fill rates in our containers, trying to get more product into each container. We've looked at purchasing, or we are doing, purchasing more fabric and yarn and other raw materials directly from the mills.
Frank Conforti: First the first went down over there, but I would say unfortunately, though as the ships are obviously, taking extra time and costing a bit more as most are currently taking a long way around the southern tip of Africa.
Frank Conforti: Yeah.
Speaker Change: Thank you one moment for our next question.
Frank Conforti: And that will come from the line of Marni Shapiro with the retail tracker. Your line is open.
Marni Shapiro: Hey, guys. Thanks, so much.
Marni Shapiro: Paul a quick newly questions I guess, how quickly you talked about the new fulfillment center.
Marni Shapiro: I'm curious how quickly you think it will come up to speed. So that it's really kind of chugging, along and then could you talk a little bit about the newly shopper are you seeing a lot of cross between this shopper free people anthro, I'm guessing a little bit less urban or are they new to the company.
Operator: And then, in addition to that, we leverage multiple styles across the same fabric so that the fabric expense is less. Going forward, we have additional process improvements that will be a result of better use of technology and automation. So those are the things that we have done and are continuing to do. But like Frank and Melboe said, we believe that the 500 basis points that we're delivering in three years is a great start, but there's more to come. Thank you. I can hop on in regards to movement.
Marni Shapiro: If you could just talk a little bit about that are they are they driving is it easier to kind of grab them from the other brands are these new people coming to you that have not shopped with you before.
Speaker Change: Yes. Good morning, thanks for the newly questions I'll start with the customer first.
Speaker Change: We do see some overlap with customers that come to come into newly from the.
Speaker Change: From our sister brands.
Speaker Change: A reason a reasonably healthy overlap, but we do see a fair amount of customers that come into European for the first time, which has been really nice surprise. So it's.
Operator: We've been really pleased with our partnership with Exporting Goods. I feel like it gives us a lot of credibility in this active lifestyle space, along with very strong other brands in the market. So we feel really proud.
Speaker Change: It's a little bit of both.
Speaker Change: It's a good healthy mix of customers.
Speaker Change: Customers that come in from the brands as well as come in Europe yet.
Speaker Change: In regards to the Missouri building.
Operator: We love how they take care of the brand and the product within the store space, and I think that partnership, hopefully, will continue to be very positive going forward. As far as the rest of our wholesale intentions with FP Movement, they focus on three areas that the Active Lifestyle is focused on, outdoor, run, and studio space, and we believe each of these areas has a huge opportunity within the wholesale channel to thrive and represent the brand very strongly. Thank you.
Speaker Change: Actually up and operational now the building has been operating for the better part of the last.
Speaker Change: Four or five weeks in terms of actually.
Speaker Change: Assessing inventory getting units out the door and actually shipping new leased to customers.
Speaker Change: A tricky process and that we have to.
Speaker Change: Move a fair amount of inventory ahead of the subscribers that are being moved to that builder.
Speaker Change: But now that that has occurred we are in the process of migrating subscribers to the Missouri building and actually shifting customer orders out from there.
Operator: One moment for our next question, and that will come from the line of Dana Telsey with the Telsey Advisory Group. Your line is open. Hi, good afternoon, everyone.
Speaker Change: So that transition will happen through the better part of Q1 by the end of Q1, we anticipate we'll be operating about a quarter of our subscriber base out of that building.
Operator: Dick, as you talked about the study that the Urban Outfitters Division is undergoing, are you using an external firm to do that strategic study with you? What's the timeframe for when you expect to have the results of that study? And is it holistic in examining every part of the business? And then, just lastly, on the margins and inventory levels, what are you seeing from any issues in the Red Sea? Is that delayed at a particular home or how are you thinking about it?
Speaker Change:
Speaker Change: And we think we will see some of the incremental costs that we saw in Q4 carried through into Q1.
Speaker Change: Lightly into Q2.
Speaker Change: As we ramp up that building.
Speaker Change: But I do want to reiterate that we just we feel very excited about this growth opportunity at new lease the building.
Speaker Change: Big milestone for the brand.
Speaker Change: We feel.
Speaker Change: Even more encouraged about the opportunity to be a very sizable business. We think there is a large and growing market for rental apparel in the United States that we are tapping into.
Operator: Okay, Dana, the Urban Outfitters brand. As I said, we've begun a comprehensive brand review. You know, we're looking at all aspects of the business, from who the target customer is to the store footprint and fleet size and all aspects of brand marketing. There are a number of other topics that we're doing under the review. I think we've listed about nine or 10 so far.
Speaker Change: And we do think as we've said before that this could be the next billion dollar brand.
Speaker Change: And this building is really a testament to the investment in this building is really a testament to.
Speaker Change: That resolved and that excitement so as we've said before we're gonna be tripling R.
Speaker Change: Our network capacity up to 600000 subscribers are new building will be much more automated than our existing building, which should lead to efficiencies and we think we will see some delivery expense improvement as we operate more out of this building as well as.
Operator: And we think the study will take... the better part of a few months, and we'll be more than happy to update you on our progress on future calls. Dana, this is Frank.
Speaker Change: A faster delivery experience for customers. So it should result in a much improved situation and a lot of headroom for the brand.
Speaker Change: Thank you one moment for our next question.
Operator: As it relates to the Red Sea, I just want to note that we have included the impacts, and estimated impact, of the Red Sea in our planned expenses for Fiscal 25, so that those impacts are baked into our plan for the 50 to 100 basis points of gross profit margin improvement. I think right now, what we're seeing is reliability in the region, which is good, and what that means is that we know where our ships are and what our costs are. That wasn't the case when things first went down over there.
Speaker Change: And that will come from the line of Alex Stratton with Morgan Stanley. Your line is open.
Speaker Change: Yeah.
Alex Stratton: Perfect. Thanks, so much for taking my question I just have two for you. One is on free people movement can you just elaborate on the positioning of that brand from a competitive standpoint, and when you think of the peers and what do you think about the size of that business over time and then my second question is just on gross margin and that five.
Alex Stratton: 100 bps off of opportunity over time, what is the ceiling, especially urban be going to 35% gross margin over time I'm just trying to understand where we're at exactly next year. That's all.
Speaker Change: Tied up thanks a lot.
Speaker Change: Okay I'll take the first question.
Operator: What I would say, unfortunately, though, is the ships are obviously taking extra time and costing a bit more, as most are currently taking the long way around the southern tip of Africa. Thank you. One moment for our next question. And that will come from the line of Marni Shapiro with the Retail Tracker. Your line is open. Hey guys, thanks so much. I have a couple of quick questions.
Speaker Change: Around FP movement, we believe as Vic alluded to that this brand has the opportunity to be one of the largest.
Speaker Change: Certainly larger than our free people brand, we think you're welcome a great deal of consumers.
Speaker Change: With being true to its roots switches and active lifestyle lifestyle.
Speaker Change: The merge of fashion along with performance.
Speaker Change: And I think how it differentiates itself is just that the idea that you can be fashionable and have a performance point of view as well as being highly female centric brands I think there.
Operator: I guess how quickly you talked about the new fulfillment center. I'm curious how quickly you think it will come up to speed so that it's really kind of chugging along. And then could you talk a little bit about the Nuuly shopper?
Speaker Change: There are other brands that I think we would say, we're sharing our wallet share with but.
Speaker Change: For the for our focus is around the female athlete female consumer.
Operator: Are you seeing a lot of crossover between this shopper, free people, anthro, I'm guessing a little bit less urban, or are they new to the company? If you could just talk a little bit about that, are they driving, is it easier to kind of grab them from the other brands, or are these new people coming to you that have not shopped with you before? Yeah, Marni, thanks for the new questions.
Speaker Change: And that's where we plan to stay focused to win.
Speaker Change: And then Alex this is Frank on the side and because of the catch up.
Frank Conforti: Gross profit margin as we said we think we have about 50 to 100 basis points of opportunity. This year as <expletive> noted, we do think we'll hit that 500 basis point Mark by Q4 of this year, but we don't think we're done at AMU.
Operator: I'll start with the customer first. We do see some overlap with customers that come into Nuuly from our sister brands. You know, a reasonably healthy overlap, but we do see a fair amount of customers that come into URBN for the first time, which has been a really nice surprise. So it's a little bit of both.
Frank Conforti: Do you still think that there is some other cross functional initiatives to unlock and we do think technology is going to play a big role in that I would also say relative to the company. We don't think the urban brand will be fully there yet from a markdown rate perspective, and we will probably still have for the full year elevated markdown rates and opportunity for continued.
Operator: It's a good, healthy mix of customers that come in from the brands as well as due to URBN. In regards to the Missouri building, it's actually up and operational now. The building has been operating for the better part of the last. For more information, please visit www.urbanoutfitters.com.
Speaker Change: There I do think it's important also just to take a take a pause we've been talking a lot about.
Speaker Change: Getting to 10% operating profit in hitting that double digit mark here as a company.
Operator: We moved a fair amount of inventory ahead of the subscribers that are being moved to that building, but now that that has occurred, we're in the process of migrating subscribers to the Missouri building and actually shipping customer orders out from there. So that transition will happen during the better part of Q1. By the end of Q1, we anticipate we'll be operating about a quarter of our subscriber base out of that building, and we think we'll see some of the incremental costs that we saw in Q4 carry through into Q1 and slightly into Q2. As we ramp up that, But I do want to reiterate that we just feel very excited about this growth opportunity at Newey, that the building is a big milestone for the brand. We'd feel even more encouraged about the opportunity at Newey to be a very sizable business.
Speaker Change: Obviously fiscal 'twenty, four hitting 270 basis points improvement in rate in operating profit and 70% growth in operating profit dollars leaves us confident and then we talked about the games and opportunities yet to come yet in here in fiscal 'twenty five.
Speaker Change: Speaking to the long term, obviously, turning you always our biggest opportunity when that business recovers its going to contribute significantly to our increased profitability, but you always not the only opportunity right.
Speaker Change: FTE movement, which delivered 53% retail segment growth. This past year is running at very nice double digit operating profit rate.
Speaker Change: So as that brand continues to grow and as you had just mentioned we think the ceiling is pretty high on that brand that's going to contribute nicely to EUR BN. The free people brand in total is our most profitable brand on a rate basis and continues to grow at an exceptional pace. If they continue to gain larger penetration of European they will also going to contribute to rate.
Operator: We think there is a large and growing market for rental apparel in the United States that we are tapping into. And we do think, as we've said before, that this could be the next billion-dollar URBAN brand. And this building is really a testament, the investment in this building is really a testament to that resolve and that excitement. So, as we've said before, we're going to be tripling our network capacity to 600,000 subscribers. Our new building will be much more automated than our existing building, which should lead to efficiency.
Speaker Change: Growth as well as dollars growth.
Speaker Change: And then Anthropologie delivered record operating profit dollars this year.
Speaker Change: In fiscal 'twenty, four and I know anthro believes that they can the brand can continue to deliver more and is planning to do so in fiscal 'twenty five and certainly lastly, as Dave mentioned, we believe we can deliver their first year of operating profit this year and could continue to build from there.
Operator: And we think we'll see some delivery expense improvement as we operate more out of this building, as well as a faster delivery experience for customers. So it should result in a much improved situation and a lot of headroom. Thank you.
Speaker Change: Hoping you are being to grow our operating profit for years. So we think there's a gross profit margin opportunity and then I think what I'm just trying to stress here is there's a lot of levers here, where we think we can continue to grow our operating profit dollars and rate.
Operator: One moment for our next question, and that will come from the line of Alex Stratton with Morgan Stanley. Your line is open. Perfect. Thanks so much for taking my questions. I just have two for you.
Speaker Change: For several years to come.
Speaker Change: Yeah.
Speaker Change: Thank you one moment for our next question.
Operator: One is on the free people movement. Can you just elaborate on the positioning of that brand from a competitive standpoint and who you think of the peers and what you think about the size of that business over time? And then my second question is just on gross margin and that 500 bits of opportunity over time. What is the ceiling?
Speaker Change: And that will come from the line of Ike Burchill.
Ike Boruchow: <unk> with Wells Fargo. Your line is open.
Ike Boruchow: Okay.
Ike Boruchow: Thanks, So much just wanted to dig just a I wanted to go back to the comp guidance and I don't mean to nitpick, but you with a 3% comp guide for <unk>, but I think in answer you said spring was trending reasonably in line with <unk>.
Speaker Change: I'm just trying to understand are you running a three or you're running above that and expecting a deceleration I just want to make sure I understood what the quarter to date look like.
Operator: So should Urban be going to 35% gross margin over time? I'm just trying to understand where we're at exactly, make sure that's all tied up. Thanks a lot. Okay, I'll take the first question.
Ike Boruchow: Okay.
Speaker Change: Good catch.
Speaker Change: Our February sales results.
Speaker Change: No.
Speaker Change: Remains strong and Theyre very similar too.
Operator: Around FP Movement, we believe, as Vic alluded to, that this brand has the opportunity to be one of the largest, certainly larger than our Free People brand. We think it welcomes a great deal of consumers by being true to its roots, which is an active lifestyle, a fusion of fashion along with performance. And I think how it differentiates itself is just that, the idea that you can be fashionable and have a performance point of view, as well as being a highly female-centric brand, I think.
Speaker Change: Fourth quarter results, but as I said before it's a touch softer.
Speaker Change: And then Q4 results.
Speaker Change: Both by total and by brand.
Speaker Change: Currently running slightly ahead of our Q1 plan, which calls for a total retail segment comp sales.
Speaker Change: 3%.
Speaker Change: So.
Speaker Change: Is it going to.
Speaker Change: Come down a bit and hit the 3% or be slightly above.
Speaker Change: I can't tell you that if I could.
Speaker Change: Probably be.
Speaker Change: In the investment World.
Speaker Change: And thank you we do have time for one final question.
Operator: There are other brands that I think we would say we're sharing our wallet share with, but for our focus, it's around the female athlete and the female consumer. And that's where we plan to stay focused to win. And then Alex, this is Frank, on gross profit margin. As we said, we think we have about 50 to 100 basis points of opportunity this year. As Dick noted, we do think we'll hit that 500 basis point mark by Q4 of this year, but we don't think we're done at IMU. We still think that there are some other cross-functional initiatives to unlock, and we do think technology is going to play a big role in that. I would also say, relative to the company, we don't think the Urban brand will be fully there yet from a markdown rate perspective, and we'll probably still have, for the full year, elevated markdown rates and opportunity for continued improvement there. I do think it's important also to just take a pause.
Speaker Change: And that will come from the line of Janet Kloppenburg with JK Research Associates. Your line is open.
Janet J. Kloppenburg: Hi, everybody.
Janet J. Kloppenburg: Congratulations on a great. Yeah can you hear me now.
Janet J. Kloppenburg: We can hear you yeah I can hear you heard all of that.
Janet J. Kloppenburg: My question is.
Janet J. Kloppenburg: Although with different in age when she worried about cannibalization from the high end for you all and sometimes J Jill.
Janet Kloppenburg: I worry about it on the low end.
Janet Kloppenburg: <unk> seen in some of these other players out there.
Speaker Change: I wanted to get your thoughts there.
Janet Kloppenburg: Hi.
Speaker Change: I don't know what direction the open outfitters pipelines still calling.
Speaker Change: But.
Speaker Change: I'd Love your view on that and then from Melanie.
Speaker Change: I know you said gross profit.
Speaker Change: 50 to 100, and some SG&A leverage so are we talking about operating margins up 30 to 40 or something higher than that for fiscal 2020 time. Thank you.
Melanie: Okay, Jen and I will talk about sheen and.
Melanie: Versus anthropologie.
Melanie: A direction for you all.
Speaker Change: As I said I think that while there is a little bit of bleed.
Operator: We've been talking a lot about, you know, getting to 10% operating profit and hitting that double-digit mark here as a company. You know, obviously, fiscal 24 hitting 270 basis points improvement in rate and operating profit and 70% growth in operating profit dollars leaves us confident, and then, you know, we talked about the gains and opportunities yet to come here in fiscal 25, but speaking to the long term, obviously, turning UO is our biggest opportunity. When that business recovers, it's going to contribute significantly to our increased profitability, but UO is not the only opportunity, right? FPMovement, which delivered 53% retail segment growth this past year, is running a very nice double-digit operating profit rate. So, you know, as that brand continues to grow, and as Sheila just mentioned, we think the ceiling is pretty high on that brand, that's going to contribute nicely to URBN. The Free People brand, in total, is our most profitable brand on a rate basis and continues to grow at an exceptional pace. If they continue to gain larger penetration of URBN, they're also going to contribute to rate growth as well as dollar growth.
Jen: From your customer into Anthropologie I don't think its great I do think theres bleed from the urban outfitters customer into free peoples and three people price points are.
Jen: Reasonably in line with Anthropologie, so from a price point perspective, yes, I think some of our customers are trading up or let me say, our spending a reasonable amount of money.
Jen: But they're also buying on places like gene and other lower price point.
Jen: Companies.
Speaker Change: To that end.
Speaker Change: <unk>.
Speaker Change: Beginning in initiatives just to test very small test.
Speaker Change: How we can perhaps rearrange some of our concept to design to production to customer.
Speaker Change: Not direct to comes to customer but.
Speaker Change: How we can speed that up.
Speaker Change: And even though we think that we are one of the.
Speaker Change: Fastest.
Speaker Change: Sure.
Speaker Change: Production to customer.
Speaker Change: In our space.
Speaker Change: We think that we can be faster and faster I always.
Speaker Change: Same time equals money. So we think we can be more efficient and.
Speaker Change: And bring down at least the costs now having said that we don't know exactly where the retail costs were going to go and Thats part of our.
Speaker Change: The study that were undertaken.
Operator: And then Anthropologie delivered record operating profit dollars this year in fiscal 24, and I know Anthro believes that the brand can continue to deliver more and is planning to do so in fiscal 25. And certainly, lastly, as Dave mentioned, we believe NuWe could deliver their first year of operating profit this year and could continue to build from there and grow, helping URBN to grow its operating profit for years. So, we think there's a gross profit margin opportunity, and then, you know, I think what I'm just trying to stress here is there are a lot of levers here where we think we can continue to grow our operating profit dollars and rate for several years to come. Thank you.
Speaker Change: To determine where we want to be with urban.
Speaker Change: I think that Youre right to point out the slower cost people are taking some market share.
Speaker Change: And then I think some of the higher price people are taking market share. So.
Speaker Change: I think that we have to justify what we want to be.
Speaker Change: And fix that and then deliver.
Speaker Change: The product and the marketing.
Speaker Change: That will.
Speaker Change: Keep keep our market share intact.
Speaker Change: Janet on the gross profit margin, which we think are excuse me all of our operating profit margin. So we think gross profit could be about 50 to 100 basis points for the year.
Speaker Change: The slight deleverage in SG&A that would eat into that number just a little bit I think what Melanie has said was right now.
Operator: One moment for our next question, and that will come from the line of Ike Boruchow with Wells Fargo. Your line is open. Hey, thanks so much.
Speaker Change: Based on how our plans are built SG&A could be about 1% above.
Speaker Change: What would our sales plans are for the year. So just a little bit of deleverage eating into that 50 to 100 basis points.
Operator: I wanted to go back to the comp guidance. I don't mean to nitpick, but you said 3% comp guide for 1Q, but in the answer, you said spring was trending reasonably in line with 4Q. I'm just trying to understand, are you running a 3?
Speaker Change: Where that all shakes out will depend on where the 50 to 100 shake out for the year.
Speaker Change: Okay, I think that that completes the call. Thank you all very much for joining and I look forward to talking to you in a few months.
Operator: Are you running above that and expecting a deceleration? I just want to make sure I understood what the quarter to date was. Okay, Ike. Good catch. Our February sales results right now remain strong, and they're very similar to the fourth quarter results. But, as I said before, it's a touch softer than the Q4 results, both by total and by brand. We're currently running slightly ahead of our Q1 plan, which calls for a total retail segment comp sale of 3%. Is it going to come down a bit and hit 3% or be slightly above that? I can't tell you that.
Speaker Change: This concludes today's program. Thank you all for participating you may now disconnect.
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Speaker Change: Yes.
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Operator: If I could, I'd probably be in the investment world, not here. And thank you. We do have time for one final question, and that will come from the line of Janet Kloppenburg with JJK Research Associates. Your line is open.
Speaker Change:
Operator: Hi everybody. Congratulations on a great year. Can you hear me?
Operator: Thank you. We can hear you. I can hear that all day. My question is a little bit different than Adrienne's.
Speaker Change: Okay.
Speaker Change: [music].
Operator: She worries about cannibalization from the high end for you all. And sometimes, Dick and Sheila, I worry about it from the low end, like Sheehan and some of these other players out there. So I wanted your thoughts there. I don't know what direction the Urban Outfitters price points are going in, but I'd love a view on that. And then for Melanie and Frank, I know you said gross profit up about 50 to 100 and some SG&A leverage. So are we talking about operating margins up 30 to 40 or something higher than that for fiscal 2025? Thank you.
Speaker Change: Yes.
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Speaker Change: Okay.
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Operator: Okay, Janet, I'll talk about Sheen versus anthropology as a direction for UO. As I said, I think that while there is a little bit of bleed from the UO customer into anthropology, I don't think it's great. I do think there's bleed from the Urban Outfitters customer into free people, and free people's price points are reasonably in line with anthropology. So from a price point perspective, yes, I think some of our customers are trading up or, let me say, are spending a reasonable amount of money, uh... but they're also buying on places like Shein and other lower price point uh... companies. To that end, you know, we are beginning an initiative just to test, very small tests, how we can perhaps rearrange some of our concepts to design, to production, to customer, not direct to customer, but how we can speed that up, and even though we think that we're one of the fastest production to customer in our space. We think that we can be faster and faster. I always think... As they say, time equals money.
Speaker Change: Yes.
Speaker Change: Okay.
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Operator: So we think we can be more efficient and bring down at least the cost. Now having said that, we don't know exactly where the retail costs are going to go. And that's part of the problem.
Operator: The study that we have undertaken to determine where we want to be with our. But I think that you're right to point out that the lower-cost people are taking some market share. And I think some of the higher-priced people are taking market share. So I think that we have to just decide what we want to be, fix that, and then deliver it.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Operator: The product and the marketing that will keep our market share intact. Janet, on the gross profit margin, we think, or excuse me, over our operating profit margin, so we think gross profit could be about 50 to 100 basis points for the year with a slight deleverage in SG&A that would eat into that number just a little bit. I think what Melanie said was right now, based on how our plans are built, SG&A could be about 1% above what our sales plans are for the year. So just a little bit of deleverage eating into that 50 to 100 basis points. You know, where that all shakes out will depend on where the 50 to 100 shakes out.
Speaker Change: Okay.
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Operator: Okay, I think that that completes the call. I thank you all very much for joining us, and I look forward to talking to you in a few months. This concludes today's program. Thank you all for participating. You may now disconnect. Copyright 2019 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. www.urbanoutfitters.com www.urbanoutfitters.com www.urbanoutfitters.com www.urbanoutfitters.com www.urbanoutfitters.com www.urbanoutfitters.com www.urbanoutfitters.com www.urbanoutfitters.com At this time, all participants are on a listen only.
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Operator: 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 0 on your touchtone telephone. As a reminder, this conference is being recorded. I would now like to introduce Oona McCullough, Executive Director of Investor Relations. Ms. McCullough, you may begin.
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Operator: Good afternoon, and welcome to the URBN fourth quarter fiscal 2024 conference. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the three and 12 month periods ending January 31st, 2024. The following discussions may include forward-looking statements. Please note that actual results may differ materially from those stated.
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Operator: 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 Commission. On today's call, you'll hear from Richard Hayne, Chief Executive Officer, URBS; Frank Conforti, Co-President and COO, URBN; and Melanie Moraine-Efron, Chief Financial Officer, URBN. 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.urbn.com. I will now turn the call over to Dick.
Speaker Change: Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. Fourth quarter fiscal 2024 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.
Oona Mccullough: Any one should require assistance during the conference. Please press Star then zero on your Touchtone telephone as a reminder, this conference is being recorded I would now like to introduce Oona Mccullough executive director of Investor Relations Ms. Mccullough you may begin.
Oona Mccullough: Good afternoon, and welcome to the U R beyond fourth quarter fiscal 2020 for a conference call earlier. This afternoon. The company issued a press release outlining the financial and operating results for the three and 12 month period.
Oona Mccullough: January 31 2024.
Operator: Thank you, Oona, and good afternoon, everyone. Before we begin our prepared remarks, it's my pleasure to welcome Shea Jensen to today's call. As you know, Shea is our new president of Urban Outfitters North America. She comes with deep experience in the apparel and accessory category, having spent many years at Nordstrom and more recently as president of Good America. Shea has been in her new role here at URBN for three weeks, so she will not be answering any questions today, but we'll be happy to respond to your questions on future calls. With that, I'll turn the call over to Frank to begin our discussion. Frank?
Oona Mccullough: Following discussions may include forward looking statements. Please note that actual results may differ materially from those statements.
Oona Mccullough: 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.
Oona Mccullough: On todays call Youll hear from Richard Hayne, Chief Executive Officer, you RPM.
Oona Mccullough: Brent Third party co President and COO, you, RBS, and Melanie Marine Efron, Chief Financial Officer to RV yet.
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 Dot <unk> Dot Com I will now turn the call over to <expletive>.
Operator: Thank you, Dick, and good afternoon, everyone. Today I will begin the call discussing our total company fourth quarter results versus the prior year, followed by some more detailed notes from, Please note, today I will be speaking to our financial results on an adjusted basis, which does not include non-recurring adjustments for asset impairments, lease abandonments, and a change in the revenue recognition method at newly. Each of these items is detailed in our press release, as well as the investor presentation that is posted on our URBN Investor Relations website. Now, on to our results.
Brent: Thank you Rhonda and good afternoon, everyone.
Brent: Before we begin our prepared remarks, it's my pleasure to welcome Jay Jensen to today's call.
Jay Jensen: As you know Shay as our new President of urban Outfitters North America.
Speaker Change: It comes with deep experience in the apparel and accessory categories, having spent many years at Nordstrom and more recently as president of good American.
Jay Jensen: Shay has been in her new role here at <unk> for three weeks. So she will not be answering any questions today, but we'll be happy to respond to your questions on future calls.
Jay Jensen: With that I'll turn the call over to Frank to begin our discussion Frank.
Frank Conforti: Thank you <expletive> and good afternoon, everyone.
Frank Conforti: Today I will begin the call discussing our total company fourth quarter results versus the prior year, followed by some more detailed notes by Brian. Please.
Operator: The fourth quarter performed largely in line with our thoughts as discussed on the third quarter call. Total company sales grew by 8% to a fourth quarter record of $1.5 billion, driven by a total retail segment comp increase of 5%, a new segment revenue increase of 69%, and Wholesale Segment Revenue Increase of $3.00. The retail segment comp was driven by a high single-digit positive digital comp and a low single-digit store comp. Comps in both channels were primarily the result of higher traffic and transaction costs. January, and in particular, the second and third weeks of the month, were the weakest of the quarter as we saw a negative impact on store traffic and sales comp trends due to the winter storms and below-average temperatures across the country.
Frank Conforti: Please note today I will be speaking to our financial results on an adjusted basis, which does not include nonrecurring adjustments for asset impairments lease abandonments and a change in the revenue recognition method at newly.
Each of these items is detailed in our press release as well as the Investor presentation that is posted to our <unk> Investor Relations website.
Frank Conforti: Now onto our results.
Frank Conforti: The fourth quarter performed largely in line with our thoughts as discussed on the third quarter call.
Frank Conforti: Total company sales grew by 8% to a fourth quarter record of one 5 billion.
Frank Conforti: Driven by a total retail segment comp increase of 5%.
Frank Conforti: And newly segment revenue increase of 69% and.
Frank Conforti: In wholesale segment revenue increase of 3%.
Frank Conforti: The retail segment comp was driven by high single digit positive digital comp and a low single digit store comp.
Operator: It was nice to see sales trends bounce back when the weather became more favorable. For the quarter, the Anthropologie, Free People, and FP Movement brands all produced double-digit retail segment comp sales, with FP Movement leading the way with a 45% increase. Newly also delivered robust double-digit revenue growth due to a significant increase in subscribers versus the prior year. All four of these brands achieved record fourth quarter revenue, which was partially offset by negative comp at the Urban Outfitters brand. The growth in wholesale segment revenue was due to an increase in regular price channel sales at Free People, which was partially offset by a decline in sales at Urban Outfitters. Gross profit dollars increased 20% to $452 million, while our gross profit rate increased by 293 basis points to 30.2%.
Constant both channels were primarily the result of higher traffic and transactions.
Frank Conforti: January and in particular, the second and third weeks of the month, where the weakest of the quarter as we saw a negative impact on store traffic and sales comp trends due to the winter storms and below average temperatures across the country.
Frank Conforti: It was nice to see sales trends bounce back when the weather became more favorable.
Frank Conforti: For the quarter, the Anthropologie free people and FP movement brands, all produced double digit retail segment comp sales with FP movement, leading the way with a 45% increase.
Frank Conforti: Newly also delivered robust double digit revenue growth due to a significant increase in subscribers versus the prior year.
All four of these brands achieved record fourth quarter revenue, which was partially offset by negative comp at the urban Outfitters brand.
Frank Conforti: The growth in wholesale segment revenue was due to an increase in regular price channel sales at free people, which was partially offset by a decline in sales at urban outfitters.
Operator: The improvement in the gross profit rate was primarily due to increased initial margins at free people and anthropologists. In fiscal year 24, all three brands made significant progress towards our 500 basis points IMU improvement goal and now have their sights set on completing the goal by Q4 of fiscal 25. Markdowns were flat for the quarter versus last year but were higher than planned in the month of January, as Urban Outfitters needed to promote more aggressively than planned to clear through excess inventory. As a result of the additional clearance at Urban Outfitters, their comp inventory is now down 3% on a year-of-year basis and in a better position heading into the spring selling season. Now moving on to SG&A expenses. For the quarter, SG&A increased 11% versus the prior comparable quarter and was de-leveraged by 58 basis points.
Gross profit dollars increased 20% to $452 million, while our gross profit rate increased by 293 basis points to 32%.
Frank Conforti: The improvement in the gross profit rate was primarily due to increased initial margins at free people and anthropologie.
Frank Conforti: In fiscal year 'twenty for all three brands made significant progress towards our 500 basis points IMU improvement goal.
Frank Conforti: And now have their sights set on completing the goal by Q4 of fiscal 'twenty five.
Markdowns were flat for the quarter versus last year, but were higher than planned in the month of January as urban outfitters needed to promote more aggressively than planned to clear through excess inventory.
As a result of the additional clearance at urban Outfitters. Their inventory is now down 3% on a year over year basis and in a better position heading into the spring selling season.
Frank Conforti: Now moving on to SG&A expenses.
Frank Conforti: For the quarter.
Frank Conforti: SG&A increased 11% versus the prior comparable quarter and Deleveraged by 58 basis points.
Operator: The increase in expense and deleverage was primarily related to an increase in marketing and creative expenses to support increased sales and Continued Customer Growth, as well as higher incentive-based compensation costs due to the improved company performance. URBN's profit results were even more impressive than our strong sales. Total URBN operating income soared 90% above the prior year to $81 million, and earnings jumped 84% to $66 million, or $0.69 per diluted share. I will now provide more details by brand, starting with Anthropologie.
Frank Conforti: The increase in expense and deleverage was primarily related to an increase in marketing and creative expense to support increased sales.
Frank Conforti: And continued customer growth as well as higher incentive based compensation costs due to the improved company performance.
Frank Conforti: Europeans profit results were even more impressive than our strong sales growth total European operating income, 90% above the prior year to $81 million and earnings jumped 84% to $66 million or <unk> 69 per diluted share.
Frank Conforti: I will now provide more details by brand starting with Anthropologie.
Operator: The Anthropologie team delivered a strong 12% retail segment comp in Q4. This increase was driven by high single-digit positive store comps and low double-digit digital comps. By category, apparel and accessories delivered positive retail segment comps in the quarter, while home was flat.
Frank Conforti: The Anthropologie team delivered a strong 12% retail segment comp in Q4.
Frank Conforti: This increase was driven by high single digit positive store comps and low double digit digital comps.
Frank Conforti: By category apparel, and accessories delivered nicely positive retail segment comps in the quarter, while home was flat.
Operator: The strong fourth quarter completed an impressive full year of low double-digit sales comps for the brand. The impressive sales growth and healthy margin expansion drove record operating profit dollars for the fourth quarter and full year. As we enter fiscal year 2025, the Anthropologie consumer remains optimistic and continues to respond positively to a broad range of occasion and casual categories. The team transitioned into spring early in January, and the customer is responding well to the fashion news. The Home category continued to see strength in the Gift and Entertainment category, which was partially offset by a decline in Furniture and Decor.
Frank Conforti: The strong fourth quarter completed an impressive full year of low double digit sales comps for the brand.
Frank Conforti: The impressive sales growth and healthy margin expansion drove record operating profit dollars for the fourth quarter and full year.
Frank Conforti: As we enter fiscal year 2025, the Anthropologie consumer remains optimistic and continues to respond positively to a broad range of occasion and casual categories.
Frank Conforti: The team has transitioned into spring early in January and the customer is responding well to the fashion newness.
Frank Conforti: The home category continued to see strength in the gift and entertainment category, which was partially offset by a decline in furniture and decor.
Operator: During the quarter, the team's execution of the brand strategy to target a slightly younger customer continued to gain traction. New customers in the quarter in North America increased by a remarkable 26%. The strength in apparel, accessories, and gift entertainment, along with the new customer acquisition, has us optimistic that the Anthropologie brand can continue to drive positively positive comps in fiscal year 25. Now I will call your attention to Free Peep.
Frank Conforti: During the quarter the team's execution of the brand strategy to target a slightly younger customer continued to gain traction.
Frank Conforti: New customers in the quarter in North America increased by a remarkable 26%.
Frank Conforti: The strength in apparel accessories and gift entertainment.
Frank Conforti: Along with the new customer acquisition has us optimistic that the Anthropologie brand can continue to drive nicely positive comps in fiscal year 'twenty five.
Frank Conforti: Now I will call your attention to free people.
Operator: Once again, the Free People team produced an outstanding quarter with retail segment comps achieving an impressive 19% gain versus last year. Retail segment comps were driven by double-digit comp growth in both the digital and store channel. During the quarter, the brand achieved strong double-digit growth across apparel, accessories, and movement. The SP Movement brand delivered another remarkable quarter, achieving 45% retail segment growth. Record sales and improved margins help Free People deliver record fourth quarter and full year operating profit dollars. Early customer response to the brand's spring trends has been strong, and new and total customer counts continue to grow at a double-digit rate. We believe the brand's retail segment performance could be nicely positive in fiscal year 2025. The Free People wholesale segment sales increased 8% during the quarter, driven by sales gains in department stores.
Frank Conforti: Once again, the free people team produced an outstanding quarter with retail segment comps, achieving an impressive 19% gain versus last year.
Frank Conforti: Retail segment comp was driven by double digit comp growth in both the digital and store channels.
Frank Conforti: During the quarter the brand achieved strong double digit growth across apparel accessories and movement.
Frank Conforti: The FP movement brand delivered another remarkable quarter, achieving 45% retail segment growth.
Frank Conforti: Record sales and improved margins helped free people delivered record fourth quarter and full year operating profit dollars.
Frank Conforti: Early customer response to the brand's spring trends has been strong and new and total customer counts continue to grow at a double digit rate.
Frank Conforti: We believe the brand's retail segment performance could be nicely positive in fiscal year 2025.
Frank Conforti: The free people wholesale segment sales increased 8% during the quarter driven by sales gains in department stores.
Operator: Segment profitability improved significantly from the prior year when the brand had elevated closeout channel sales to reduce inventory levels. We believe wholesale segment sales could be near flat in fiscal year 2025 while delivering improved profitability. Now moving on to the Urban Outfitters brand. Urban recorded a 14% retail segment comp decline in the quarter. UO's negative comp was the result of disappointing performance in both North America and Europe. Global retail segment comp declines were driven by double-digit declines in both the digital and store channels, and all product categories were negative.
Frank Conforti: Segment profitability improved significantly from the prior year when the brand had elevated closeout channel sales to reduce inventory levels.
Frank Conforti: We believe wholesale segment sales could be near flat in fiscal year 2025, while delivering improved profitability.
Frank Conforti: Now moving on to the urban Outfitters brand.
Frank Conforti: Urban recorded a 14% retail segment comp decline in the quarter.
Frank Conforti: <unk> negative comp was the result of disappointing performance in both North America and Europe.
Frank Conforti: Global retail segment comp declines were driven by double digit declines in both the digital and store channels and all product categories were negative.
Operator: When we last spoke, we noted the UO brand had excess inventory entering the holiday season, which led to significantly higher markdowns during the fourth quarter. The brand made a significant improvement on these inventory levels and is entering fiscal year 2025 with leaner inventories than the prior year. With new leadership in place and better inventory control, we believe the brand could deliver gradual comp sales improvements as the year progresses, with the first quarter of fiscal 2025 likely looking similar to the fourth quarter of fiscal year 2024. Finally, I will touch on the new. Revenue and subscriber growth continue to outperform our expectations. For our rental business, we see the most significant growth in subscribers during the seasonally strong first and third quarters.
Frank Conforti: When we last spoke we noted the UO brand had excess inventory entering into the holiday season.
Frank Conforti: This led to significantly higher markdowns during the fourth quarter.
Frank Conforti: The brand made significant improvement on these inventory levels and is entering fiscal year 2025, with leaner inventories than the prior year.
Frank Conforti: With new leadership in place and better inventory control, we believe the brand could deliver gradual comp sales improvements as the year progresses with the first quarter of fiscal 2025 likely looking similar to the fourth quarter of fiscal year 2024.
Frank Conforti: Finally, I will touch on the newly business.
Frank Conforti: Revenue and subscriber growth continued to outperform our expectations.
Frank Conforti: For our rental business, we see the most significant growth in subscribers during the seasonally strong first and third quarters.
Operator: During the fourth quarter, average subscribers ended at 195,000, growing 56% versus the prior year and 6% versus the third quarter. As you know, we have reached full capacity in our Pennsylvania Fulfillment Center. The team began the process of transitioning to our second facility in Raymoor, Missouri, in the fourth quarter. This transition led to incremental and some non-recurring costs in logistics, which will continue into the first quarter and abate in the second quarter. This facility will support future subscriber growth by tripling the brand's capacity. We are pleased to announce the first coats have now shipped out of Raymar, and the brand will continue to ramp up capacity as the first quarter progresses.
Frank Conforti: During the fourth quarter average subscribers ended at 195000 growing 56% versus the prior year and 6% versus the third quarter.
Frank Conforti: As you know we have reached full capacity in our Pennsylvania fulfillment center the.
Frank Conforti: The team began the process of transitioning to our second facility in <unk>, Missouri, and the fourth quarter.
Frank Conforti: This transition led to incremental and some nonrecurring costs and logistics, which will continue into the first quarter and a beat in the second quarter.
Frank Conforti: This facility will support future subscriber growth by tripling the brand's capacity.
Frank Conforti: We are pleased to announce the first stopes have now shipped out of Roemer and that brand will continue to ramp up capacity as the first quarter progresses.
Operator: Let me now review the many milestones we achieved in fiscal year 2026. We delivered 8% sales growth, resulting in a new record of $5.2 billion in sales. Gross profit margin expanded by 370 basis points, culminating in operating profit growth of 70% or $162 million, which drove 86% growth in earnings per diluted share. Four of our five brands delivered double-digit sales gains as well as customer growth, and our newest brand and concept, Nuuly, delivered its first ever profitable quarter. We know there is always more work to be done and improvements to be made, but I would be remiss if I didn't congratulate and thank all of our employees for their extraordinary performance in fiscal year 2020. Thank you for your time. I will now turn the call over to Melanie Moraine-Efron, our Chief Financial Officer. Thank you, Frank, and good afternoon, everyone.
Frank Conforti: Let me now review the many milestones we achieved in fiscal year 2024.
Frank Conforti: We delivered 8% sales growth, resulting in a new record of $5 $2 billion in sales.
Frank Conforti: Gross profit margin expanded by 370 basis points, culminating in operating profit growth of 70% or $162 million, which drove 86% growth in earnings per diluted share.
Frank Conforti: Four of our five brands delivered double digit sales gains as well as customer growth and our newest brand and concept newly delivered its first ever profitable quarter.
Speaker Change: We know there is always more work to be done and improvements to be made but I would be remiss, if I didn't congratulate and thank all of our employees for their extraordinary performance in fiscal year 2024.
Speaker Change: Thank you for your time I will now turn the call over to Melanie Marine F. Ron Our Chief Financial Officer.
Speaker Change: Thank you Frank and good afternoon.