Q1 2025 Urban Outfitters Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the urban Outfitters, Inc. First quarter fiscal 'twenty five earnings call.
Operator: Good day, ladies and gentlemen, and welcome to the Urban Outfitters Inc. First Quarter Fiscal 25 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your questions, please press star 11 again. We ask that you limit yourself to one question only. I would now like to turn the call over to Oona McCullough, Executive Director of Investor Relations. You may begin.
This time, all participants are in a listen only mode. After the Speakers' presentation, there would be a question and answer session.
Speaker Change: I ask the question during the session you will need to press star one on your telephone you within your automated message advising your hand is raised to withdraw your question. Please press star one again.
Speaker Change: We ask that you limit yourself to one question only.
I would now like to turn the call over to own them or call. It executive director of Investor Relations you may begin.
Speaker Change: Good afternoon, and welcome to the U R. B N first quarter fiscal 'twenty twenty-five conference call earlier. This afternoon. The company issued a press release outlining the financial and operating results for the three months period, ending April 30th 'twenty 'twenty four.
Oona Mccullough: Good afternoon, and welcome to the URBN first quarter fiscal 2025 conference call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the three-month period ending April 30th, 2024. The following discussions may include forward-looking statements. Please note that actual results may differ materially from those statements. Additional information concerning factors that could cause actual results to differ materially from projected results is contained in the company's filings with the Securities and Exchange Commission.
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.
Speaker Change: As contained in the company's filings with the Securities and Exchange Commission.
Oona Mccullough: On today's call, you will hear from Richard Hayne, Chief Executive Officer of URBN, Frank Conforti, Co-President and COO of URBN, and Melanie Marein-Efron, CFO of URBN. Following that, we will be pleased to address your questions. Please note that today we will be speaking about our financial results on an adjusted basis, which does not include non-recurring adjustments for one-time store closures and impairment charges. The effect of these items is detailed in our press release, as well as the investor presentation that is posted on our URBN Investor Relations website at www.urbn.com. I will now turn the call over to Dan.
Speaker Change: On today's call, you'll hear from Richard Hayne, Chief Executive Officer.
Speaker Change: Of U R. P N Frank Conforti, co President and C O O U R B N and Melanie Marine upfront.
Speaker Change: CFO you are been.
Speaker Change: Following that we'll be pleased to address your questions. Please note today, we will be speaking to our financial results on an unadjusted basis, which does not include nonrecurring adjustments for one time store closure and impairment charges.
Speaker Change: The effect of these items as detailed in our press release as well as the Investor presentation that is posted to our European Investor Relations website at Www Dot U R. P. M Dot com I will now turn the call over to Dirk.
Dirk: Thank you Ron and good afternoon, everyone and thank you all for joining our call today.
Dan: Thank you, Oona. Good afternoon, everyone, and thank you all for joining our call today. In my introduction, I'll make some quick remarks regarding our results, give some updates on the Urban brand, and then discuss the mood of our customers. After that, I'll turn the call over to Frank and Mel for a more in-depth review of our results and our thoughts on the remainder of the year.
Dirk: In my introduction and I'll make some quick remarks regarding our results give some updates on the urban brand and then discuss the mood of our customers.
After that I'll turn the call over to Frank and mill for a more in depth review of our results and our thoughts on the remainder of the year.
Speaker Change: Put simply <unk> first quarter results were outstanding and topped our expectations.
Richard A. Hayne: Put simply, URBN's first quarter results were outstanding and topped our expectations; four of our five brands posted record first quarter revenue, and three posted record operating income. The Anthropologie, Free People, FB Movement, and Nuuly brands all experienced double-digit revenue growth. These brands are delighting their customers, capturing additional market share, and executing at a best-in-class level. Combined, these four brands more than offset continued softness at the Urban Outfitters brand. At Urban Brand in North America, the new senior team has begun to make changes to how the brand operates.
Speaker Change: Four of our five brands posted record first quarter revenues and three posted record operating income.
Speaker Change: Anthropologie free people FP movement and newly brands.
Speaker Change: All produced double digit revenue growth.
Speaker Change: These brands are delighting their customers, capturing additional market share and executing in a best in class level.
Speaker Change: Combined before brands more than offset continued softness at the urban Outfitters brand.
Speaker Change: At the urban brand in North America, the new senior team has begun to make changes in how the brand operates.
Richard A. Hayne: This included initiating a more robust read and react process to take advantage of our speed to market capability; lowering some prices in several product categories, including women's accessories and home goods; and changing the marketing strategy by investing more and differently in social media. At the same time, the team began to fashion a strategy based on information gleaned from surveys, focus groups, and brand history.
Speaker Change: This includes initiating a more robust read and react process to take advantage of our speed to market capabilities.
Speaker Change: Lowering some prices in several product categories, including women's accessories and home goods and.
Speaker Change: And changing the marketing strategy by investing more in differently and social media.
Speaker Change: At the same time the team began to fashion a strength strategy based on the information gleaned from surveys focus groups in brand history.
Speaker Change: Towards the end of the quarter and into many customer reaction to these changes has been encouraging.
Richard A. Hayne: Toward the end of the quarter and end of May, customer reaction to these changes has been encouraging. Both the women's accessory and home categories have delivered positive feedback, and we've registered more new digital customers in the last few weeks. Small wins, for sure, but trending in the right direction.
Speaker Change: With the womens accessory and home categories have delivered positive comps and we have registered more new digital customers and last few weeks.
Speaker Change: Small wins for sure, but trending in the right direction.
Richard A. Hayne: Frank will speak more about the Urban brand in his commentary, and Sheila and Jay will share more about the strategic review on our call in August. Rest assured that returning the Urban brand to profitability and growing their customer base remains our number one priority. Turning now to the health of the customers at Allbrand, as a group, we believe they are currently in good shape, enjoying both solid job security and incomes that are rising slightly faster than inflation.
Speaker Change: Frank will speak more about the urban brand in his commentary and Chilean Jay will share more about the strategic review on our call in August.
Speaker Change: Rest assured that returned in the urban brand to profitability and growing their customer base remains our number one priority.
Speaker Change: Turning now to the health of the customers that all brands.
Speaker Change: As a group we believe they are currently in good shape enjoying both solid job security and incomes that are rising slightly faster than inflation.
Richard A. Hayne: They are still excited by our new fashion offerings, and traffic in stores and online remains strongly positive, but their purchases are slightly more thoughtful than last year. Overall, I would classify the customer mood this versus last year as enthusiastic rather than exuberant. We believe this new mood is healthier because it's more sustainable. Now, with that, I'll turn the call over to Frank.
Speaker Change: There are still excited by our new fashion offerings and traffic in stores and online remains strongly positive.
Speaker Change: But their purchases are slightly more considered than last year.
Speaker Change: Overall, I would classify the customer mood this versus last year.
Speaker Change: As enthusiastic rather than exuberant we.
Speaker Change: We believe this new mood is healthier because it's more sustainable.
Speaker Change: Now with that I'll turn the call over to Frank.
Thank you <expletive> and good afternoon, everyone.
Francis J. Conforti: Thank you, Dick, and good afternoon, everyone. Today, I will discuss our total company first quarter results versus the prior year, followed by some more detailed notes by brand. As Dick noted, the first quarter performed ahead of our expectations, as discussed on the fourth quarter call. Total URBN sales grew by 8% to a Q1 record of $1.2 billion, and four of our five brands continue to perform exceptionally well, posting record first quarter sales.
Frank: Today, I will discuss our total company first quarter results versus the prior year, followed by some more detailed notes by brand.
Francis J. Conforti: Our sales growth was driven in part by a retail segment comp of 5%; the Anthropologie, Free People, and FP Movement brands all produced double-digit retail segment comp growth more than offsetting the negative double-digit comp at the Urban Outfitters brand; New also delivered robust double-digit revenue growth due to a 56% increase in subscribers versus the prior year. Additionally, the wholesale segment increased revenue by 3% driven by an increase in regular price sales at Free People.
Frank: As <expletive> noted the first quarter performed ahead of our expectations as discussed on the fourth quarter call.
Frank: Total European sales grew by 8% to a Q1 record of $1 2 billion and four of our five brands continued to perform exceptionally well posting record first quarter sales.
Frank: Our sales growth was driven in part by our retail segment comp of 5%.
Frank: The Anthropologie free people and FP movement brands.
Frank: All produced double digit retail segment comp growth more than offsetting the negative double digit comps at the urban Outfitters brand.
Frank: Newly also delivered robust double digit revenue growth due to a 56% increase in subscribers versus the prior year.
Frank: Additionally, the wholesale segment increased revenue by 3% driven by an increase in the regular price sales at free people.
Frank: So far in May trends have remained solidly positive for total company and four of our five brands.
Francis J. Conforti: So far in May, trends have remained solidly positive for Total Company and four of our five brands. Although the second quarter comparison from the prior year is difficult, we believe retail segment comps could grow in the low single-digit range. Positive retail segment comps combined with robust revenue growth from new and single-digit revenue growth in the wholesale segment could result in a mid-single-digit increase in total Q2 URBN sales. Moving on, let's look at URBN Gross Profit.
Frank: Although the second quarter comparison from the prior year is difficult, we believe retail segment comps could grow in the low single digit range.
Frank: Positive retail segment comps combined with robust revenue growth from newly and single digit revenue growth in the wholesale segment could result in a mid single digit increase in total Q2 <unk> sales.
Frank: Moving on to European gross profit.
Francis J. Conforti: Adjusted gross profit dollars, excluding the one-time store closure and impairment charges, totaling $4.6 million, increased 11% to $413 million, while their adjusted gross profit rate increased by 106 basis points to 34.4%. The improvement in adjusted gross profit rate was primarily due to increased initial margins at all brands. These improvements were partially offset by a higher markdown rate at Urban Outfitters as the brand continues to need incremental discounts to move through inventory. We also experienced leverage in logistics due in part to one-time expenses related to the opening and transition of subscribers and inventory into our second new fulfillment center. Now moving on to SG&A expenses.
Frank: Adjusted gross profit dollars, excluding the onetime store closure and impairment charges totaling $4 $6 million increase.
Frank: Increased 11% to $413 million, while our adjusted gross profit rate increased by 106 basis points to 34, 4%.
Frank: The improvement in adjusted gross profit rate was primarily due to increased initial margins at all brands.
Frank: These improvements were partially offset by a higher markdown rate at urban outfitters as the brand continues to need incremental discounts to move through inventory.
Frank: We also experienced deleverage in logistics due in part to one time expenses related to the opening and transition of subscribers and inventory into our second Neue fulfillment Center.
Frank: Now moving on to SG&A expenses.
Francis J. Conforti: For the quarter, SG&A increased 11% versus the prior comparable quarter and deleveraged by 87%. The leverage was primarily due to the Urban Outfitters brand not being able to reduce SG&A at the same rate as sales declined. As we noted on our previous call, while we did reduce our SG&A spending at the Urban Outfitters brand in Q1, we did not believe it was prudent to reduce expenses at the same rate as sales.
Frank: For the quarter, SG&A increased 11% versus the prior comparable quarter and Deleveraged by 87 basis points.
Frank: The deleverage was primarily due to the urban outfitters brand not being able to reduce SG&A at the same rate as sales declined.
Frank: As we noted on our previous call, while we did reduce our SG&A spending at the urban Outfitters brand in Q1, we did not believe it was prudent to reduce expenses at the same rate as sales.
Frank: The increase in total company SG&A expense was largely due to increased marketing spend supporting the double digit sales growth at Anthropologie free people FP movement and newly brands.
Francis J. Conforti: The increase in total company SGA expense was largely due to increased marketing spend supporting double-digit sales growth at Anthropologie, Three People, SC Movement, and Nuuly Brands. It's important to note that not only did these brands deliver double-digit sales growth, but each of these brands also delivered double-digit customers. Total adjusted URBN operating income, excluding the one-time store closure and impairment charges, increased 11% versus the last year to $79 million, and adjusted earnings jumped 23% to $66 million, or 69 cents per diluted share. I will now provide more details by brand, starting with Anthropologie.
Frank: It is important to note not only did these brands delivered double digit sales growth. Each of these brands also delivered double digit customer growth.
Frank: Total adjusted European operating income, excluding a onetime store closure and impairment charges increased 11% versus last year to $79 million and adjusted earnings jumped 23% to $66 million or <unk> 69 per diluted share.
I will now provide more details by brand starting with Anthropologie.
Frank: The Anthropologie team delivered a strong 10% retail segment comp in Q1, and total revenue growth of 11% recording the fifth consecutive quarter of double digit comp growth.
Francis J. Conforti: The Anthropologie team delivered a strong 10% retail segment comp in Q1 and total revenue growth of 11%, recording the fifth consecutive quarter of double-digit comp. Positive comps were driven by double-digit growth in both the store and digital channels. By category, apparel, shoes, and accessories delivered nicely positive double-digit retail segment comps in the quarter. Within apparel, there is broad-based strength across categories, with outsized growth in some of the more casual categories. Strength in these categories was partially offset by decline in home, where furniture remains negative, and the gift and entertaining category is nicely positive. The Anthropologie team continues to execute exceptionally well on their strategic initiative of acquiring new customers and further engaging existing customers. During the quarter, both new and active customers increased by over 18% versus the prior year.
Frank: Positive comps were driven by double digit growth in both the store and digital channels.
Frank: By category apparel shoes, and accessories delivered nicely positive double digit retail segment comps in the quarter.
Frank: Within apparel, there is broad based strength across categories with outsized growth in some of the more casual categories.
Frank: Strength in these categories was partially offset by a decline in home where furniture remains negative.
Frank: Within home the gift and entertaining category is nicely positive driven by consumers investing and decorative categories to refresh their homes.
Frank: The Anthropologie team continues to execute exceptionally well on their strategic initiative of acquiring new customers and further engaging existing customers.
Frank: During the quarter, both new and active customers increased by over 18% versus the prior year.
Francis J. Conforti: The brand continues to make strategic marketing investments supported by outstanding creative content, which drove double-digit traffic increases in North American stores and double-digit digital traffic increases during the quarter. Impressive sales growth and healthy margin expansion coupled with well-managed expenses drove record brand operating profit dollars for the first quarter. As we enter the second quarter, the anthropology consumer remains optimistic and continues to respond positively to a broad range of categories. We continue to believe the brand can deliver mid-single-digit comp growth for fiscal year 2025. Next, I will call your attention to free people.
Frank: The brand continues to make strategic marketing investments supported by outstanding creative content, which drove double digit traffic increases in north American stores and double digit digital traffic increase during the quarter.
Frank: Impressive sales growth and healthy margin expansion, coupled with well managed expenses drove record brand operating profit dollars for the first quarter.
Frank: As we enter the second quarter, the Anthropologie consumer remains optimistic and continues to respond positively to a broad range of categories.
Frank: We continue to believe the brand can deliver mid single digit comp growth for fiscal year 2025.
Speaker Change: Next I will call your attention to free people.
Francis J. Conforti: Once again, the Free People team produced an outstanding quarter with retail segment comms achieving an impressive 17 percent. The retail segment comp was 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 and movement. The F.P.
Speaker Change: Once again, the free people team produced an outstanding quarter with retail segment comps, achieving an impressive 17% gain.
Speaker Change: The retail segment comp was driven by double digit comp growth in both the digital and store channels.
Speaker Change: During the quarter the brand achieved strong double digit growth across apparel and movement.
Speaker Change: The FP movement brand delivered another strong quarter, achieving 25% retail segment comp growth.
Francis J. Conforti: The Movement brand delivered another strong quarter, achieving 25% retail segment comp growth. Record sales and improved margins helped free people deliver record first quarter operating profit dollars. Customer response to the brand's summer trends has been strong, and the brand continues to gain market share. We believe the brand could deliver a high single-digit comp on top of the unbelievably strong 27% Q2 comp from last year. The Free People Wholesale segment sales increased 6% during the quarter, driven by full price sales gains in department and specialty stores, partially offset by an intentional decline in sales to the closeout channel, and the FP Movement brand led the way with strong sales growth in the quarter. Segment profitability improved significantly from the prior year when the brand had elevated closed out channel sales to reduce inventory levels.
Speaker Change: Record sales and improved margins helped free people delivered record first quarter operating profit dollars.
Speaker Change: Customer response to the brand summer trends has been strong and the brand continues to gain market share.
Speaker Change: We believe the brand could deliver a high single digit comp on top of the unbelievably strong 27% Q2 comp from last year.
Speaker Change: The free people wholesale segment sales increased 6% during the quarter driven by full price sales gains in department and specialty stores.
Speaker Change: Partially offset by an intentional decline in sales to the closeout channel.
Speaker Change: The FP movement brand led the way with strong sales growth in the quarter.
Speaker Change: Segment profitability improved significantly from the prior year when the brand had elevated closeout channel sales to reduce inventory levels.
Speaker Change: We believe the wholesale segment could continue to deliver improved profitability versus last year, while Q2 sales could be slightly positive.
Francis J. Conforti: We believe the wholesale segment could continue to deliver improved profitability versus last year, while Q2 sales could be slightly positive. Now, moving on to the Urban Outfitters brand. Urban Outfitters recorded a 14% retail segment comp decline in the quarter. This was largely in line with our expectations when we spoke with you in February. UO's negative comp was a 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.
Speaker Change: Now moving on to the urban Outfitters brand.
Urban Outfitters recorded a 14% retail segment comp decline in the quarter.
Speaker Change: This was largely in line with our expectations when we spoke with you in February.
Speaker Change: You always negative comp was the result of disappointing performance in both North America and Europe.
Speaker Change: Global retail segment comp declines were driven by double digit declines in both the digital and store channels and all product categories were negative.
Francis J. Conforti: As you know, new leadership joined the brand in North America in February. This team spent much of the first quarter assessing the health of the business and aligning on their strategic priorities going forward. You will hear more from this team on the August call.
Speaker Change: As you know new leadership joined the brand in North America in February.
This team spent much of the first quarter assessing the health of the business and aligning on their strategic priorities going forward.
Speaker Change: You will hear more from this team on the August call.
Speaker Change: Month to date the brand sales trends in North America have shown early signs of improvement.
Francis J. Conforti: Month-to-date, the brand sales trends in North America have shown early signs of improvement, more so in the digital channel than the store channel. This improvement has been fueled, in part, by women's accessories and home categories, which both delivered positive sales on a regular price and total comp basis in North America in the month of April and have continued that trend in May. Women's and men's apparel have not shown the same improvement. Therefore, during the second quarter, the brand plans on cleaning out slower-moving inventory in these categories.
Speaker Change: More so on the digital channel than the store channel.
Speaker Change: This improvement has been fueled in part by women's accessories, and home categories, which both delivered positive sales on a regular price and total comp basis in North America in the month of April and have continued that trend in may.
Speaker Change: Women's and men's apparel have not shown the same improvements there.
Speaker Change: Therefore during the second quarter.
Speaker Change: Brand plans on cleaning out slower moving inventory in these categories clearing the way for fresh looks and updated pricing architecture for the important back to school season.
Francis J. Conforti: Clearing the Way for Fresh Looks and Updated Pricing Architecture for the Important Back-to-School Season. These adjustments will likely result in elevated markdown levels in the second quarter, but we believe will give the brand an opportunity to show improved regular price sales and product margins in the back half of the current year. Marketing strategies have also been a huge focus for the brand. The brand is encouraged that some of their recent adjustments to distribution channels, content, and community conversations have resulted in growth in new and total customers on the digital channel for the first time in quite some time. These results are very early, representing improvements only seen over the past few weeks, but are encouraging that the brand and teams are heading in the right direction.
Speaker Change: These adjustments will likely result in elevated markdown levels in the second quarter, but we believe will give the brand and opportunity to show improved regular price sales and product margins in the back half of the current year.
Speaker Change: Marketing strategies have also been a huge focus for the brand.
Speaker Change: The brand has encouraged that some of their recent adjustments to distribution channels content and community conversations have resulted in growth in new and total customers on the digital channel for the first time in quite some time.
Speaker Change: These results are very early representing.
Speaker Change: Representing improvements only seen over the past few weeks, but are encouraging that the brand and teams are heading in the right direction.
Speaker Change: We believe the brand could deliver gradual comp sales improvements as the year progresses with improvements in comp sales for the second quarter, followed by further improvement in sales and product margin in the back half of the year.
Francis J. Conforti: We believe the brand could deliver gradual comp sales improvements as the year progresses, with improvements in comp sales for the second quarter, followed by further improvement in sales and product margin in the back half of the year. Finally, I will touch on the Nuuly business, which delivered another exceptional quarter, newly adding over 50,000 active subscribers versus the fourth quarter, ending the quarter with over 244,000 active subscribers and over 224,000 average active subscribers for the quarter.
Speaker Change: Finally, I will touch on the newly business, which delivered another exceptional quarter.
Speaker Change: Newly added over 50000 active subscribers versus the fourth quarter ending the quarter with over 244000 active subscribers.
Speaker Change: And over 224000 average active subscribers for the quarter.
Speaker Change: As we have noted historically new experiences the most significant growth in subscribers during the seasonally strong first and third quarters.
Francis J. Conforti: As we have noted, historically, Newey experiences the most significant growth in subscribers during the seasonally strong first and third quarters. Strong growth in subscriber counts continued in early May, and the active subscriber count today is now over a quarter of a million miles. During the first quarter, the team began transitioning to our second facility in Raymoor, Missouri. This facility will support future subscriber growth by tripling the brand's total capacity. As of today, over 60,000 subscribers are being served from the facility, which we plan to ramp up to 50% of total subscribers in the back half of the year.
Speaker Change: Strong growth in subscriber counts continued in early may and the active subscriber count today is now over the quarter of $1 million milestone.
Speaker Change: During the first quarter the team began transitioning to our second facility in <unk>, Missouri.
Speaker Change: This facility will support future subscriber growth by tripling the brand's total capacity.
Speaker Change: As of today over 60000 subscribers are being served from the facility, which we plan to ramp to 50% of total subscribers in the back half of the year.
Francis J. Conforti: The new facility supports the outsized growth of the brand and enables us to deliver our new lease faster with a lower delivery cost to certain customers based on geographical proximity. As discussed on the fourth quarter call, this transition led to incremental and some non-recurring costs in logistics, which will continue but abate in the second quarter. Excluding these expenses, the Newly brand would have been profitable in the first quarter. We believe the brand could deliver a small profit in the second quarter and will be profitable on a full-year basis in fiscal year 2025. Thank you for your time. I will now turn the call over to Melanie Marein-Efron, our Chief Financial Officer.
Speaker Change: The new facility supports the outsized growth of the brand and enable us to deliver our new lease faster with a lower delivery cost to certain customers based on geographical proximity.
Speaker Change: As discussed on our fourth quarter call. This transition led to incremental and some nonrecurring cost in logistics, which will continue but abate in the second quarter.
Speaker Change: Excluding these expenses the newly brand would have been profitable in the first quarter.
Speaker Change: We believe the brand could deliver a small profit for the second quarter and will be profitable on a full year basis for fiscal year 2025.
Speaker Change: Thank you for your time I will now turn the call over to Melanie Marina, Ron Our Chief Financial Officer.
Melanie Marein: Thank you Frank and good afternoon, everyone nobody wants to discuss our thoughts on the second quarter of financial performance. We are pleased that overall consumer demand has remained strong to start the quarter and were planning for this strength to continue throughout the second quarter.
Melanie Marein: Thank you, Frank. And good afternoon, everyone.
Melanie Marein: Now I will discuss our thoughts on the second quarter financial performance. We are pleased that overall consumer demand has remained strong to start the quarter, and we're planning for this strength to continue throughout the second quarter. Right now, we believe that second quarter total company sales growth could be mid-single digit. Sales growth in Q2 could result from low single-digit growth in retail segment comp and wholesale sales. In addition, we believe the new lease segment sales growth could be mid-double-digit.
Right now we believe that second quarter total company sales growth could be mid single digits.
Melanie Marein: Sales growth in Q2.
Melanie Marein: From low single digit growth in retail segment comp and wholesale sales.
Melanie Marein: In addition, we believe the new lease segment sales growth could be mid double digits.
Melanie Marein: Now onto gross profit margin.
Melanie Marein: Now, on to gross profit margin. We believe URBN's gross margin rate for the second quarter could decline by approximately 75 basis points compared to the prior year second quarter. While we believe we can continue to see improved initial product margins at Anthropologie and Free People, those improvements are unable to offset the continued weakness at the Urban Outfitters brand. The reduction in gross profit margin at the Urban Outfitters brand could be primarily due to depressed product margins and occupancy deleverage because of negative sales performance.
Melanie Marein: We believe you are b and gross margin rate for the second quarter could decline by approximately 75 basis points compared to the prior year second quarter. While we believe we can continue to see improved initial product margins at Anthropologie and free people those improvements are unable to offset.
The continued weakness at the urban Outfitters brand.
Melanie Marein: The reduction in gross profit margin at the urban Outfitters brand could be primarily due to depressed product margins and occupancy deleverage because of negative sales performance.
Melanie Marein: We do believe URBN can return to delivering gross profit margin growth in the back half of the year, as well as our full year plan of approximately 50 to 100 basis points of gross margin improvement compared to the prior year.
Melanie Marein: We do believe you RBN can return to delivering gross profit margin growth in the back half of the year as well as our full year plan of approximately 50 to 100 basis points of gross margin improvement compared to the prior year.
Melanie Marein: Now moving on to SG&A expenses.
Melanie Marein: Now moving on to SG&A expenses. Based on our current sales performance and plan, we believe SG&A growth for the second quarter will be in the high single digits. Our planned growth in SG&A could be primarily driven by higher marketing expenses to support growth in customers and sales at Anthropologie, Free People, FP Movement, and Nuuly. The deleverage in SG&A primarily relates to the Urban Outfitters brand, where we have reduced expenses but not at the rate of sales decline.
Melanie Marein: Based on our current sales performance and plan, we believe SG&A growth for the second quarter will increase in the high single digits.
Melanie Marein: Our planned growth in SG&A could be primarily driven by higher marketing expenses to support growth in customers and sales at Anthropologie free people FP movement and newly.
The deleverage in SG&A, primarily relates to the urban Outfitters brand, where we have reduced expenses, but not at the rate of sales decline.
Melanie Marein: While we believe SG&A growth could outpace sales growth in Q2, we also believe that SG&A expense growth in the second half of the year will be more closely aligned with sales growth.
Melanie Marein: While we believe SG&A growth could outpace sales growth in Q2, we also believe that SG&A expense growth in the second half of the year will be more closely aligned with sales growth. As always, if sales performance fluctuates, we maintain a certain level of variable SG&A spending that we can adjust up and down depending on how our business is performing. We are currently planning our effective tax rate to be approximately 24% for the second quarter and 24.5% for the full year.
Melanie Marein: As always its sales performance fluctuates, we maintain a certain level of variable SG&A spending that we can adjust up and down depending on how our business is performing.
We are currently planning our effective tax rate to be approximately 24% for the second quarter and 24, 5% for the full year.
Melanie Marein: Now, moving on to inventory. We believe that inventory levels in the second quarter could grow at a rate below sales growth. The teams continue to be focused on speeding up inventory turns and managing to fewer weeks of supply. Capital expenditures for the fiscal year are planned at approximately $210 million.
Melanie Marein: Now moving on to inventory, we believe that inventory levels in the second quarter could grow at a rate below sales growth. The teams continue to be focused on speeding up inventory turns and managing to fewer weeks of supply.
Melanie Marein: Capital expenditures for the fiscal year are planned at approximately $210 million.
Melanie Marein: Why 25 capital project spend is broken down as follows approximately 50% is related to retail store expansion in support of <unk>.
Melanie Marein: <unk>, 25% is related to logistics capacity investments, including the newly rental fulfillment center in <unk>, Missouri, which opened in the first quarter and the remaining 25% would be our normal capital investments supporting home office and logistics operations.
Melanie Marein: 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 newly-leased fulfillment center in Raymore, Missouri, which opened in the first quarter. And the remaining 25% would be our normal capital investments supporting IT, home office, and logistics operations. Lastly, we'll be opening approximately 57 new stores and closing approximately 21 stores during fiscal year 25.
Lastly, we will be opening approximately 57, new stores and closing approximately 21 stores during fiscal year 'twenty five.
Melanie Marein: Our net new store growth is being driven by growth in FP Movement, Free People, and Anthropology stores. During fiscal year 25, we plan on opening 25 FP Movement stores, 13 Free People stores, and 13 Anthropology. As a reminder, the foregoing does not constitute a forecast, but is simply a reflection of our current plans; the company disclaims any obligation to update forward-looking statements. Now I'm pleased to turn the call back over
Melanie Marein: Our net new store growth is being driven by growth in FP movement free people and Anthropologie stores.
Melanie Marein: During fiscal year 'twenty five we plan on opening 25, FP movement stores 13 free people stores and 13 Anthropologie stores.
Melanie Marein: 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.
Speaker Change: Now I'm pleased to turn the call back over to <expletive>.
Mel: Thank you Mel.
Speaker Change: Before turning the call over for your questions I wish to thank our co presidents the brand design and shared service leaders.
Richard A. Hayne: Before turning the call over to your questions, I wish to thank our co-presidents, the brand design and shared service leaders, and their teams, and all associates worldwide. Our outstanding Q1 results are a direct product of your creativity, determination, and hard work, so thank you. Thanks also to our many partners around the world. We appreciate your significant contributions to our success. And, finally, thanks to our shareholders for your continued support. That concludes our prepared remarks. Now for your questions. Thank you.
Speaker Change: And their teams and all our associates worldwide.
Speaker Change: Our outstanding Q1 results are a direct product of your creativity determination and hard work.
Mel: Thank you.
Mel: Thanks also to our many partners around the world.
Mel: We appreciate your significant contributions to our success.
Mel: And finally, thanks to our shareholders for your continued support.
Mel: That concludes our prepared remarks now for your questions.
Speaker Change: Thank you Les.
Operator: Ladies and gentlemen, as a reminder to ask the question, please press star 1-1 on your telephone and then wait to hear your name announced. To withdraw your question, please press star 11 again.
Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and then wait to hear your name announced to withdraw your question. Please press star one again.
Operator: Please limit yourself to one question only. Please stand by while we compile the Q&A roster. Our first question comes from the line of Adrienne Yih with Barclays. Your line is open.
Please limit yourself to one question only please.
Speaker Change: Standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Adrienne <unk> with Barclays. Your line is open.
Adrienne Eugenia Yih: Good afternoon and congratulations. So, Dick, this question is directed at you.
Speaker Change: Good afternoon, and congratulations Hey, Jacob.
Jacob: Good question directed for you I think you are uniquely qualified to speak about kind of the what I'll call the silhouette shifts.
Richard A. Hayne: I think you're uniquely qualified to speak about kind of the, what I call the, silhouette shift, sort of going from the big over little to the little over big trend. I want to know where you are seeing the biggest confidence in uptake at the different brands. And I guess this seems like such a trend for urban outfitters. So, what categories are you exiting? And have you clearly identified some of the key trends that you're going to chase in July? Thank you.
Speaker Change: Sort of going from the big over little to a little over a big trend I know where are you seeing sort of the biggest confidence in uptake at the different brands and I guess it seems such a trend for urban outfitters. So what categories are you exiting and have clearly identified some of the key trends that you're chasing.
Speaker Change: In July thank you.
Okay.
Richard A. Hayne: Well, let the urban group talk about that. But I will tell you overall, I would say from a silhouette point of view, I think we started talking about this, in 2018, or 19, that there was a switch in the silhouette. I would say we're about midpoint in that, in adoption of that right now, and I would say it's firmly established in not only our customer group but in the mouth. And I think that you might start seeing a reversal in the next few years.
Speaker Change: The urban group talk about that but I would tell you overall I would say from a silhouette point of view I think we started talking about this one.
Speaker Change: <unk> 19.
Speaker Change: There was a switch in the silhouette.
Speaker Change: Two little over big.
Speaker Change: I'd say were above midpoint in that.
Speaker Change: And the adoption of that right now.
Speaker Change: And I would say it's from firmly established in not only our customer group.
Speaker Change: And the math.
Speaker Change: And I think that you might start in the next few years seeing little.
Speaker Change: A little hints of.
Speaker Change: A reversal, but let me talk let me see.
Tricia D. Smith: But let me talk, let me see if... People who are free people or anti-people want to talk about what they're seeing in Silhouette, in their brands. Hi Adrienne. It's Shay.
Speaker Change: Q4 free people oriented people want to talk about what theyre seeing.
Speaker Change: Silhouette.
Speaker Change: And their brands.
Shea: Hi Adrienne. It's Shea. I can start.
Speaker Change: Hey, Adrian if I can I can start.
Shea: You know, as I would describe it, one of the biggest things happening is proportionality and silhouette, and I think we're definitely seeing that. And being new to the brand, your question was, "what are we chasing into?". I would just say it's been really exciting to see the opportunity that we have here to leverage speed to market, which is a real gift as we're able to actually chase after stuff. And we're really focused on proportionality, whether that's big on big or little on little or the mix of both.
Speaker Change: I think as I would describe it one of the biggest things happening is proportionality and silhouette and I think we're definitely seeing that and being new to the brand question clearly chasing Bill I would just say, it's been really exciting to see the opportunity that we have here to leverage speed to market, which is a real guest as we're able to.
Speaker Change: Actually chase into stuff and we're really focused on the proportionality, whether that big on bag or a little unwell or the mix of both.
Tricia D. Smith: Yeah, I think Adrienne, it's Tricia, the whole kind of adoption of a wide range of bottoms is really driving some pretty significant results for anthropology. The range of silhouettes and bottoms, but also the proportion, I think, within anthropology has changed pretty significantly in a really exciting way, and we're continuing that.
Speaker Change: Yes.
Adrian it's Tricia.
Speaker Change: Yes.
Speaker Change: Kind of adoption of a wide range of bottoms is really.
And driving some pretty significant results for Anthropologie.
Speaker Change: The <unk>.
Speaker Change: The range of silhouettes and bottoms, but also the proportion I think within Anthropologie has changed pretty significantly in a really exciting way and we're continuing to chase down those trends as we go forward.
Speaker Change: Yes.
Tricia D. Smith: Thank you. You want to say anything about Free People? Yeah, I don't want Free People to be left out. No, we're not going to leave Free People out. Believe me.
Speaker Change: Thank you you want to say anything about free people yeah.
Speaker Change: To my left I know John said, they are not going to leave for example.
Tricia D. Smith: Yeah, I think the Free People brand has been embracing this trend. They quite like it, and it's been fun to sort of see them maximize this over the past several months. We are excited to start testing it for what's next, so we stay ahead of the game. Okay, thanks. Thank you, Adrienne.
Speaker Change: Yeah, I think the free people brand.
Speaker Change: <unk> been embracing this trend quite like it.
Speaker Change: But just to understand that maximize this over the past several months.
Speaker Change: We're excited to start testing and what's next.
Speaker Change: Okay.
Speaker Change: Okay. Thanks, Thank you Adrian.
Adrian: Thank you.
Operator: Please stand by for our next question. Our next question comes from the line of Matthew Boss with J.P. Morgan. Your line is open.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Matthew Boss with JP Morgan Your line is open.
Matthew Robert Boss: Great, thanks. Dick, you cited robust demand for spring-summer fashion supporting the second quarter. Could you just elaborate on more recent trends you've seen in May across banners, maybe relative to the first quarter? And then Melanie, just on inventory at the Urban Outfitters brand, as you look across categories, what are you seeing? What are the actions that you've put into place? And just your confidence in back half merchandise margin expansion.
Matthew Robert Boss: Great. Thanks.
Speaker Change: <expletive> you sided robust demand for spring summer fashion supporting the second quarter.
Speaker Change: Could you just elaborate on more recent trends you've seen in may across banners, maybe relative to the first quarter and then Melanie just on inventory at the urban Outfitters brand as you look across categories.
Speaker Change: What are you seeing what are the actions that you've put into place and just your confidence in back half merchandise margin expansion.
Richard A. Hayne: Okay, Matt, the retail segment performance for Q2 so far today, it's just slightly softer than our Q1, with the biggest difference being the Free People brand. Free People is currently posting mid-single-digit positive comms. And this is because they're anniversarying what I would call an ultra-positive 27% comp from Q2 last year. But if you look at it on a two-year stack, free people comps remain very consistent across the two quarters. Now, at the Urban brand, we're experiencing somewhat better retail segment comps, as both I and Frank alluded to, with brand comps improving to high single-digit negative from where they were in Q1, at a... as a team related that you don't need. Overall, we think that the urban retail segment comp for Q2 should be about 3%. That's our best.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: Retail segment comp performance for Q2, so far.
Speaker Change: But just slightly softer than our Q1 print.
Speaker Change: With the biggest difference in the free people brand.
We're currently posting mid single digit positive comps.
Speaker Change: This is because we are anniversarying, what I would call an ultra positive 27% comp.
Speaker Change: From Q2 last year.
Speaker Change: But if you look at it on a two year stack.
Speaker Change: Comps remain.
Speaker Change: Im sorry.
Speaker Change: The two quarters.
Speaker Change: Now at the urban brand, we're experiencing somewhat better retail segment comps.
Speaker Change: As both I and Frank alluded to.
Speaker Change: With brand comps improving to high single digit negative.
Speaker Change: From where they were in Q1.
Speaker Change: On a.
Speaker Change: As a teen related.
Speaker Change: Thank you.
Speaker Change: Overall, we think that the urban retail segment.
Speaker Change: For Q2 should be about 3%, that's our best guess.
Melanie: And then hi, Matt. This is Melanie just wanted to cover your inventory question, Eddie you RBN basis, and we're really in a much improved position with total inventory down 2% versus last year and in total by and by business segment, our inventories in line.
Melanie Marein: And then, hi Matt, this is Melanie. I just wanted to cover your inventory questions. So on a URBN basis, we're really in a much improved position with total inventory down 2% versus last year. And in total and by business segment, our inventory is in line or below our sales growth, with retail segment inventory down 5% on retail segment growth of 5%, and HLSA inventory levels are up just 2% on sales growth of 3%.
Melanie: We're below our sales growth with retail segment inventory down 5% on retail segment growth of 5% sales and wholesaler inventory levels were up just 2% on sales growth of 3%.
Melanie Marein: Your question about Urban Outfitters, the inventory is down 10% on a negative 14% retail segment comp. And, as Frank mentioned, we are planning to take additional markdowns in the quarter at URBN in order to ensure that the inventory is clean as we exit spring and summer, and we enter the all-important back-to-school fall selling season. We believe that at this point, the cleaner inventory will allow us to produce improved margins in the back half of the year.
Speaker Change: Your question about urban Outfitters.
Speaker Change: The inventories down 10% on a negative 14% retail segment comp and.
Speaker Change: As Frank mentioned, we are planning to take additional markdowns in the quarter at.
Speaker Change: Urban in order to ensure that the inventory is clean as we exit spring and summer and we enter the all important back to school fall selling season.
Speaker Change: Leave it at this point the cleaner inventory will allow us to produce improved margins in the back half of the year.
Melanie Marein: And just to add to that, Matt, I think all brands still have continued IMU opportunity as it relates to the back half of the year. And then, as we get into that back to school and holiday selling season for the Urban Outfitters brand, they have a significant opportunity as it relates to being able to lower their markdown rate due to a better inventory to sales ratio. And I think some of the work that we're going to do in the second quarter is only going to enhance that.
Speaker Change: And just to add to that Matt I think.
Speaker Change: All brands.
Speaker Change: We'll have continued IMU opportunity as it relates to the back half of the year and then as we get into that back to school and holiday selling season for the.
Speaker Change: Urban Outfitters brand they have significant opportunity as it relates to being able to lower their markdown rate due to better inventory to sales ratio and I think some of the work that we're going to do in the second quarter is only going to enhance that so which is why we still feel very confident today.
Melanie Marein: So, which is why we still feel very confident today, you know, obviously, you know, May 21st, but very confident today about what we're guiding to or what we're thinking about for the full year gross profit margin expansion of 50 to 100 basis points.
Speaker Change: Obviously.
Speaker Change: May 'twenty, one, but very confident today on what we're guiding to and what we're thinking about for the full year gross profit margin expansion of 50 to 100 basis points.
Speaker Change: Thank you.
Operator: Please stand by for our next question. Our next question comes from the line of Paula Jules with Citi. Your line is open.
Speaker Change: Please standby for our next question.
Our next question comes from the line apology rules with Citi. Your line is open.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay, and just have you already answer Paul Okay, Hi, can you hear me yes.
Kelly: This is Kelly on for Paul Thanks for taking our question I guess, if we could just.
Speaker Change: Elaborate on some of your thoughts on Lasalle you present, the UO brand to the Gen Z customer how thats different than your prior playbook any.
Speaker Change: Initial thoughts there.
Speaker Change: You mentioned some changing in pricing pressure if you could just elaborate on that a bit and then just on the gross margin guidance for first Q1what drove the upside versus plan and.
Paula Jules: And then just on the gross margin guidance, well, first on one cue, you know, what drove the upside versus plan, and how much of an impact should we expect the markdown that you owe to be offsetting some of the other drivers of gross margin to you? Thanks.
Speaker Change:
Speaker Change: How much of an impact should we expect the markdowns at UO.
To be offsetting some of the other drivers of gross margin into Q. Thanks Kelly.
Melanie Marein: Kelly, I can take the gross profit margin and then let the Urban brand respond to the Gen Z customer. So in the first quarter, obviously, we exceeded the top line by a little bit more than we thought we were going to deliver. So that helped gross profit margin. I would also say some of the transitory logistics expenses came in a little bit lower than what we were anticipating. So all of that contributed to a better gross profit margin in the first quarter.
Speaker Change: Kelly I can take the gross profit margin and then.
Speaker Change: The urban brand respond to the Gen Z customer so.
Speaker Change: In the first quarter, obviously, we exceeded top line a little bit.
Speaker Change: More than what we thought we were going to deliver so that helped gross profit margin I would also say some of the transitory logistics expenses at <unk> came in a little bit lower than what we were anticipating so all of that contributing to.
Speaker Change: Better gross profit margin in the first quarter.
Melanie Marein: As it relates to the second quarter, we still think IMU is going to be a positive, but please keep in mind that we're now really starting to anniversary multiple years of really strong IMU growth. So the IMU improvement will start to abate as the year progresses each quarter from now on. And then the overall gross profit margin decline that we're currently believing that we're going to deliver in the second quarter is really just being driven by the Urban Outfitters brand, having those elevated markdowns in order to clear through some of that aging out women's and men's inventory and just leaving them much cleaner heading into the important back to school and then holiday season for the back half of the year.
Speaker Change: As it relates to the second quarter, we still think it was going to be a positive but please keep in mind that we're now really starting to anniversary multiple years of really strong <unk> growth. So IMU improvement will.
Speaker Change: Start to abate as the year progresses, each quarter from now from now on.
Speaker Change: And then the overall gross profit margin decline that where we're currently believing that we're going to deliver in the second quarter is really just being driven by the urban Outfitters brand.
Speaker Change: Those elevated markdowns in order to clear through some of that aging out women's and men's inventory and just leaving them much cleaner heading into the important back to school and then holiday season for the back half of the year.
Speaker Change: Okay do you want to take the urban question sure Hi, Kelly.
Shea: Hey, do you want to take the urban question? Sure. Hi, Kelly.
Shea: If I understand your question correctly, you're asking about brand positioning and some of the efforts that have been underway as we've been reviewing that position. You know, first and foremost, everything that we do needs to start with a firm understanding of who our customers are. So we have been conducting pretty extensive research, both with our current customers but also with those customers who aren't shopping with us. And we've learned a lot.
Shea: Sure. Hi Kelly.
Speaker Change: If I understand your question correctly, you're asking about the brand positioning and some of the efforts that have been underway as we have been reviewing.
That position.
Speaker Change: First and foremost everything that we do need to start with a firm understanding of who our customer. So we have been conducting pretty extensive research both with our current customers, but also with those customers who are shopping with us and we've learned a lot we've looked at things like purchase drivers and detractors lifestyle attributes on occasion.
Shea: We've looked at things like purchase drivers and detractors, lifestyle attributes, and occasions. And I think one thing stands out particularly clear, and that is the pace of change for these customers is pretty rapid, and we have to keep pace and evolve fairly quickly. And so, as you heard Dick mention earlier, there are two primary goals for us right now.
Speaker Change: And I think one thing stands out, particularly clear and that is the pace of change for these customers is pretty rapid and we have to keep pace and evolve fairly quickly and so as you heard <expletive> mentioned earlier there are two primary goals for US right now first we need to rebuild that customer base when you need to rebuild our customer base and second returning.
Shea: First, we need to rebuild that customer base, and we need to rebuild our customer base, and second, to restore profitability. And so, it's really in that spirit that we have identified two areas that we've already started to attack and see some early indicators. First, as you mentioned, is the pricing architecture. And really, that's about leveraging great price elasticity but being very mindful of the price value that we want to offer our customers, particularly in certain categories where price accessibility and opening price matter.
Speaker Change: Stability and so it's really in that spirit that we have identified two areas that we've already started to attack and see some early indicators first as you mentioned is the pricing architecture.
Speaker Change: Really that's about leveraging great price elasticity, but being very mindful of the price value that we want to offer our customers, particularly in certain categories, where price accessibility and opening price matters and we've seen some early wins.
Speaker Change: In the accessory area and even in some of our apparel areas like Netflix for example, and then secondly is really how we reach uncertainties customers and to that we've really just been amplifying our efforts across social platforms, where we know these customers are are really living their lives and it's been exciting to see again, some very early indicators there that have.
Shea: And we've seen some early wins in the accessory area and even in some of our apparel areas, like knits, for example. And secondly, it is really how we reach and serve these customers. And to that end, we've really just been amplifying our efforts across social platforms where we know these customers are really living their lives. And it's been exciting to see, again, some very early indicators there that have led to some good wins.
Speaker Change: Led to some good wins on customer.
Speaker Change: Thank you.
Operator: Please stand by for our next question. Our next question comes from the line of Mark Altschwager with Baird. Your line is open.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Marc Marc Auxlanger with Baird. Your line is open.
Mark R. Altschwager: Thank you. Good afternoon.
Speaker Change: Thank you good afternoon follow up on gross margin.
Speaker Change: Reiterating the plus 50 to 100 basis points for the year Q1 seem to come in a bit better than plan. It sounds like Q2, perhaps a bit lower than you initially thought given the more aggressive markdowns. So I guess, putting that together maybe speak to your level of confidence in and the high end versus the low end of that 50 to 100.
Mark R. Altschwager: Follow-up on gross margin, you're reiterating the plus 50 to 100 basis points for the year. Q1 seemed to come in a bit better than planned. Sounds like Q2 perhaps a bit lower than you initially thought, given the more aggressive markdown. So I guess putting that together, maybe speak to your level of confidence in the high end versus the low end of that 50 to 100. And then separately, just UO, I think overall margins were negative mid-single digit last year. Could you speak to the path back to breakeven? Could cycling some of those heavier markdowns get you there? Or do you need to return to some level of revenue growth to get back to breakeven?
Speaker Change: And then separately just I think overall margins were negative mid single digit last year could you just speak to the path back to breakeven.
Speaker Change: Cycling some of those heavier markdown gets you there or do you need to return to to some level of revenue growth to get back to get back to breakeven. Thank you.
Melanie Marein: Thank you. Yep. Mark it.
Melanie Marein: Sure, I can take that. So, Mark, I think we feel right now, you know, obviously, the second half is far away, but it feels like, you know, we feel very comfortable with the 50 to 100 basis points. I think, you know, with the continued IMU improvement, which we have a pretty healthy amount of visibility into, followed by a really significant markdown rate opportunity for the Urban Outfitters brand, I think we feel very comfortable with that plan today, and I think we feel comfortable on the high end of that.
Speaker Change: Yes, Mark.
Speaker Change: Sure I can take that so mark I think we feel right now obviously, the second half as far away it feels like.
Speaker Change: Feel very comfortable with the 50 to 100 basis points.
Speaker Change: Thank you.
Speaker Change: The continued IMU improvement, which we have a pretty pretty healthy amount of visibility to followed by really significant markdown rate opportunity for the urban Outfitters brand I think we feel we feel very comfortable with that plan today and I think we feel comfortable on the high end of that obviously a lot can change between now between now.
Melanie Marein: Obviously, you know, a lot can change between now and the holiday, but that's where we sit today. I think we feel pretty comfortable with where those numbers are, significantly elevated markdown rates in Q3 and Q4 of last year that we think, just solely based on having the inventory to sales ratio improved, should provide for a nice healthy improvement there.
On holiday, but that's where we sit today I think we feel pretty pretty comfortable with where those numbers are the biggest opportunity for urban outfitters, certainly is to improve improve that markdown rate focus on Reg price and then get the get to get the topline going but they're really up against.
Speaker Change: Significantly elevated markdown rates in Q3, and Q4 of last year that we think just just solely based on having the inventory to sales ratio improved.
Speaker Change: Should provide for a nice healthy improvement there.
Speaker Change: Thank you.
Operator: Please stand by for our next question. Our next question comes from the line of Alex Stratton with Morgan Stanley. Your line is open.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Alex <unk> with Morgan Stanley. Your line is open.
Alexandra Ann Straton: Hi, thank you. This is Katie Delahunt on behalf of Alex.
Speaker Change: Hi. Thank you this is <unk> on for Alex.
Speaker Change: I just wanted to circle back on the comment you made about the urban brands Tuesday comps training I think it was negative high single digits.
Katie Delahunt: I just wanted to circle back on the comment you had made about the Urban Brands 2-2-Day Comps trending. I think it was negative high single digits. What do you attribute that improvement to? Is it because of the promotions that you're running in select categories? And then should we expect further improvement throughout the year? I think you had previously said that back to school could be a time when we could see a further improvement at Urban. Thank you.
Speaker Change: Attribute that improvement to what is it because of the promotions that you're taking in select categories.
Speaker Change: And then should we expect further improvement throughout the year I think you had previously said back to school it could be a time when we could see.
Speaker Change: A further inflection at urban thank you.
Shea: Yeah, I'm not sure we understood it. Yeah. Very well, Katie. Urban Outfitters. Did you say they were positive double digits? We were having.
Speaker Change: Yes, Im not sure we understood yeah.
Speaker Change: Very well.
Speaker Change: At urban Outfitters.
Speaker Change: Did you say they were positive double digits.
Shea: We said we were having positive digital growth on consumers, new consumers to the brand, which felt like a momentum forward from our Q1 execution. So that gave us, you know, giving back to our customer, Katie, is what it's all about.
Speaker Change: We are having a positive.
Speaker Change: <unk>.
Speaker Change: <unk> neutral.
Speaker Change: Tumors to the brand.
Speaker Change: I felt like our momentum.
From our Q1 execution.
Shea: So that's the early, what we're experiencing currently within the UO digital business. And I think it's a combination of strategic promotions, along with some of the social efforts that Shea's team is making in the U.S. We also are seeing some nice momentum within our European business, and we feel like they might accelerate their growth and recovery throughout the quarter based on their reactions to spring and summer being quite strong. So, as we stand today, we have some strong, positive momentum in the EU business.
Speaker Change: Okay.
Speaker Change: Getting back our customer Acadia is what it's all about so that's not really what we're experiencing currently within the digital business I think it's a combination of strategic promotions along with the social efforts that <unk> team is making in the U S. We also are seeing some nice momentum with.
Speaker Change: Our European business.
He might accelerate.
Speaker Change: Recovery throughout the quarter based on our reaction to the spring and summer being quite strong.
Speaker Change: So we have some strong positive momentum and the EU.
Speaker Change: We can't say.
Speaker Change: Thank you.
Operator: Please stand by for our next question. Our next question comes from the line of Marni Shapiro with the Retail Tracker. Your line is open.
Speaker Change: Please standby for all next question.
Speaker Change: Our next question comes from the line of Marni Shapiro with the retail tracker. Your line is open.
Marni Shapiro: Hey everybody, congrats on the consistency as well. Trish, I'd like to talk to you a little bit, just digging in at Anthro.
Marni Shapiro: Hey, everybody congrats congrats on the consistency as well.
Speaker Change: Tricia I'd like to talk to you a little bit just digging in at Anthro you've had.
Tricia D. Smith: You've had quite a while of success, and specifically with your own brands, which have had some really nice growth. And I think, in all the years I've been following anthropology, they could be two of the most successful own brands I've seen there. And I like what I see coming out of daily practice. Maybe you could talk a little bit about how you're using your own brands. Transcripts provided by Transcription Outsourcing, LLC. Marni
Marni Shapiro: Quite a wild success and specifically with your own brands, which have had some really nice growth and I think in all the years I've been following anthropologie could be two of the most successful owned brands I've seen there.
Marni Shapiro: I like what I see coming out of daily practice, if you could talk a little bit about.
Marni Shapiro: How are you using owned brands are they allowing you to have sort of a base in the stores that you could.
Marni Shapiro: Kind of pick up on the other trends a little more quickly than the market.
Speaker Change: And then just one quick question about some of the customers you bring in there you're you're Tictoc situation is unhinged. It's so good.
Speaker Change: And there's so many younger Influencers and affiliate people that are on there that are killing it and I'm curious if this is helping to bring in a younger customer base and if it is having an impact on your business.
Speaker Change: Yes, good morning.
Speaker Change: Thank you for that question I'll start with the customer piece.
As Frank mentioned, our teams are doing.
Speaker Change #100: A really great job at acquiring new customers, but also younger customers first.
Speaker Change #101: First quarter, new customers grew by 19% and that really has come from.
Speaker Change #101: Really concerted effort and acquiring new and acquired new younger customers in the average age of our customers come down pretty significantly and are definitely engaging on our social platforms as you referenced particularly tick tock.
Speaker Change #101: Most exciting to me and that is our active customers are growing as Frank mentioned by 18% as our team really are focused on improving retention rates and repeat purchases.
Speaker Change #101: That's working very well from a product perspective.
Speaker Change #102: Thank you for your comments about our own brands. Our team has been working really really hard on modernizing and expanding our product assortment.
Speaker Change #102: And really apparel has been the driver within that most particularly I would say.
Speaker Change #102: In the denim category of the pill Crow brand has grown really significantly and there's been a ton of effort put into.
Speaker Change #102: The design the way, we think about the way we display the brand stores.
Speaker Change #102: And he'll CRO and Mays.
Speaker Change #102: Anthropologie brands, our top searched brands month after month for the customer.
Speaker Change #102: They seek them out daily practice is.
Tricia D. Smith: Daily Practice is an active lifestyle brand that we've introduced, and really, I think, as Dick mentioned, in the stores in particular, we're thinking about how to expand the footprint of the Daily Practice brand, as well as some other new emerging categories, and that's going incredibly well. We increased the footprint of those brands by almost 50% in six stores that we tested in the month of February, and it's proving remarkably well, so we have 50 stores lined up to be able to expand that footprint.
Speaker Change #103: <unk> active lifestyle brand that we've introduced and really I think is as <expletive> had mentioned.
Speaker Change #103: And the stores in particular, we're thinking about how do we expand the footprint of the daily practice brand as well as some other new emerging categories and that's going incredibly well. So we increased the footprint of <unk>.
Speaker Change #103: Those brands by almost 50% in six stores that we tested in the month of February and it's proving remarkably loves about 50 stores lined up to be able to expand that footprint. So overall, our umbrella penetration.
Speaker Change #103: <unk> in our total mix has never been higher.
Speaker Change #103: Those brands are producing.
Speaker Change #103: But mostly proud of the fashion that the teams are surpassing our own brand offer and just the cloud that you recognize.
Speaker Change #104: Thank you.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Your line is open.
Speaker Change #105: Please standby for Amex question.
Speaker Change #106: Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Your line is open.
Dana Lauren Telsey: Hi. Good afternoon, everyone.
Dana Lauren Telsey: Hi, Good afternoon, everyone as you think about the marketing spend.
Speaker Change #108: Which obviously is helping to drive the top line.
Dana Lauren Telsey: Your expectation for marketing spend as we go through the through the remainder of the year and how are you allocating versus brand, but as it gets.
Dana Lauren Telsey: If you think about marketing spend, which obviously is helping to drive some of the top line, what's your expectation for marketing spend as we go through the remainder of the year, and how are you allocating it versus brand? How does it differ? And then just on Europe: what did you see there? How is that performing relative to your expectations? And lastly, the wholesale operating income was up significantly. What are you noting there in terms of border trends and sell-through promotion versus full price? Thank you.
Speaker Change #109: And then just on Europe, what did you see there how is that performing relative to expectations and lastly, the wholesale operating income was up significantly but are you, noting there in terms of order trends.
Speaker Change #110: Sell through promotional versus full price. Thank you.
Yeah.
Richard A. Hayne: Thanks Dana. Let me talk about Europe first, and then maybe Frank or Mel will talk about the marketing spend. As I think was mentioned, the urban brand in Europe posted negative high single-digit growth in Q1, which is showing signs of revival. Up until very recently, they were flat, and now they're just down a couple of percentage points versus last year. When we look at the other brands, Anthropologie and Free People in sales in Europe are quite strong. They were strong in Q1, and they continue to look for comp gains in Q2. So we're very excited. Actually, we're not as optimistic going into this year about Urban.
Dave: Thanks, Dave.
Speaker Change #112: Can you talk about.
Speaker Change #113: Europe first.
Speaker Change #114: And maybe Frank Hormel well.
Speaker Change #115: I'll talk about the marketing spend.
Speaker Change #116: I think we've mentioned the urban brand in Europe.
Speaker Change #116: Posted high.
Speaker Change #116: High single digits.
Speaker Change #117: One is choppy.
Speaker Change #117: Revival.
Speaker Change #117: Up until.
Speaker Change #117: Very recently, they were flat and now they're down a couple of percentage points.
Speaker Change #117: Versus last year.
Speaker Change #117: When we look at the other brands Anthropologie and free people.
Speaker Change #117: Sales in Europe are quite strong.
Speaker Change #117: We're strong in Q1 and it can keep you too.
Speaker Change #117: Comp gains in Q2.
Speaker Change #117: We're very excited.
Actually were not as optimistic going into this year, Bob urban given all the problems.
Speaker Change #117: Alright.
Speaker Change #118: Are you surprised.
Melanie Marein: Sure, so marketing spend is generally allocated, you know, based on where the growing brands are. So, you know, that's why we've talked about the fact that in the first quarter, the growth in marketing has really come from Newly, Anthropologie, FP Movement, and the Free People brand. So our allocation will continue to work toward, you know, where the growth brands are. As we go through the year, though, I do think that the rate of growth may be closer to sales growth in the back half of the year versus the first half of the year, but our allocation is similar.
Speaker Change #119: Sure So marketing spend is generally allocated.
Speaker Change #119: Based on the where the growing brands are so that's why we've talked about the fact that in the first quarter. The growth in marketing is really come from newly Anthropologie FP movement and the free people brand. So our allocation will continue to work toward you know we're at the towards the growing brand.
Speaker Change #119: <unk>.
Speaker Change #119: As we go through the year, though I do think that the rate of growth may be closer to the sales growth in the back half of the year versus the first half of the year, but our allocation is similar.
Speaker Change #120: Thank you.
Operator: Please stand by for our next question, which comes from the line of Ike Boruchow with Wells Fargo.
Speaker Change #121: Please standby for our next question.
Speaker Change #121: Yeah.
Speaker Change #122: Our next question comes from the line of Ike <unk> with Wells Fargo. Your line is open.
Irwin Bernard Boruchow: Hey, everyone. To go back to UO, so, you know, to Mark's point earlier, the margins, negative double digit, sorry, negative mid-single digits last year, still having issues on the promo and the comp side. I guess my question is just at a higher level: how long of a leash do you guys have on the brand? In the sense that, you know, when would you look to maybe make more material changes to either the store base or, you know, geographies, just something to kind of right-size the margin structure of the business. I'm just trying to understand, like, what are the goalposts you guys are kind of looking at there? Thank you.
Speaker Change #123: Hey, everyone.
Speaker Change #124: To go back to the UO so.
Speaker Change #127: <unk> point earlier margins negative double digit sorry negative mid single digits last year still having.
Speaker Change #125: Issues on the promo in the comp side I guess my question is just at a higher level.
Speaker Change #126: How long of a lease you guys have on the brand.
Speaker Change #126: In the sense that when would you look to maybe make more material changes to either the store base or.
Speaker Change #126: Geographies or just something to kind of rightsize the margin structure of the business I'm just kind of I'm just trying to understand.
Speaker Change #126: Like what are the goalposts you guys are kind of look at that.
Speaker Change #128: Thank you.
Speaker Change #132: I think.
Speaker Change #129: We've said over the last quarter or two that we were engaged with.
Richard A. Hayne: Okay. We've said over the last quarter or two that we were engaged in a strategic review that is fairly broad and making some. We're going to make decisions about that as we speak, but I think we're not ready to talk about it in depth. We are, as has been mentioned on the call now a couple of times, seeing some positive signs, and our thoughts are that we will be able to turn the ship around. There are definitely some issues. Some of the stores are too large; we know that.
Speaker Change #129: In a.
Speaker Change #129: Strategic review.
Speaker Change #129: It is fairly broad.
Speaker Change #129: And making some.
Speaker Change #129: Decisions about that as we speak but I think.
Speaker Change #129: We're not ready to.
Speaker Change #129: <unk> talked about it in depth.
Speaker Change #129: We are.
Speaker Change #130: As Ben mentioned on the call in a couple of times.
Speaker Change #131: That's fine.
Speaker Change #131: Okay.
Speaker Change #131: Thoughts are that we will be able to.
Speaker Change #131: <unk>.
Speaker Change #131: There are definitely some.
Speaker Change #131: Issues.
Speaker Change #131: Some of the stores are too large we know that.
Richard A. Hayne: And as we said earlier, we have to change up some of the... spend on our social media to reflect more accurately where the customer is showing up. So those are the types of things that we're engaged in right now. Shea, would you like to say anything more about it, other than we're going to give a more thorough review of this in August on the call? Yeah, I
Speaker Change #131: And as we said earlier.
Speaker Change #131: We have to change up some of the.
Speaker Change #131: Spend on our social media to reflect.
Speaker Change #131: More accurately where the customer is showing up.
Speaker Change #131: So those are the types of things that we're engaged in right now.
Speaker Change #133: Shane would you like to say anything more about it other than we're going to give a more thorough review of this in August on the call.
Shea: Yeah, I think I would acknowledge, though, that we do anticipate, you know, a more appropriate sales to inventory perspective as we enter into the back half of the year. The second quarter markdown adjustments will allow us to, first and foremost, clean our inventories, but that will just perpetuate, you know, hopefully, more educated and better buying decisions as we bring those decisions closer to customers. But the first step is really cleaning up the inventory.
Speaker Change #131: Yeah.
Speaker Change #134: Thank I would acknowledge though that we do anticipate.
Speaker Change #131: <unk>.
Speaker Change #135: More appropriate sales to inventory perspective, as we enter into the back half of the year.
Speaker Change #136: The second quarter markdown adjustments will allow us to first and foremost cleaner inventories, but that will just perpetuate.
Speaker Change #137: Hopefully more educated and better buying decisions as we bring those decisions closer to the customer, but the first step is really cleaning up the inventory. We think that that is a big unlock in terms of the profitability and then as <expletive> said as we're working through the research and insight now we definitely will come back in August with more detail on.
Speaker Change #137: And those things, but right now were.
Shea: We think that that is a big unlock in terms of profitability. And then, as Dick said, as we're working through the research and insights, we definitely will come back in August with more detail on those things. But right now, we're entirely focused on, first and foremost, our customers and understanding them, and secondly, getting our inventory in a position that we can react closer to.
Speaker Change #137: Entirely focused on first and foremost our customer and understanding them and secondly, getting our inventory in a position that we can we can react closer closer.
Speaker Change #138: Thank you.
Operator: Please stand by for our next question. Our next question comes from the line of Janet Kloppenburg with JJK Research. Your line is open.
Speaker Change #139: Please standby for our next question.
Speaker Change #140: Our next question comes from the line of Janet Kloppenburg with <unk> Research. Your line is open.
Speaker Change #141: Hi, everybody and congrats on a great quarter.
Janet Joseph Kloppenburg: Hi, everybody, and congrats on a great quarter. Thanks, Shay. You're welcome, Tricia.
Speaker Change #142: Thanks, Joe.
Speaker Change #143: Welcome to <unk>.
Tricia D. Smith: I wanted to just touch base. It sounds like trends in Europe for UO have turned, and I'm wondering, Shay, if the plan is to, is it feasible that the apparel trends in Europe can transition to the U.S., and is that what's giving you the confidence in the brand's comps turning, I think you said turning positive, but I could be wrong on that, for the second half of the year. And then just a point of clarification on current comps at Anthropologie. Are you suggesting that they're up mid-single digits right now and that that's the outlook for the second quarter? I may have misinterpreted that; if I did, I apologize.
Janet Joseph Kloppenburg: Wanted to just touch base it sounds like trends in Europe for you all have turned and I'm wondering.
Speaker Change #144: If the plan is true.
Speaker Change #144: Is it feasible.
Speaker Change #146: The apparel trends in Europe.
Speaker Change #147: Ken can transition to the U S and is that what's giving you the confidence in the brand comps turning.
I think you said trending positive, but I could be wrong on that for the second half of the year and then just a point of clarification on the info on current comps at Anthropologie.
Speaker Change #148: Are you, suggesting that they were up mid single digits right now and that's as the outlook for the second quarter I may have misinterpreted.
Speaker Change #149: I apologize thank you.
Vishal: Hi, Janet this is vishal I'll start with LNG.
Tricia D. Smith: Hi Janet. This is Tricia. I'll start with Anthropology.
Speaker Change #150: LNG system.
Speaker Change #152: We are cautiously optimistic as we enter Q2.
Speaker Change #153: Apology I think.
Speaker Change #153: Rick mentioned the first two weeks of May are very important ways for anthropologie and the brand as we prepare for mother's day.
Speaker Change #153: And.
Speaker Change #153: Our comps are fairly aligned with where our Q1 performance was.
Speaker Change #153: So I think some some fun headlines suite that week, leading into mother's day, we delivered our brand's record high dress sales.
Tricia D. Smith: We're cautiously optimistic as we enter Q2 at Anthropology. I think, as Dick mentioned, the first two weeks of May are very important weeks for Anthropology as a brand as we prepare for Mother's Day, and our comps are fairly aligned with where our Q1 performance was, with, I think, some fun headlines. That week leading into Mother's Day, we delivered our brand's record-high dress sales. You ought to say that one again, Tricia. That was a good one.
Jonathan: Jonathan you want to say that well yes.
Speaker Change #153: Sure.
Jonathan: We did more address volume in the week, leading up to mother's day than we ever had in a week as a brand so really optimistic about as weather informed as we are leaning into events like mother's day.
Jonathan: We're cautiously optimistic that we've got some nice trends going in the business.
Tricia D. Smith: So, this is Sheila. I'm going to take the Urban question.
Sheila: So this is Sheila I'm going to take that urban question just to reiterate the brand believes it's going to be a gradual change in comp sale. So because we're really focused on the profitability of the sale. So we want to get our inventory clean and be able to continue to react to the consumer we are seeing prop.
Sheila Harrington: Just to reiterate, the brand believes it's going to be a gradual change in comp sales. So, because we're really focused on the profitability of the sales, we want to get our inventory clean and be able to continue to react to the consumer. We are probably seeing more speed in that happening in Europe, more so than the U.S. because I think their customers are positioned slightly differently than our U.S. consumer, but we work very closely with them hand-in-hand and are constantly sharing information. So, I just want to reiterate, it's a slow and gradual sales change, not aggressive. Yes, and I think so too.
Sheila: More on that happening in Europe.
Sheila: More so than the U S. Because I think our customers are positioned slightly differently than our U S consumer, but we work very closely with them hand in hand.
Sheila: And are constantly sharing information.
So I just want to reiterate its a slow and gradual sales change not aggressive.
Richard A. Hayne: Yes, and I think Janet, if I could, about urban outfitters in Europe borrowing more of the fashion from the North American group than they ever have in the past, and particularly, I think the major difference or the major change that they've experienced is that they've gone more into what I would call the feminine look. And that seems to be working very well for them right now, because North America has those same looks.
Sheila: Yes, and I think.
Speaker Change #156: Janet if I could about urban outfitters in Europe.
Speaker Change #156: They.
Speaker Change #156: Have been probably bar.
Speaker Change #156: Borrowing more of the fashion from.
Speaker Change #156: The North American group.
Speaker Change #156: Then they ever happened in the past.
Speaker Change #156: And particularly.
Speaker Change #156: I think the major differences are the major changes that they've experienced is they've gotten more into what I would call the feminine looks.
Speaker Change #156: And that seems to be working very well for them right now.
Speaker Change #156: In North America have those same looks.
Richard A. Hayne: And they are performing well, but I think that there's probably a higher penetration of those local in the European business right now than there is in the North American business. Please stand by for our next question.
Speaker Change #156: And they are performing well.
Speaker Change #156: But I think that there's probably a higher penetration of those folks.
Speaker Change #156: In the European business right now than there is in the North American business.
Speaker Change #157: Thank you.
Speaker Change #158: Please standby for our next question.
Operator: Please stand by for our next question. Our last question comes from the line of Jay Sole with UBS. Your line is open.
Speaker Change #159: Our last question comes from the line of Jason Lee with UBS. Your line is open.
Jason Lee: Great. Thank you. So much I was just wondering if you can elaborate a little bit on newly.
Jason Lee: <unk> talked to support the sales trend what you've learned in the last 90 days profitability. How you see that trending versus where you were 90 days ago that'd be super helpful. Thank you.
Jay Daniel Sole: Dave, you want to take that? Yeah, sure.
Dave: Dave do you want to take that yeah sure. Thanks for the question, Jeff I guess I would just start by saying that the first quarter was just a fantastic quarter for us we saw.
David A. Hayne: Yeah, sure. Thanks for the question, Jay. I guess I would just start by saying that the first quarter was just a fantastic quarter for us. We saw a tremendous amount of growth. A lot of subscribers that joined the platform for the first time. In fact, more new subscribers than we've ever had in our history. From a profitability standpoint, we did call out already, Frank mentioned that we were not profitable in the first quarter; we probably would have been if not for the transition to our Kansas City facility.
Dave: And this amount of growth a lot of subscribers joined the platform for the first time.
Dave: More new subscribers than we've ever had in our history.
Dave: From a profitability standpoint, we did call out already mentioned.
Dave: We were not profitable in the first quarter, we probably would have been if not for the transition to our Kansas City facility.
David A. Hayne: I think longer term, we're expecting to be profitable through the rest of this year and just very excited about the growth we saw in the first quarter and actually what we've seen continue in May in the second quarter. So just a very, very exciting time for new
Dave: Think longer term we're expecting.
Dave: To be profitable through the rest of this year.
Dave: And just very excited about the growth we saw in the first quarter and actually what we've seen continue in may.
Dave: In the second quarter so.
Dave: Just very very exciting time for <unk>.
Richard A. Hayne: Okay, I think that that wraps up the questions. I thank you all very much for joining us. And look, we're talking to you again in August.
Speaker Change #161: Okay, I think that that perhaps up the questions I. Thank you all very much for joining and look we're just talking to you again in August.
Operator: Ladies and gentlemen, that concludes the conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
Speaker Change #162: Ladies and gentlemen that concludes the.
Speaker Change #163: The conference call. Thank you for your participation you may now disconnect.
Speaker Change #163: Have a wonderful day.
Speaker Change #163: Yeah.
Speaker Change #163: [music].
Speaker Change #163: Yeah.
Speaker Change #163: [music].
Speaker Change #163: Okay.
Speaker Change #163: [music].
Speaker Change #163: Yes.
[music].
Speaker Change #163: Okay.
Speaker Change #163: [music].
Speaker Change #163: Okay.
Speaker Change #163: Okay.
Speaker Change #163: [music].