Q3 2025 Urban Outfitters Inc Earnings Call

November 26, 2024

Good day and welcome to the Urban Outfitters, Inc. Third quarter fiscal 2025 earnings call.

At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.

Speaker Change: Ask a question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is right to withdraw your question Press Star one again please.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker, Mr. Mccullough Executive director of Investor Relations. Please go ahead.

Speaker Change: Good afternoon, and welcome to the U R. B N third quarter fiscal 'twenty twenty-five conference call.

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

Speaker Change: For more detailed commentary on our quarterly performance and the text of today's conference call. Please refer to our Investor Relations website at Www Dot you ought to be on Dot com.

I'll now turn the call over to <expletive>.

Speaker Change: Thank you Ana and good afternoon, everyone. We're pleased to announce record third quarter sales and profits surpassing the expectations we discussed in August.

Speaker Change: Speaking as those results on today's call you will first hear from Frank Conforti, our co president and COO.

Speaker Change: After Frank you will hear updates on two of our newest and fastest growing brands.

Dave Hayne will speak about newly our fashion apparel rental business.

Speaker Change: Followed by Sheila Harrington, who will talk about our athletic brand FP movement.

Speaker Change: Following those updates belting Marine F. Ron <unk> CFO will talk about our current expectations for the fourth quarter.

Speaker Change: Then after my brief closing remarks, we will be pleased to address your questions.

Speaker Change: I will now turn the call over to Frank.

Frank Conforti: Thank you <expletive> and good afternoon, everyone.

Frank Conforti: Today, I will discuss our total company third quarter results versus the prior year, followed by some more detailed notes by brand.

Frank Conforti: I will also provide some commentary on our current trends in the macro environment.

Overall, the teams delivered an exceptional quarter, which was nicely ahead of our plans as discussed on the second quarter call.

Frank Conforti: Total you RBN sales grew by 6% to a Q3 record of $1 4 billion and four of our five brands continued to perform remarkably well posting record third quarter sales.

Frank Conforti: Our sales growth was driven in part by our retail segment comp of 2%.

Frank Conforti: Anthropologie and free people produced a mid single digit positive retail segment comp, which more than offset a high single digit retail segment comp decline at urban outfitters.

Speaker Change: Newly delivered robust double digit revenue growth due to a 51% increase in average active subscribers versus the prior year.

Speaker Change: Additionally, the wholesale segment increased revenue by 17% driven by a healthy increase in the full price sales at free people.

Speaker Change: Now moving onto gross profit.

Speaker Change: <unk> gross profit dollars increased by 9% to $497 million, while the gross profit rate improved by 105 basis points to 36, 5% is.

Speaker Change: This improvement was due to improved gross margins for all segments, primarily driven by higher initial merchandise margins followed by reduced merchandise markdowns.

Speaker Change: Both anthropologie and free people saw increases in initial margins, while urban outfitters drove the improvement in merchandise markdowns.

Speaker Change: During our last call. We noted the retail segment brands were experiencing a slight slowdown in sales trends and anticipated the need for more promotions compared to the previous year.

Speaker Change: Good news is trends improved as the quarter progressed, which resulted in urban outfitters, delivering lower year over year merchandise markdowns anthropologie merchandise markdowns remaining flat to last year and free people recording slightly higher merchandise markdowns versus last year.

Speaker Change: It is important to note that while free people did record higher merchandise markdowns in the current quarter prior year rate with exceptionally low and the free people brand continues to lead the way with the lowest markdown rate of any of our retail segment brands.

Additionally, both the subscription and wholesale segments reported strong gross margin gains.

Speaker Change: Next for the quarter.

Speaker Change: SG&A increased by 7%.

Speaker Change: Just slightly outpacing our rate of sales growth.

Speaker Change: The rise in total company SG&A expenses was primarily due to increased marketing spend used to drive solid sales growth at the Anthropologie free people FP movement and newly brands.

Speaker Change: The marketing efforts of Anthropologie and free people significantly boosted traffic to both the store and digital channels, while noise campaign led to over 50% growth in average active subscribers.

Speaker Change: Total European operating income rose by 18% compared to last year, reaching $129 million with the operating profit rate improving by over 90 basis points to nine 4%.

Speaker Change: Net income saw a 24% increase to $103 million or $1 10 per diluted share.

Speaker Change: I will now provide more details by brand starting with Anthropologie.

Speaker Change: The Anthropologie team delivered another excellent quarter with a 6% retail segment comp and the eighth straight quarter of double digit operating income growth.

Speaker Change: Positive comps were driven by similar growth in both the store and digital channels.

Speaker Change: By category apparel shoes, accessories, and beauty delivered nicely positive retail segment comps in the quarter.

Speaker Change: Within apparel, there is broad based strength across categories and the holiday assortment has been well received by consumers.

Speaker Change: Ranked in these categories with partially offset by weakness in home, which was entirely driven by lower furniture sales.

Within home the gift and entertainment category is nicely positive driven by consumers investing in seasonal decorative categories to refresh their homes for holiday.

Speaker Change: The Anthropologie team continues to execute exceptionally well on their strategic initiative of acquiring new customers.

Speaker Change: Further engaging existing customers.

Speaker Change: During the quarter, both new and active customers increased by over 13% versus the prior year.

Speaker Change: The brand continues to make strategic marketing investments supported by outstanding creative content, which drove high single digit traffic increases in both the store and digital channel.

Speaker Change: <unk> sales growth and healthy margin expansion, coupled with well managed expenses drove record operating profit dollars for the brand in the third quarter.

Speaker Change: As we enter the holiday season, the Anthropologie consumer remains optimistic and continues to respond positively to a broad range of categories.

Speaker Change: Based on our current plans, we believe the brand could deliver a positive comp in the fourth quarter similar to the third quarter.

Speaker Change: Next the free people team produced an outstanding quarter with the global free people group, including wholesale total sales increasing 10%.

Speaker Change: The double digit increase in sales was driven by a 5% retail segment comp, 20% increase in wholesale segment revenues and a 176% increase in non comp sales driven by new store openings.

Speaker Change: The sales comp was driven by mid single digit DTC comp and a low single digit store comp.

Speaker Change: During the quarter the free people brand achieved positive sales growth across apparel accessories and FP movement.

Speaker Change: The FTE movement brand delivered 30% total growth driven by 14% retail segment comp new store growth and over 70% wholesale segment growth.

Speaker Change: Sheila will speak further to FP movement later on the call.

Speaker Change: Based on our current plans, we believe free people retail segment could deliver a low to mid single digit positive comp for the fourth quarter.

The free people wholesale segment sales increased 20% 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.

Speaker Change: Segment profitability improved significantly from the prior year when that brand utilized closeout channel sales to reduce aging product.

Speaker Change: We believe the wholesale segment could continue to deliver double digit sales growth and improved profitability versus last year in the fourth quarter.

Speaker Change: Now moving on to the urban Outfitters brand.

Urban Outfitters recorded a 9% decline in the retail segment comp for the quarter. This.

Speaker Change: This negative comp was primarily due to the disappointing performance in North America, while Europe delivered a low single digit positive comp.

Speaker Change: Despite the overall decline in North American sales, we are pleased with the improvement in merchandise margin rate driven by lower markdowns in the quarter, resulting in a reduction in the brands operating loss versus last year.

Speaker Change: The brand delivered improving regular price performance in key categories, such as denim accessories home and certain key lounge items during the third quarter.

Speaker Change: These key categories and items are becoming increasingly important as we approach the holiday season.

Speaker Change: Additionally, the brand showed nice improvements in store comps as the quarter progressed, driven by improving regular price sales with October being the strongest month of the quarter.

Speaker Change: We have full confidence in the brand team and the strategies they are implementing.

Speaker Change: While we acknowledge that progress may be gradual we believe their efforts will yield meaningful results over time.

Speaker Change: Based on our current plans, we believe the brand could deliver a mid single digit comp decline in the fourth quarter.

Speaker Change: Before turning the call over to Dave to discuss the strength of the newly business I would like to briefly address the macro environment and consumer trends.

When we last spoke in August we were experiencing softer demand trends and approach the third quarter with caution.

Speaker Change: However, as the quarter progressed, we observed a returned to healthy consumer spending patterns with October delivering the strongest comp of the quarter.

Speaker Change: Although it is still early in the holiday season with a big shift in the holiday calendar based on our current results. We are optimistic for the entire holiday season.

Speaker Change: We anticipate that total sales growth in the fourth quarter will mirror that of the third quarter driven by a single digit increase in retail segment comps strong revenue growth from newly and continued double digit sales growth in the wholesale segment.

Speaker Change: I will now turn the call over to Dave Hayne, President of newly and Chief Technology Officer to provide details on the newly brand third quarter performance as well as the strategic update.

Dave Hayne: Thank you Frank and good afternoon, everyone.

Dave Hayne: I am pleased to share an update on our rental business newly.

Dave Hayne: On this same call last year, we celebrated surpassing 200000 active subscribers and achieving our first quarterly operating profit.

Dave Hayne: Since then our active subscriber base has grown 50%.

Dave Hayne: Ending this third quarter at 297000.

Dave Hayne: And in the last few weeks in November we have crested over 300000.

Dave Hayne: The third quarter was particularly exciting with a net increase of 52000 active subscribers or 21% total growth in just three months.

Dave Hayne: And with quarterly records for new subscribers as well as records for attracting paused and canceled customers back into the business.

The strong third quarter subscriber growth translated directly into robust financial results newly.

<unk> delivered $97 million in third quarter revenue, a 48% increase versus last year.

Dave Hayne: We have continued to improve gross margins and operating efficiency, resulting in a nicely profitable quarter with $4 million in operating income at a four 2% operating margin rate.

Dave Hayne: This marks our second consecutive quarter with a mid single digit operating profit rate and we believe this trend will continue into the fourth quarter, which should lead to new lease first full year of positive operating profit.

Dave Hayne: Over the past several quarters our team has been focused on three primary pillars.

Dave Hayne: Advancing the customer experience scaling our operations to support our robust growth and driving customer awareness.

Dave Hayne: First the customer experience.

Dave Hayne: We know that the main reason women's shoes, newly is where our breadth of brands and fashion assortment and at the heart of the assortment our styles from our family of brands Anthropologie free people FP movement and urban Outfitters.

Over the past year, 47% of the units rented on the platform where from our sister brands.

Dave Hayne: And we regularly hear from our customers that rental allows them to experiment with new styles, which leads to reciprocity back to the brands on the platform.

Dave Hayne: A great example is anthropologie is collette pant, which has been rented by nearly a quarter million different newly subscribers with nearly one fifth of these subscribers also purchasing a clip pant from anthropologie directly.

Dave Hayne: This positive reciprocity also extends to our market brand partners, who tell us that they see many of their new customers referencing newly is the place they first learned of them.

Dave Hayne: In FY 'twenty five newly initiated partnerships with Madewell, Alex Mill, Barber mother, denim and polo, Ralph Lauren among others and we have more name brand additions planned for next year.

Dave Hayne: Product collaborations like the August collaboration with farm Rio on 12 exclusive styles have been very well received by subscribers.

Dave Hayne: And we have recently announced fourth quarter collaborations with both Rachel Anson off and favorite daughter, which have been strong marketing moments for both brands and newly.

Dave Hayne: In addition to the assortment we know the digital platform has a direct impact on our customer experience.

Dave Hayne: In February we launched a feature allowing subscribers to create multiple lists of styles to rent in future new lease.

In June we released significant improvements to our search and browse functionality, making our website faster and more intuitive.

Dave Hayne: In September we introduced gift cards, making it easier for people to gift newly to friends and family.

Dave Hayne: And just a month ago, we launched our new thrift shop, a subscriber only benefit allowing customers to buy a selection of rental inventory that will be held in shipped for free and their next newly rental shipment.

Dave Hayne: These features helped to strengthen the customer experience as well as drive incremental revenue for the business.

Dave Hayne: The second pillar of focus has been scaling our operations to ensure we have the necessary capacity and throughput required to serve the customer.

Dave Hayne: At the start of this calendar year, we had one fulfillment center, which was operating at maximum capacity.

Dave Hayne: In February we opened our new 600000 square foot facility in Ray more misery, which has tripled our subscriber capacity.

Dave Hayne: Throughout this year, we have migrated millions of units of inventory trained hundreds of new staff and this facility is now processing nearly 60% of subscriber volume with virtually no interruption to our customers.

Dave Hayne: This smooth transition was only possible due to the excellent efforts of our teams and we believe we are now well positioned to support our future growth.

Dave Hayne: This fulfillment expansion has not only enabled us to scale to meet growing demand. It has also enabled us to be more efficient.

In the third quarter, we achieved leverage in both logistics and delivery expenses and in the first half of next year, we plan to implement more robust automation in the re more facility that will enable us to gain further leverage and logistics expenses.

Dave Hayne: Additionally, as the business continues to grow we believe we can further leverage our fixed costs and we will continue to reduce variable expenses, leading to even greater improvement in operating margins.

Dave Hayne: Along with our focus on customer experience and operational improvements our third pillar, our focus has been improving brand awareness to drive customer acquisition.

Dave Hayne: To this end in Q3, we launched our largest marketing campaign yet.

Dave Hayne: The campaign featured talking newly bags and centered on the notion that buying is normal renting is newly.

Dave Hayne: It was featured across a mix of channels, including streaming TV meta Youtube and out of home placements and all indications point to the awareness growth that we were seeking.

Dave Hayne: Yeah.

Dave Hayne: To summarize it is clear to us that we have built something special in newly.

Dave Hayne: We have become the largest fashion rental company in the world with robust customer demand and subscriber growth and a profitable business model.

Dave Hayne: We know we are expanding the overall rental market by winning first time customers as over two thirds of our new subscribers report that they have never rented clothing prior to newly.

Dave Hayne: Our subscriber retention rates are high for a subscription service with nearly 45% of subscribers still active after 12 months and nearly 40% still active after 36 months.

And we believe the total addressable market for clothing rental services stretches well into the many millions providing ample opportunity to grow significantly into the future and helping to showcase why we are also excited about what we've built in newly.

Dave Hayne: I'd like to thank the newly team and all our shared service and brand partners for helping to achieve this success and I'd like to particularly thank our subscribers for inviting newly into their closets.

Speaker Change: Thank you I will now turn the call to Sheila Harrington to discuss the FP movement brand.

Sheila Harrington: Thank you, Dave and good afternoon, everyone today, I will discuss more detail around the ongoing success of FP movement as well as the future direction and ambitions for the brands.

Sheila Harrington: F. P may have been strives to be a leading female athletic brand prioritizing performance alongside fashion to allow for the creative expression of the individual.

Sheila Harrington: Product innovation and creativity are the cornerstone of the brand's growth. This is evident as the team has created and built powerful first to market businesses, such as the onesie and renzi and how embraces color pattern washes and textures that uniquely defined the brand as well as they continue on.

Sheila Harrington: Evolution of silhouette and outfitting.

Sheila Harrington: We put fashion in our performance business that typically shy away from this.

Sheila Harrington: We strive to service the fully active lifestyle of our consumers committed and excellence and performance to allow them to move comfortably and confidently and a range of activities.

Sheila Harrington: This year in this quarter's results reflect this commitment with our bra and performance apparel from studio Court and trail outpacing growth in our retail segment.

Sheila Harrington: We continue to evolve and invest in the right talent and sourcing to fuel this commitment within our organization blending it with the fashion aesthetic handwriting true to the brand.

Sheila Harrington: FP movement has achieved stellar growth across all three of its distribution channels. This year as well as this past quarter.

The movements early an explicit digital growth was primarily driven by free people brand and digital stream more.

Sheila Harrington: More recently the brand has achieved higher visibility and name recognition a higher portion of the brand's new consumers are independently driven first by FP movement.

We see strong increases in unique brand searches are net new to the brand ecosystem through FP movement.

Sheila Harrington: We attribute this positive change can be from the consistent brand and digital marketing along with the expansion of both stores and wholesale presence and are only at the beginning of our journey.

The sustained growth of the digital channel forms the foundation of our distribution strategy, but we also have a significant opportunity to continue to expand the store suite at wholesale partners and build our FP movement brand.

Speaker Change: Uh huh.

Wholesale channel growth. This year has been exceptionally strong driven by both large premier strategic partnerships within the athletic space and the strength of sales within their business as well as our specialty store business, which grew at 100% last quarter.

Speaker Change: Our specialty strategy encompasses studio, Brian along with outdoor sporting goods stores, aligning with our product strategy and creating a path and confidence to sustained long term growth.

Speaker Change: Standalone stores remain a significant part of FP movement growth plans existing stores are achieving strong profitability driven by healthy sales per square foot.

Speaker Change: Ranked across all metrics, including <unk> <unk> and conversion.

Speaker Change: This past quarter and year to date, our comparable stores have produced high single digit gains.

Speaker Change: This year, we plan to open a total of 25, new Standalone stores, increasing our total to 63, standalone stores and 51 shop in shops.

While the footprint of most of our Standalone stores is under 2500 selling square feet in May we opened a largest store in Soho New York.

Speaker Change: It is a spectacular expression of the brand.

Speaker Change: Since our first store opened in 2020, we have increased our average square footage by 30% and continue to see elevated sales per square foot.

Speaker Change: We are confident that the typical movement store of the future will be between 25, and 3000 square feet and believe the fleet can include at least 300 Standalone stores in North America.

Speaker Change: Not only are our stores highly productive from a sales perspective, but they also provide education and touch points for the brand and service centers for community building.

Our store and marketing teams are committed to consistent activation and events, including Matt based workouts and run clubs across North America.

Speaker Change: Tendons, and NRG are contagious and motivate us to do more.

Speaker Change: Over the last five years FP movement has achieved a compounded growth rate of 39%.

Speaker Change: Brand continues its strong performance in the third quarter this year by delivering a 30% year over year increase.

Speaker Change: This growth was driven across all three channels. The wholesale channel led the way with 74% gains while the retail segment delivered a 19% increase.

Speaker Change: Coupled with strong top line growth operating profit over the same five years grew by triple digits.

Speaker Change: Third quarter profits remained strong fueled by increased sales rigorous inventory management higher <unk> and strong expense control.

Speaker Change: Fiscal 'twenty five is shaping up to be another record breaking year for FP movement.

It was jumpstarted by our most successful marketing campaign to date entitled standout never style.

Speaker Change: This campaign authentically celebrates our focus on the female athlete with a diverse roster of brand ambassadors, including NC double a athletes olympians professional athletes and women forging their own activity based paths.

Speaker Change: Our goal over the next few years is this a pass $1 billion in sales, but longer term. We believe the brand has an opportunity to be substantially larger our aim is to become the leading fashion infused female athletic brand globally, we remain unwaveringly focused on meeting her needs and excelling in both.

Speaker Change: Formats and fashion, our confidence is rooted in our strong creativity and passion of our team our execution to date and the market opportunities we see.

Speaker Change: Finally, I wish to recognize and thank the entire FP movement team. The brands Amazing success is attribute to their hard work passion and dedication I will now pass the call over to Melanie.

Melanie: Thank you Sheila narrow, let's discuss our thoughts on the fourth quarter financial performance and fiscal year FY 'twenty five performance. The following Q4 forward looking statements reflects comparison to Q4 FY 'twenty four results adjusted for certain one time items in the prior year.

Melanie: Based on the start of the quarter, we believe that fourth quarter total company SaaS growth could be mid single digits sales growth in Q4 could result from the low single digit growth in retail segment comp and high teen growth in the wholesale segment in.

Melanie: In addition, we believe that newly segment revenue growth could be mid double digits now onto gross profit margin based on current sales performance and plan. We believe <unk> gross margin rate for the fourth quarter could improve by approximately 100 basis points compared to the prior year fourth quarter the <unk>.

Melanie: Kris and gross profit margin could be primarily due to lower markdowns, particularly at the urban outfitters brand as well as higher initial product margins from cross functional initiatives.

Melanie: Moving on to SG&A expenses based on our current sales performance and plan, we believe SG&A growth for the fourth quarter will increase in the mid single digits. Our planned growth in SG&A could be primarily driven by increased marketing expenses to drive growth in customers and sales at Anthropologie free.

Melanie: People FP movement and newly.

Melanie: As always its sales performance fluctuate, 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 point to 5% for the fourth quarter and 24% for the full year.

We believe that inventory levels in the fourth quarter could grow at a rate similar to fourth quarter sales growth.

Melanie: Capital expenditures for the fiscal year are planned at approximately $210 million. The FY 'twenty five capital project spend is broken down as follows approximately 50% is related to retail store expansion and support approximately 25% is related to logistics capacity investments, including the newly rental fulfill them.

Melanie: <unk> Center in <unk>, Missouri, which opened in the first quarter and the remaining 25% would be our normal capital investments supporting <unk>.

Melanie: Home office and logistics operations Lastly, we will be opening approximately 58, new stores and closing approximately 31 stores during FY 'twenty five.

Melanie: Our net new store growth is being driven by growth in FP movement free people and Anthropologie stores during fiscal year 'twenty five we plan on opening 25, FP movement stores 13 free people stores and 13 Anthropologie stores.

Melanie: As a reminder, the foregoing does not constitute a forecast but is simply a reflection of our current views.

Melanie: The company disclaims any obligation to update forward looking statements.

Speaker Change: Now I am pleased to turn the call to Dec, Chief Executive Officer of European.

Dec: Thank you Melanie and thanks also to the Sheelen, Dave we're happy to share the incredible success stories of these two fast growing brands.

Dec: Despite being our smallest and youngest both brands are punching above their weight by making major contributions to our topline growth while also delivering impressive profitability.

Dec: We're not only adding value today, but are poised to become an even more important part of the <unk> portfolio of brands moving forward.

Dec: I am excited by our many growth opportunities and I'm confident in the continued success of <unk>.

Dec: In closing I, Thank our co presidents Meghan, Frank our brand leaders, Tricia, Sheila and Dave.

Dec: Their merchant creative and operating teams our shared service teams and our 31000 associates worldwide.

Dec: Their collective efforts produced another record quarter and I think.

Dec: I am constantly humbled by the remarkable dedication and creativity.

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

Dec: That concludes our prepared remarks, I'll now turn the call over to your questions.

Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question Press Star one again due to time restraints. We ask that you. Please limit yourself to one question. Please standby, while we compile the Q&A roster.

Speaker Change: Yes.

Speaker Change: And our first question will come from the line of Lorraine Hutchinson with Bank of America.

Speaker Change: Thank you good afternoon could you talk to the changes that have been most successful as you begin to stabilize the business and how are you planning inventory for the brand for the fourth quarter and then into spring.

Speaker Change: Okay. Thanks for the question first.

Speaker Change: I'd say that we are really confident in the strategy that we've laid out and excited about the progress that we've made with a firm understanding of who our customer is our team has been able to apply an action against the strategy and there is a couple of areas that I think we feel particularly excited about first from an assortment perspective.

Speaker Change: The areas.

Speaker Change: We're pleased that we've been able to impact and invest in are really showing positive momentum Frank mentioned some of those but denim lounge home accessories and women's accessories are notable.

Speaker Change: Lots of progress, but also the momentum as we enter the fourth quarter and that feels really good what do we think about the fact that we've invested in to those for fourth quarter as well, we're seeing holiday off to a great start and that feels really good second we're excited to see traffic momentum building in our selling channels as we enter the fourth quarter.

Speaker Change: And we think this is a nice reflection on the team's effort in marketing that they've been applying our retail channel specifically as you heard Frank mentioned is seeing sales momentum build and an impressive.

Speaker Change: Best of your performance from a comp basis coming out of October as we start the holiday season sales, great and then last I would say.

Speaker Change: From an operating perspective, making great strides on the bottom line and I think this will address your second question as.

Speaker Change: As we've been managing inventory with more discipline.

Speaker Change: That is related to where we're investing.

From an inventory perspective, but also making sure we manage that in line with sales.

Yeah.

Thank you one moment for our next question.

Speaker Change: And that will come from the line of Adrienne <unk> with Barclays. Your line is open.

Speaker Change: Thank you very much and congratulations everybody on the.

Speaker Change: Great outcome here.

Speaker Change: Yes.

Speaker Change: Youre welcome.

Speaker Change: For you back in the spring, we were talking about the silhouette kits and I always like to get maybe for you or anybody who wants to pipe in on kind of what we're seeing with the little pared back bigger panel bottoms and denim says.

Speaker Change: We have heard from many others you know back to school into fall that it's scaling on adoption.

Speaker Change: Normally these are more than one year event does it get to each of you at your brands more clarity more conviction on what to buy if they go into the spring of 2025, and then for <unk>, you said that it'll be less of a loss like we know that the UO division was negative mid single digit.

Speaker Change: Martin what would it take.

Speaker Change: The margin recapture or are you going for margin recapture first which would kind of put a lid on the comp recovery sales recovery, how should we think about margin versus sales at you out. Thank you.

Speaker Change: Okay, Adrian I'll take a shot at the first one.

Speaker Change: Thank you know that we were talking about the silhouette change geez. It seems like it was three years ago.

Speaker Change: <unk> talked about how our paths, we're getting fuller and water.

Speaker Change: And.

Speaker Change: We have continued on that path.

They are probably about as full and as wide as they can possibly get now.

Speaker Change: I don't know, what's next and if I did I guess I wouldn't tell you on the call.

Speaker Change: So that we don't broadcast out to all the competitors that might be on.

Speaker Change: No we're still seeing good success.

Speaker Change: With the barrel shape and other.

Speaker Change: <unk>.

Speaker Change: The teams have come up with over the last few years.

And I guess.

Speaker Change: Adrian as it relates to urban returned us opex sort of in the order cadence you haven't exactly right. We're focused on that Reg price consumer first the quality of the business and the quality of earnings so youre seeing it in the order and that orders and intentionally being.

Speaker Change: Being executed where MMU rate is improved and it was great to see Sheila and team to deliver that here in the third quarter, which drove a lower markdown rate, which did lower their loss.

Speaker Change: You are obviously aware that in order for the brand to fully recapture.

Speaker Change: And returning to profitability that they are going out to drive topline sales gains.

Speaker Change: And that is the next leg of the execution that we need to get in order to leverage off our fixed expenses.

Speaker Change: And right now as well.

Speaker Change: So in the early stages, we're not in a position where we're going to forecast when thats going to come but we are happy to see the first leg starting to recapture margin rate.

Speaker Change: It's starting to come to fruition.

Thank you one moment for our next question.

Speaker Change: And that will come from the line of Matthew Boss with Jpmorgan. Your line is open.

Speaker Change: Great. Thanks.

Speaker Change: <expletive> maybe could you elaborate on your optimism for fourth quarter comp store sales and maybe how each brand is tracking so far in November and then Melanie could you speak to gross margin puts and takes in the fourth quarter and how best to think about MMU versus the <unk> drivers remaining into next year.

Speaker Change: Okay, I'll give it a shot.

<unk>.

Speaker Change: As I told you.

Speaker Change: We are optimistic about the fourth quarter.

Speaker Change: During the third quarter and the first couple of weeks in the fourth quarter.

Speaker Change: Im sorry, the third quarter and the first couple of weeks in the fourth quarter.

Speaker Change: We experienced an awful lot of <unk>.

Speaker Change: <unk> in the system I guess I would call it.

Speaker Change: That range from multiple wars on multiple continents.

Speaker Change: Multiple Dudley hurricanes that ravaged parts of Florida and the southeast.

Speaker Change: Labour disputes.

Speaker Change: Unusually warm weather up and down the east and West Coast.

Speaker Change: Of course, the presidential election.

Speaker Change: Through all of those the cost of the consumer has remains what I would characterize is remarkably resilient.

Speaker Change: <unk>.

Speaker Change: Those events didn't seem to have much lasting impact on discretionary spending.

Speaker Change: The first couple of weeks of November before.

Speaker Change: The weeks became non comparable due to the.

Speaker Change: The Thanksgiving shift we saw a continuation of the strong sales from October.

Speaker Change: So that's what has given us.

Speaker Change: Particularly strong hope that Q4 will turn out to be very similar to what we experienced in Q3.

Mel do you want to take the second part Frank Yes, Matt I'm happy to take the second part and then I will ask that we just try and keep it to one question going forward. So we can try and get as many in as possible.

Speaker Change: As it relates to fourth quarter gross profit margin, yes, we think we can show gains similar to the 100 basis points of what we delivered in the third quarter that.

Speaker Change: That would be driven by <unk>.

Speaker Change: Honestly, the biggest driver would be lower markdown rate.

Speaker Change: Largely being driven by urban Outfitters and was up against a very high rate from the previous year.

Speaker Change: You mentioned urban outfitters entering the quarter with much improved balance of inventory to sale and they continue to see improvements must be typically in the four channels each of which we believe will contribute to a lower markdown rate on a year over year basis.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And that will come from the line of Paul <unk> with Citi. Your line is open.

Speaker Change: Thanks, guys.

Speaker Change: Give your early thoughts about store growth for next year, both openings and closings.

Speaker Change: I'm, specifically curious how you're thinking about urban outfitters clothing, and what's the goal what are the goals for newly as you think about 2025.

Speaker Change: Good morning.

Speaker Change: Hi, Paul.

Speaker Change: Well urban, particularly we have a lot of flexibility.

Speaker Change: With our real estate portfolio in fact over the next few years I think it's three years over half of our leases will come available and we are actively evaluating those really through the lens of.

Speaker Change: Making sure we right size, our productivity and profitability, which means.

Speaker Change: Ensuring we reduced our average store size.

Speaker Change: Aligning our footprint to really the most optimal locations, where our customers are and where they shop, and then making sure we right size and recalibrate.

Speaker Change: Footprint within the store to better align with our product strategy really with the goal of driving more top line and mitigating.

Speaker Change: Any markdown pressure in our store I think that that'll end up looking like some closures some downsizing some relocations and in some cases it may mean relocating to a better footprint that actually are smaller as well.

Do you want to give the number of stores absolute well I would just say it's very similar we haven't finished our plan will clearly give more direction on the fourth quarter earnings call, but for purposes of modeling I would say for the outside of urban outfitters. The other brands will look very similar in their store openings as an FY 'twenty five okay. Thank you.

And Paul just to jump in for the newly goals were.

Speaker Change: We're feeling very good about the growth that we're seeing and excited about the future of next year.

Speaker Change: Very encouraged by customer feedback.

Speaker Change: The growth of the awareness that we're seeing from the brand and excited to deliver more growth next year and thinking about.

Speaker Change: Mid double digit growth rate in the next year and continuing to find more efficiency on the bottom line as.

As well as to leverage our fixed costs and drive more profit so.

Speaker Change: Very excited about the new lead growth.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And that will come from the line of Alex Stratton with Morgan Stanley. Your line is open.

Speaker Change: Perfect. Thanks, so much congrats on a nice quarter I wanted to focus quickly here on free people I think you called out higher discounting activity in the quarter and then it looks like the forward guide it seems a little bit of a slowdown in sales trends quarter over quarter. So can you give us impact kind of whats going on going on with that.

Speaker Change: Banner for me.

Sure Hi, Sheila.

Speaker Change: We are really pleased continue to be pleased with free people to resolve that ranked priced the business. It remains consistently.

Speaker Change: Consistently strong when we look at our multi stacked here are up against a fantastic margin year from last year. So when we addressed we've moved quickly to address a lot of lake.

Speaker Change: Fashion learnings, we move quickly and that will keep us healthy in the long term so.

Speaker Change: When I look at free people were gaining a customer over retaining our cost back to the customer.

Speaker Change: Customer.

Speaker Change: Any area that we have focused on with meaning around the assortment is producing and exceeding expectations frankly.

Speaker Change: So just small.

Speaker Change: Quick learnings and moving quickly on them and sort of where we've been focused and Alex I don't know if you heard Frank when he gave his.

Speaker Change: Commentary, but free people, even though they had a slightly higher markdown rate in Q3.

Speaker Change: <unk> remains the lowest markdown rate of any of our brands.

Speaker Change: It was up against a markdown rate last year, which is completely unsustainable and so I don't think there is any issue with their markdown rate.

Thank you one moment for our next question.

Speaker Change: And that will come from the line of Mark All swagger with Baird. Your line is open.

Speaker Change: Good afternoon, and thank you for taking my question on free people movement do you view a growth rate in the 30% range is sustainable in the medium term.

Speaker Change: And as we think about margin as free people movement accretive to the brand overall any any color there would be helpful. Thank you.

Speaker Change: Yeah, I can handle it.

Speaker Change: We continue to see double digit growth I don't want to commit to a number but we believe that with our store.

Speaker Change: Both increasing I'm, sorry, our store count growing as well as our opportunity with our specialty store and wholesale area.

Speaker Change: There is no reason that this brand can continue.

Continue to contribute large topline growth to the company.

Speaker Change: We do think that our businesses is separate and we're gaining new customers through FP movement and purpose for our people.

Speaker Change: Great. Thank.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And that will come from the line of Dana Telsey with Telsey Advisory Group. Your line is open.

Dana Telsey: Hi, Good afternoon, everyone. As you look at the gross margin and the opportunity. There you had mentioned about the cross functional initiatives where are we in that journey, what do you see the opportunity for the gross margin from those initiatives.

Dana Telsey: Then with the level of markdowns, particularly at the urban Outfitters Division, improving how do you see inventory ordering and planning for markdowns from there going forward given the compares thank you.

Frank Conforti: Thanks for your question Dana This is Frank and as you know we're in the final year of our three year journey.

Frank Conforti: Setting out a goal for ourselves to improve INU by 500 basis points.

Frank Conforti: I'm really proud to report that.

Frank Conforti: Supported by the sourcing organization and the brands delivering meaningful new growth. We think we're going to hit that number is not just be really really close here in the fourth quarter, there's a litany of.

Frank Conforti: Drivers cross functional drivers that we've used to deliver.

Frank Conforti: Delivering that growth honestly, probably just too much detail to get in.

Frank Conforti: And to you on the call, but we're confident that we can continue to drive that growth into the fourth quarter as it relates to sort of inventory planning and markdown I think all of the brands are planning inventory to basically be in line with sales going forward. We know it was a little just slightly elevated here as we.

Frank Conforti: Closed the third quarter, which was.

Frank Conforti: They solely about us just bringing some key items in earlier to protect the holiday season, obviously, we knew about the planned strike here on the on the East coast.

Frank Conforti: Wanted to protect protect our risky so we did bring in some items slightly earlier, but as we planned inventory going forward, we expect it to be in line with sales that not to hurt markdowns.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And that will come from the line of Marni Shapiro with the retail tracker. Your line is open.

Marni Shapiro: Hey, guys, congratulations and just in case I.

Marni Shapiro: I don't think I forget please.

Please have a great Black Friday week.

Marni Shapiro: So I wanted to ask I wanted to ask you about anthropologie.

Marni Shapiro: The stores are just they're absolutely stunning they're absolutely stunning and.

Marni Shapiro: Every single gifts lists including my own but every single gift list out there I have found anthropologie on every single gift list and is that a stunning level. This year can you talk a little bit about some of the.

Marni Shapiro: Away from apparel some of the other things you're doing I think daily practice looks actually fantastic and no one's really talking about it. Your handbag assortment has really stood out to me as well you are getting different brands into the store than you used to could you just talk a little bit about.

Marni Shapiro: Where youre kind of tweaking around the edges up what's already successful to get even more excited.

Speaker Change: Good morning, it sounds like you want to become an influence.

Speaker Change: [laughter], yes in my next life I want to take top favorites.

Patricia you want to answer yes, marni. Thank you so much.

Speaker Change: I'm incredibly proud of our team they've been really focused honestly for the last three years.

Speaker Change: Our strategies around modernizing our product assortment and that came from not only expanding some of the categories that were the most well known for but as you mentioned some of the nuance smaller categories that can kind of round out our assortment and that'd become really compelling, particularly in gift ideas I think Jerry.

Speaker Change: The holidays.

Speaker Change: The our accessories expansion has gone extremely well in stores so the footprint of.

Speaker Change: Not only accessories handbags as you mentioned about our shoe assortment has become a very compelling.

Speaker Change: Growth part of our business, but also has a very strong gift, giving category as well, we now have shoes and over 80 stores and its growing considerably both in stores and online.

Speaker Change: And daily practice, we've been very very pleased with it.

Speaker Change: It's growing tremendously our teams are evolving the product assortment that are learning every day from what the customer is responding to we have some nice growth plans for daily practice overall. So thank you very much for your comments or having a good time and enjoying some nice positive results in holidays.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Yeah.

Speaker Change: And that will come from the line of Janet Kloppenburg with J J K Research Associates. Your line is open.

Speaker Change: Hi, everybody.

Speaker Change: On everything.

Speaker Change: And how things are going.

Speaker Change: I have two quick questions. One say I was delighted to hear you say that you understand.

Speaker Change: Exactly who the urban outfitters customer areas.

And I love you to elaborate on that because I have felt some confusion in the past and then either Frank or Melanie It seems like a mid single digit investment in marketing is really helping across all brands and I'm wondering if that level of spending will be maintained going forward. Thank you also much.

And happy Thanksgiving.

Speaker Change: Yeah.

Speaker Change: So the question.

Speaker Change: Yes. The team has been really laser focus on understanding and gaining.

Speaker Change: Keith and intuitive perspective, our customer.

Speaker Change: We have established that urban outfitters customers are young people that are coming of age roughly ages you know from the.

Speaker Change: Hey, just a 16 to 26 or 28, and we've identified three segment.

Speaker Change: At our pre college during college and post College, and I think what's different for US now is that you know we.

Speaker Change: Sure.

Speaker Change: We aspire to be a much more welcoming brand or name sort of indicate.

Speaker Change: Yeah that we serve urban customer.

Speaker Change: And I think we recognize that young people are all across this country and suburban and urban community and so I think we aspire to be a bit more welcoming and broadened our reach of that.

Speaker Change: But I would say, where we're really focused on is that younger consumer just before during and after college and John just to add.

John: And to your second question based on our plans, we think that Q4 SG&A would grow at a rate in line with our sales growth or about mid single digit growth.

Thank you and I do show, we have one final question and that will come from the line of Ike <unk> with Wells Fargo. Your line is open.

John: Okay.

Speaker Change: Hey, Thanks for taking the question on newly I guess the profitability on an operating margin is clearly there curious if you could comment on the cash flows of the business. So thats a positive.

Speaker Change: From cash business at this point or if you need more scale and then just to frame the UO gross margin clearly starting to move in the right direction is there any way I don't know frankly, if you're able to get back to historic norms of what does that mean to the corporate gross margin, how many hundreds of basis points or how many basis points without the <unk>.

Speaker Change: The total company, if you were able to get that equipment to flow through thank you.

Speaker Change: Thanks for the question.

Speaker Change: In terms of cash flow, yes, we are not yet cash flow positive as a company.

Speaker Change: The interesting thing about our business is that we would be cash flow positive. If we had no growth and we were not buying inventory for future growth.

Speaker Change: But because we have to buy inventory ahead of future subscriber growth.

What causes us to still not be cash flow positive.

So it's an interesting dynamic.

Speaker Change: We deal with in the rental business is not dealt with as much in the retail business.

Speaker Change: We've been learning, but all that being said we are encouraged and excited about the progress we're making on cash flow positivity and we think there is the potential that we can be there next year. So.

Speaker Change: Very much in our line of sight and at some point in the near future, we're not exactly sure when but we are nearing it.

Speaker Change: On your last question.

Speaker Change: The team has done a great job in the third quarter urban Outfitters team that is driving MMU rate improvement and knocking on wood. We think they can continue to do so in the fourth quarter.

Speaker Change: I wanted to recognize that we realize that the job is not done yet.

No more meat left on the bone for the brand to continue to drive and then you improvement throughout next year.

Speaker Change: And then hopefully into.

Speaker Change: Positive sales and start to leverage off of the fixed expense. So there is still opportunity left <unk> going into going into next year.

Speaker Change: And then as we said in the second leg of the terms of the profitability will be.

Speaker Change: Top line sales.

Speaker Change: Okay, and I guess that concludes the call today. Thank you all for joining have.

Speaker Change: A very very very happy Thanksgiving.

Speaker Change: Thanks Sidney.

Speaker Change: Yes.

Speaker Change: This concludes today's program. Thank you all for participating you may now disconnect.

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Speaker Change: Good afternoon, and welcome to the <unk> third quarter fiscal 2025 conference call.

Speaker Change: Earlier this afternoon the company issued a press release outlining the financial and operating results for the three and nine months period, ending October 31 2020 for.

Speaker Change: The following discussions may include forward looking statements. Please note that actual results may differ materially from those statements additional information concerning factors that could cause actual results to differ materially from projected results is contained in the companys filings with the Securities and Exchange Commission.

Speaker Change: For more detailed commentary on our quarterly performance and the text of today's conference call. Please refer to our Investor Relations website at Www Dot <unk> Dot com.

Speaker Change: I'll now turn the call over to <expletive>.

Speaker Change: Thank you Anna and good afternoon, everyone. We're pleased to announce record third quarter sales and profits surpassing the expectations we discussed in August.

Speaker Change: Speaking of those results on today's call you will first hear from Frank Conforti, our co president and COO.

Speaker Change: After Frank you will hear updates on two of our newest and fastest growing brands.

Speaker Change: Dave Hayne will speak about newly our fashion apparel rental business.

Speaker Change: Followed by Sheila Harrington, who.

Sheila Harrington: Who will talk about our athletic brand FP movement.

Sheila Harrington: Following those updates Melanie Marine F. Ron <unk> CFO will talk about our current expectations for the fourth quarter.

Sheila Harrington: Then after my brief closing remarks, we will be pleased to address your questions.

I will now turn the call over to Frank.

Frank Conforti: Thank you <expletive> and good afternoon, everyone.

I will discuss our total company third quarter results versus the prior year, followed by some more detailed notes by brand.

Frank Conforti: I'll also provide some commentary on our current trends in the macro environment.

Frank Conforti: Overall, the team has delivered an exceptional quarter, which was nicely ahead of our plans as discussed on our second quarter call.

Frank Conforti: Total you RBN sales grew by 6% to a Q3 record of $1 4 billion and four of our five brands continued to perform remarkably well posting record third quarter sales.

Frank Conforti: Our sales growth was driven in part by our retail segment comp of 2%.

Frank Conforti: Anthropologie and free people produced a mid single digit positive retail segment comp, which more than offset a high single digit retail segment comp decline at urban outfitters.

Frank Conforti: Newly delivered robust double digit revenue growth due to a 51% increase in average active subscribers versus the prior year.

Frank Conforti: Additionally, the wholesale segment increased revenue by 17% driven by a healthy increase in the full price sales at free people.

Frank Conforti: Now moving on to gross profit.

Frank Conforti: <unk> gross profit dollars increased by 9% to $497 million, while the gross profit rate improved by 105 basis points to 36, 5% is.

This improvement was due to improved gross margins for all segments, primarily driven by higher initial merchandise margins followed by reduced merchandise markdowns.

Frank Conforti: Both anthropologie and free people saw increases in initial margins, while urban outfitters drove the improvement in merchandise markdowns.

Frank Conforti: During our last call. We noted the retail segment brands were experiencing a slight slowdown in sales trends and anticipated the need for more promotions compared to the previous year.

Frank Conforti: Good news is trends improved as the quarter progressed, which resulted in urban outfitters, delivering lower year over year merchandise markdowns anthropologie merchandise markdowns remaining flat to last year and free people recording slightly higher merchandise markdowns versus last year.

Frank Conforti: It is important to note that while free people did record higher merchandise markdowns in the current quarter. Prior year rate was exceptionally low and the free people brand continues to lead the way with the lowest markdown rate of any of our retail segment brands.

Frank Conforti: Additionally, both the subscription and wholesale segments reported strong gross margin gains.

Frank Conforti: Next for the quarter.

Frank Conforti: SG&A increased by 7%.

Just slightly outpacing our rate of sales growth.

Frank Conforti: The rise in total company SG&A expenses was primarily due to increased marketing spend used to drive solid sales growth at the Anthropologie free people FP movement and newly brands.

Frank Conforti: The marketing efforts of Anthropologie and free people significantly boosted traffic to both the store and digital channels, while noise campaign led to over 50% growth in average active subscribers.

Frank Conforti: Total European operating income rose by 18% compared to last year, reaching $129 million with the operating profit rate improving by over 90 basis points to nine 4%.

Frank Conforti: Net income, so a 24% increase to $103 million or $1 <unk> per diluted share.

Frank Conforti: I will now provide more details by brand starting with Anthropologie.

Frank Conforti: The Anthropologie team delivered another excellent quarter with a 6% retail segment comp and the eighth straight quarter of double digit operating income growth.

Positive comps were driven by similar growth in both the store and digital channels by.

Frank Conforti: By category.

Frank Conforti: Apparel shoes accessories, and beauty delivered nicely positive retail segment comps in the quarter.

Frank Conforti: Within apparel, there is broad based strength across categories and the holiday assortment has been well received by consumers.

Strength in these categories with partially offset by weakness in home, which was entirely driven by lower furniture sales.

Frank Conforti: Within home the gift and entertainment category is nicely positive driven by consumers investing in seasonal decorative categories to refresh their homes for holiday.

Frank Conforti: The Anthropologie team continues to execute exceptionally well on their strategic initiative of acquiring new customers, while further engaging existing customers.

Frank Conforti: During the quarter, both new and active customers increased by over 13% versus the prior year.

Frank Conforti: The brand continues to make strategic marketing investments supported by outstanding creative content, which drove high single digit traffic increases in both the store and digital channels.

Frank Conforti: Impressive sales growth and healthy margin expansion, coupled with well managed expenses drove record operating profit dollars for the brand in the third quarter.

Frank Conforti: As we enter the holiday season, the Anthropologie consumer remains optimistic and continues to respond positively to a broad range of categories.

Frank Conforti: Based on our current plans, we believe the brand could deliver a positive comp in the fourth quarter similar to the third quarter.

Frank Conforti: Next the free people team produced an outstanding quarter with the global free people group, including wholesale total sales increasing 10%.

Frank Conforti: The double digit increase in sales was driven by a 5% retail segment comp.

Frank Conforti: 20% increase in wholesale segment revenues and a 176% increase in non comp sales driven by new store openings.

Frank Conforti: The sales comp was driven by mid single digit DTC comp and a low single digit store comp.

Frank Conforti: During the quarter the free people brand achieved positive sales growth across apparel accessories and FP movement.

Frank Conforti: The FTE movement brand delivered 30% total growth driven by 14% retail segment comp new store growth and over 70% wholesale segment growth.

Frank Conforti: Sheila will speak further to FP movement later on the call.

Frank Conforti: Based on our current plans, we believe free people retail segment could deliver a low to mid single digit positive comp for the fourth quarter.

Frank Conforti: The free people wholesale segment sales increased 20% 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.

Frank Conforti: Segment profitability improved significantly from the prior year when the brand utilized closeout channel sales to reduce aging product.

Frank Conforti: We believe the wholesale segment could continue to deliver double digit sales growth and improved profitability versus last year in the fourth quarter.

Frank Conforti: Now moving on to the urban Outfitters brand.

Frank Conforti: Urban Outfitters recorded a 9% decline in the retail segment comp for the quarter. This.

Frank Conforti: This negative comp was primarily due to the disappointing performance in North America.

Frank Conforti: Europe delivered a low single digit positive comp.

Frank Conforti: Despite the overall decline in North American sales, we are pleased with the improvement in merchandise margin rate driven by lower markdowns in the quarter, resulting in a reduction in the brands operating loss versus last year.

Frank Conforti: The brand delivered improving regular price performance in key categories, such as denim accessories home and certain key lounge items during the third quarter.

Frank Conforti: These key categories and items are becoming increasingly important as we approach the holiday season.

Frank Conforti: Additionally, the brand showed nice improvements in store comps as the quarter progressed, driven by improving regular price sales with October being the strongest month of the quarter.

Frank Conforti: We have full confidence in the brand team and the strategies they are implementing.

Frank Conforti: While we acknowledge that progress may be gradual we believe their efforts will yield meaningful results over time.

Based on our current plans, we believe the brand could deliver a mid single digit comp decline in the fourth quarter.

Frank Conforti: Before turning the call over to Dave to discuss the strength of the newly business I would like to briefly address the macro environment and consumer trends.

When we last spoke in August we were experiencing softer demand trends and approach the third quarter with caution.

Frank Conforti: However, as the quarter progressed, we observed a returned to healthy consumer spending patterns with October delivering the strongest comp of the quarter.

Frank Conforti: Although it is still early in the holiday season with a big shift in the holiday calendar based on our current results. We are optimistic for the entire holiday season.

We anticipate that total sales growth in the fourth quarter will mirror that of the third quarter driven by a single digit increase in retail segment comps strong revenue growth from newly and continued double digit sales growth in the wholesale segment.

Dave Hayne: Thank you Frank and good afternoon, everyone.

Dave Hayne: I am pleased to share an update on our rental business newly.

Dave Hayne: On this same call last year, we celebrated surpassing 200000 active subscribers and achieving our first quarterly operating profit.

Dave Hayne: Since then our active subscriber base has grown 50%.

Ending this third quarter at 297000.

Dave Hayne: And in the last few weeks in November we have crested over 300000.

Dave Hayne: The third quarter was particularly exciting with a net increase of 52000 active subscribers or 21% total growth in just three months.

Dave Hayne: And with quarterly records for new subscribers as well as records for attracting paused and canceled customers back into the business.

Dave Hayne: The strong third quarter subscriber growth translated directly into robust financial results newly.

Dave Hayne: Newly delivered $97 million in third quarter revenue, a 48% increase versus last year.

Dave Hayne: We have continued to improve gross margins and operating efficiency, resulting in a nicely profitable quarter with $4 million and the operating income at a four 2% operating margin rate.

Dave Hayne: Over the past several quarters our team has been focused on three primary pillars.

Dave Hayne: Advancing the customer experience scaling our operations to support our robust growth and driving customer awareness.

Dave Hayne: First the customer experience.

Dave Hayne: Know that the main reason women's shoes, newly it's where our breadth of brands and fashion assortment and at the heart of the assortment our styles from our family of brands Anthropologie free people FP movement and urban Outfitters.

Dave Hayne: Over the past year, 47% of the units rented on the platform where from our sister brands.

Dave Hayne: And we regularly hear from our customers that rental allows them to experiment with new styles, which leads to reciprocity back to the brands on the platform.

Dave Hayne: A great example is anthropologie as Colette Pant, which has been rented by nearly a quarter million different newly subscribers with nearly one fifth of these subscribers also purchasing a clip from anthropologie directly.

Dave Hayne: This positive reciprocity also extends to our market brand partners, who tell us that they see many of their new customers referencing newly is the place they first learned of them.

Dave Hayne: Product collaborations like the August collaboration with farm Rio on 12 exclusive styles have been very well received by subscribers.

And we have recently announced fourth quarter collaborations with both Rachel Anson off and favorite daughter, which have been strong marketing moments for both brands and newly.

Dave Hayne: In addition to the assortment we know the digital platform has a direct impact on our customer experience.

Dave Hayne: In February we launched a feature allowing subscribers to create multiple lists of styles to rent in future new lease.

Dave Hayne: In June we released significant improvements to our search and browse functionality, making our website faster and more intuitive.

Dave Hayne: In September we introduced gift cards, making it easier for people to gift newly to friends and family.

Dave Hayne: And just a month ago, we launched our new thrift shop, a subscriber only benefit allowing customers to buy a selection of rental inventory that will be held and shipped for free and their next newly rental shipment.

These features helped to strengthen the customer experience as well as drive incremental revenue for the business.

Dave Hayne: The second pillar of focus has been scaling our operations to ensure we have the necessary capacity and throughput required to serve the customer.

Dave Hayne: At the start of this calendar year, we had one fulfillment center, which was operating at maximum capacity.

Dave Hayne: In February we opened our new 600000 square foot facility in Ray more misery, which has tripled our subscriber capacity.

Dave Hayne: This smooth transition was only possible due to the excellent effort of our teams and we believe we are now well positioned to support our future growth.

Dave Hayne: This fulfillment expansion has not only enabled us to scale to meet growing demand. It has also enabled us to be more efficient.

Dave Hayne: In the third quarter, we achieved leverage in both logistics and delivery expenses and in the first half of next year, we plan to implement more robust automation in the re more facility that will enable us to gain further leverage and logistics expenses.

Dave Hayne: Along with our focus on customer experience and operational improvements our third pillar of focus has been improving brand awareness to drive customer acquisition.

Dave Hayne: To this end in Q3, we launched our largest marketing campaign yet.

Dave Hayne: The campaign featured talking newly bags and centered on the notion that buying is normal renting as newly.

Dave Hayne: It was featured across a mix of channels, including streaming TV meta Youtube and out of home placements and all indications point to the awareness growth that we were seeking.

Dave Hayne: Yeah.

Dave Hayne: To summarize it is clear to us that we have built something special and newly.

Dave Hayne: We have become the largest fashion rental company in the world with robust customer demand and subscriber growth.

Dave Hayne: A profitable business model.

Dave Hayne: Our subscriber retention rates are high for a subscription service with nearly 45% of subscribers still active after 12 months and nearly 40% still active after 36 months.

Dave Hayne: And we believe the total addressable market for clothing rental services stretches well into the many millions providing ample opportunity to grow significantly into the future and helping to showcase why we are also excited about what we've built in newly.

Speaker Change: Thank you I will now turn the call to Sheila Harrington to discuss the FP movement brand.

FP movement strives to be a leading female athletic brand prioritizing performance alongside fashion to allow for the creative expression of the individual.

Sheila Harrington: Product innovation and creativity are the cornerstone of the brands growth.

Sheila Harrington: This is evident as the team has created and built powerful first to market businesses, such as the onesie and rumsey and how embraces color pattern washes and textures that uniquely defined the brand as well as the continual evolution of silhouette and outfitting.

Sheila Harrington: We put fashion in our performance business that typically shy away from this.

This year and this quarter's results reflect this commitment with our bra and performance apparel from studio Court and trail outpacing growth in our retail segment.

Sheila Harrington: We continue to evolve and invest in the right talent and sourcing to fuel this commitment within our organization.

Sheila Harrington: Blending it with the fashion aesthetic handwriting true to the brand.

Sheila Harrington: FP movement has achieved stellar growth across all three of its distribution channels. This year as well as this past quarter.

Sheila Harrington: The movements early an explosive digital growth was primarily driven by free People's brand and digital strength more recently the brand has achieved higher visibility and name recognition a higher portion of the brand's new consumers are independently driven first by FP movement.

Sheila Harrington: We see strong increases in unique brand searches.

Sheila Harrington: Net new to the brand ecosystem through FP movement.

Sheila Harrington: The sustained growth of the digital channel forms the foundation of our distribution strategy, but we also have a significant opportunity to continue to expand the store suite and at wholesale partners and build our FP movement brand.

Speaker Change: Uh huh.

Speaker Change: Wholesale channel growth. This year has been exceptionally strong driven by both large premier strategic partnerships within the athletic space and the strength of sales within their business as well as our specialty store business, which grew at 100% last quarter.

Speaker Change: Our specialty strategy encompasses studio Ron along with outdoor sporting goods stores, aligning with our product strategy and creating a path and confidence to sustained long term growth.

Standalone stores remain a significant part of FP movement growth plans existing stores are achieving strong profitability driven by healthy sales per square foot.

Speaker Change: Ranked across all metrics, including AB <unk> and conversion.

Speaker Change: This past quarter and year to date, our comparable stores have produced high single digit gains.

Speaker Change: This year, we plan to open a total of 25, new Standalone stores, increasing our total to 63, standalone stores and 51 shop in shops.

Speaker Change: While the footprint of most of our Standalone stores is under 2500 selling square feet in May we opened a largest store in Soho New York.

Speaker Change: It is a spectacular expression of the brand.

Speaker Change: Since our first store opened in 2020, we have increased our average square footage by 30% and continue to see elevated sales per square foot.

Speaker Change: We are confident that the typical movement store of the future will be between 25, and 3000 square feet and believe the fleet could include at least 300 Standalone stores in North America.

Speaker Change: Not only our stores highly productive from a sales perspective, but they also provide education and touch points for the brand and service centers for community building.

Speaker Change: Our store and marketing teams are committed to consistent activation and events, including Matt based workouts and run clubs across North America.

Pendants, and NRG are contagious and motivate us to do more.

Over the last five years FP movement has achieved a compounded growth rate of 39%.

Speaker Change: Brand continues its strong performance in the third quarter this year by delivering a 30% year over year increase.

Speaker Change: This growth was driven across all three channels. The wholesale channel led the way with 74% gains while the retail segment delivered a 19% increase.

Speaker Change: Coupled with strong top line growth operating profit over the same five years grew by triple digits.

Speaker Change: Third quarter profits remained strong fueled by increased sales rigorous inventory management higher <unk> and strong expense control.

Speaker Change: Fiscal 'twenty five is shaping up to be another record breaking year for FP movement.

Speaker Change: It was jumpstarted by our most successful marketing campaign to date entitled standout know Bristow.

Speaker Change: This campaign authentically celebrates our focus on the female athlete with a diverse roster of brand ambassadors, including NC double AA athletes Olympians professional athletes and women forging their own activity based paths.

Speaker Change: Formats and fashion, our confidence is rooted in our strong creativity and passion of our team our execution to date and the market opportunities we see.

Speaker Change: Finally, I wish to recognize and thank the entire FP movement team. The brands Amazing success is attribute to their hard work passion and dedication.

Melanie: I will now pass the call over to Melanie.

Speaker Change: Thank you Sheila narrow will discuss our thoughts on the fourth quarter financial performance and fiscal year FY 'twenty five performance. The following Q4 forward looking statements reflects comparison to Q4 FY 'twenty four results adjusted for certain one time items in the prior year.

Sheila Harrington: Based on the start of the quarter, we believe the fourth quarter total company SaaS growth could be mid single digits sales growth in Q4 could result from the low single digit growth in retail segment comp and high teen growth in the wholesale segment in.

Sheila Harrington: In addition, we believe that newly segment revenue growth could be mid double digits now onto gross profit margin based on current sales performance and plan. We believe <unk> gross margin rate for the fourth quarter could improve by approximately 100 basis points compared to the prior year fourth quarter the <unk>.

Kris in gross profit margin could be primarily due to lower markdowns, particularly at the urban outfitters brand as well as higher initial product margins from cross functional initiatives.

Sheila Harrington: Moving on to SG&A expenses based on our current sales performance and plan, we believe SG&A growth for the fourth quarter will increase in the mid single digits.

<unk> growth in SG&A could be primarily driven by increased marketing expenses to drive growth in customers and sales had anthropologie free people FP movement and newly.

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

Sheila Harrington: We are currently planning our effective tax rate to be approximately 24.25% for the fourth quarter and 24% for the full year.

Sheila Harrington: We believe that inventory levels in the fourth quarter could grow at a rate similar to fourth quarter sales growth.

Capital expenditures for the fiscal year are planned at approximately $210 million. The FY 'twenty five capital project spend is broken down as follows approximately 50% is related to retail store expansion and support approximately 25% is related to logistics capacity investments, including the newly rental fulfilled.

Sheila Harrington: <unk> 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 Lastly, we will be opening approximately 58, new stores and closing approximately 31 stores during FY 'twenty five.

Sheila Harrington: Our net new store growth is being driven by growth in FP movement free people and Anthropologie stores during fiscal year 'twenty five we plan on opening 25, FP movement stores 13 free people stores and 13 Anthropologie stores.

As a reminder, the foregoing does not constitute a forecast but is simply a reflection of our current views.

Sheila Harrington: The company disclaims any obligation to update forward looking statements.

Speaker Change: Now I am pleased to turn the call to <expletive> Chief Executive Officer of European.

Speaker Change: Thank you Melanie and thanks also to the Sheelen, Dave we're happy to share the incredible success stories of these two fast growing brands.

Speaker Change: Despite being our smallest and youngest both brands are punching above their weight by making major contributions to our topline growth while also delivering impressive profitability.

Speaker Change: We're not only adding value today, but are poised to become an even more important part of the <unk> portfolio of brands moving forward.

Speaker Change: I'm excited by our many growth opportunities and I'm confident in the continued success of <unk>.

Speaker Change: In closing I, Thank our co presidents Meghan, Frank our brand leaders, Tricia, Sheila and Dave.

Speaker Change: Their merchant creative and operating teams our shared service teams and our 31000 associates worldwide.

Speaker Change: Their collective efforts produced another record quarter and I think.

Speaker Change: I am constantly humbled by the remarkable dedication and creativity.

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

Speaker Change: That concludes our prepared remarks, I'll now turn the call over to your questions.

Speaker Change: Yes.

And our first question will come from the line of Lorraine Hutchinson with Bank of America.

Speaker Change: Hi, Hi, Jay Thanks for the question first.

Speaker Change: The areas of the assortment that we have been able to impact and invest in are really showing positive momentum Frank mentioned some of those but denim lounge home accessories and women's accessories are notable.

Speaker Change: Lots of progress, but also the momentum as we enter the fourth quarter and that feels really good when we think about the fact that we've invested into those for fourth quarter as well, we're seeing holiday off to a great start and that feels really good second we're excited to see traffic momentum building in our selling channels as we enter the fourth quarter.

Speaker Change: We think this is a nice reflection on the team's effort in marketing that they've been applying our retail channel specifically as you heard Frank mentioned is seeing sales momentum build and an impressive.

Speaker Change: That severe performance from a comp basis coming out of October as we start the holiday season sales, great and then last I would say.

Speaker Change: From an operating perspective, making great strides on the bottom line and I think this will address your second question.

Speaker Change: As we've been managing inventory with more discipline.

Speaker Change: That is related to where we're investing.

Speaker Change: From an inventory perspective, but also making sure we manage that in line with sales.

Speaker Change: Thank you one moment our next question.

Speaker Change: And that will come from the line of Adrienne <unk> with Barclays. Your line is open.

Speaker Change: Thank you very much and congratulations everybody on the really great outcome here.

Speaker Change: Where are you you are welcome.

Speaker Change: Dessert.

For you back in the spring, we were talking about the silhouette and I always like to get maybe for you or anybody who wants to pipe in on kind of what we're seeing with the little pared back to bigger pads bottoms and denim says.

We have heard from many others back to school into fall that it's scaling on adoption. So.

Normally these are more than one year event does it get each of you at your brands more clarity more conviction on what to buy as we go into spring of 2025, and then for <unk>, you said that it'll be less of a loss like we know that the UO division was negative mid single digit segment.

What would it take.

Speaker Change: Terms of margin recapture are you going for margin recapture first which would kind of put a lid on the comp recovery sales recovery, how should we think about margin versus sales at you out. Thank you.

Speaker Change: Okay, Adrian I'll take a shot at the first one.

I think you know that we were talking about the silhouette change geez. It seems like it was three years ago.

Speaker Change: <unk> talked about how.

Speaker Change: Since we're getting fuller and water.

Speaker Change: We have continued on that path.

Speaker Change: I think they are probably about as full and as wide as they can possibly get now.

Speaker Change: I don't know whats next and if I did I guess I wouldn't tell you on the call.

Speaker Change: So that we don't broadcast out to all the competitors that might be on.

Speaker Change: But.

Speaker Change: No we're still seeing good success.

Speaker Change: It was a barrel shape and other <unk>.

Speaker Change: <unk>.

Speaker Change: The teams have come up with over the last few years.

Speaker Change: And I guess.

Speaker Change: As it relates to urban returned us opex sort of in the order cadence you haven't exactly right. We're focused on that Reg price consumer first the quality of the business and the quality of earnings so youre seeing it in the order and that orders and intentionally.

Speaker Change: Being executed where MMU rate is improved and it was great to see <unk> and team to deliver that here in the third quarter, which drove a lower markdown rate, which did lower their loss.

Speaker Change: We are obviously aware that in order for the brand to fully recapture.

Speaker Change: And returning to profitability that they are going out to drive topline sales gain.

Speaker Change: And that is the next leg of the execution that we need to get in order to leverage off our fixed expenses.

Speaker Change: And right now as we're still in the early stages, we're not in a position where we're going to forecast when that is going to come but we are happy to see the first leg starting to recapture margin rate is.

Speaker Change: Starting to come to fruition.

Speaker Change: Yeah.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And that will come from the line of Matthew Boss with Jpmorgan. Your line is open.

Matthew Boss: Great. Thanks.

Okay, I'll give it a shot.

Speaker Change: Yes.

Speaker Change: As I told you.

Speaker Change: We are optimistic about the fourth quarter.

Speaker Change: During the third quarter and the first couple of weeks in the fourth quarter.

Speaker Change: Im sorry, the third quarter and the first couple of weeks in the fourth quarter.

Speaker Change: We experienced an awful lot of <unk>.

Speaker Change: <unk> noise in the system I guess I would call it.

That range from multiple wars on multiple continents.

Speaker Change: Multiple Dudley hurricanes that ravaged parts of Florida and the southeast.

Speaker Change: Labour disputes.

Unusually warm weather up and down the east and West Coast.

Speaker Change: Of course, the presidential election.

Speaker Change: Through all of those the cost of the consumer has remains what I would characterize is remarkably resilient.

Speaker Change: <unk>.

Speaker Change: Those events didn't seem to have much lasting impact on discretionary spending.

Speaker Change: The first couple of weeks of November before.

Speaker Change: The weeks became non comparable due to the.

Speaker Change: The Thanksgiving shift we saw a continuation of the strong sales from October.

Speaker Change: So that's what has given us.

Particularly strong hope that Q4 will turn out to be very similar to what we experienced in Q3.

Speaker Change: Mel do you want to take the second part Frank Yes, Matt I'm happy to take the second part and then I will ask that we just try and keep it to one question going forward. So we can try and get as many in as possible.

Mel: As it relates to fourth quarter gross profit margin, yes, we think we can show gains similar to the 100 basis points of what we delivered in the third quarter that.

Mel: That would be driven by IMU.

Mel: Honestly, the biggest driver would be lower markdown rate.

Largely being driven by urban Outfitters and was up against a very high rate from the previous year.

Mel: You mentioned urban outfitters entering the quarter with much improved balance of inventory to sale and they continue to see improvements must be typically in the four channels each of which we believe will contribute to a lower markdown rate on a year over year basis.

Speaker Change #101: Thank you one moment for our next question.

Speaker Change #102: And that will come from the line of Paul <unk> with Citi. Your line is open.

Speaker Change #102: Okay.

Thanks, guys.

Speaker Change #103: Give your early thoughts about store growth for next year, both openings and closings.

Speaker Change #103: Specifically curious how you're thinking about urban outfitters clothing, and what's the goal what are the goals for newly as you think about 25.

Speaker Change #104: Good morning.

Speaker Change #105: Hi, Paul.

Speaker Change #105: Urban, particularly we have a lot of flexibility.

Speaker Change #105: With our real estate portfolio in fact over the next few years I think it's three years over half of our leases will come available and we are actively evaluating those really through the lens of.

Making sure we right size, our productivity and profitability, which means.

Ensuring we reduced our average store size.

Aligning our footprint to really the most optimal locations, where our customers are and where they shop, and then making sure we right size and recalibrate our.

Speaker Change #105: Footprint within the store to better align with our product strategy really with the goal of driving more top line and mitigating.

Speaker Change #105: Any markdown pressure in our store I think that that will end up looking like some closure sundown plaza, some relocations and in some cases it may mean relocating to a better footprint that actually are smaller as well.

Speaker Change #106: Al do you want to give the number of stores absolutely well I would just say it's very similar we haven't finished our plan will clearly give more direction on the fourth quarter earnings call, but for purposes of modeling I would say for the outside of urban outfitters. The other brands will look very similar in their store openings as an FY 'twenty five okay. Thank you.

Speaker Change #107: And Paul just to jump in for the newly goals were.

We're feeling very good about the growth that we're seeing and excited about the future of next year.

Speaker Change #108: Very encouraged by customer feedback.

Speaker Change #108: The growth of the awareness that we're seeing from the brand and excited to deliver more growth next year thinking about.

Speaker Change #108: Mid double digit growth rate in the next year and continuing to find more efficiency on the bottom line as.

Speaker Change #108: As well as to leverage our fixed costs and drive more profit so.

Speaker Change #108: Very excited about the new lead growth.

Speaker Change #109: Thank you one moment our next question.

Speaker Change #110: And that will come from the line of Alex Stratton with Morgan Stanley. Your line is open.

Alex Stratton: Perfect. Thanks, so much congrats on a nice quarter I wanted to focus quickly here on free people I think you called out higher discounting activity in the quarter and then it looks like the forward guide assumes a little bit of a slowdown in sales trends quarter over quarter. So can you give us impact kind of whats going on going on with that.

Speaker Change #110: Banner for me.

Alex Stratton: Sure Hi, Sheila.

Speaker Change #112: We are really pleased continue to be pleased with free people to resolve that re priced the business. It remained consistently.

Speaker Change #112: Consistently strong when we look at our multi stacked here are up against a fantastic margin year from last year.

When we addressed we've moved quickly to address a lot of lake.

Speaker Change #112: Fashion learnings, we move quickly and that will keep us healthy in the long term so.

Speaker Change #112: When I look at free people, we're gaining our customer over retaining our cost back to the customer.

Speaker Change #112: Any area that we have focused on with meaning around the assortment is producing and exceeding expectations frankly.

Speaker Change #113: So just small.

Speaker Change #113: Quick learnings and moving quickly on sort of where we've been focused on that.

Speaker Change #114: Alex I don't know if you heard Frank when he gave his.

Speaker Change #114: Commentary.

Speaker Change #115: Free people, even though they had a slightly higher markdown rate in Q3.

Speaker Change #115: Remains the lowest markdown rate of any of our brands.

And it was up against a markdown rate last year, which is completely unsustainable and so I don't think there is any issue with their markdown rate.

Speaker Change #116: Thank you one moment for our next question.

Speaker Change #117: And that will come from the line of Mark of Swagger with Baird. Your line is open.

Speaker Change #118: Good afternoon, and thank you for taking my question on free people movement do you view a growth rate in the 30% range is sustainable in the medium term.

Speaker Change #118: And as we think about margin as free people movement accretive to the brand overall any any color there would be helpful. Thank you.

Speaker Change #119: Yes, I can handle it.

Speaker Change #119: Continue to see double digit growth I don't want to commit to.

Speaker Change #119: But we believe that with our store.

Speaker Change #119: Growth, increasing I'm, sorry, our store count growing as well as our opportunity with our specialty store and wholesale area.

Speaker Change #119: No reason that this brand can.

Speaker Change #119: <unk> continue to contribute large topline growth for the company.

Speaker Change #119: We do think our businesses is set.

And we're gaining new customers through <unk> bent purpose for people.

Speaker Change #119: Great. Thank.

Speaker Change #120: Thank you one moment for our next question.

Speaker Change #121: And that will come from the line of Dana Telsey with Telsey Advisory Group. Your line is open.

Dana Telsey: Margin from those initiatives.

Frank Conforti: Thanks for your question Dana This is Frank and as you know we're in the final year of our three year journey.

Setting a goal for ourselves to improve IMU by 500 basis points.

Frank Conforti: Really proud to report that.

Frank Conforti: Supported by the sourcing organization and the brands delivering meaningful new growth. We think we're going to hit that number is not just the really really close here in the fourth quarter, there's a litany of.

Frank Conforti: Drivers cross functional drivers that we've used to.

Frank Conforti: That growth honestly, probably just too much detail to get into on the call but.

Frank Conforti: Confident that we can continue to drive that growth.

Frank Conforti: For the fourth quarter as it relates to sort of inventory planning and markdown I think all of the brands are planning inventory to basically be in line with sales going forward.

No. It was a little just slightly elevated here as we close the third quarter, which was <unk>.

Frank Conforti: Solely about us just bringing some key items in earlier to protect the holiday season, obviously, we knew about the planned strike here on the East coast.

Frank Conforti: And wanted to protect protect our risky. So we did bring in some items slightly earlier, but as we plan inventory going forward, we expect it to be in line with sales and not to hurt markdowns.

Speaker Change #122: Thank you one moment for our next question.

Speaker Change #123: And that will come from the line of Marni Shapiro with the retail tracker. Your line is open.

Marni Shapiro: Hey, guys, congratulations and just in case.

Marni Shapiro: I don't think I forget please.

Marni Shapiro: Please have a great Black Friday week.

So I wanted to ask I wanted to ask you about anthropologie.

Marni Shapiro: The stores are just they're absolutely stunning they're absolutely stunning and.

Every single gift list, including my own but every single gift list out there I have found anthropologie on every single gift list and then is that a stunning level. This year can you talk a little bit about some of the.

Marni Shapiro: Where you are kind of tweaking around the edges, what's already successful to get even more excited.

Speaker Change #124: Good morning, it sounds like you want to become an influence.

Speaker Change #124: [laughter], yes in my next slide I wanted to take top favorite.

Okay.

Speaker Change #125: Patricia you want to answer yes, marni. Thank you so much.

Marni Shapiro: I'm incredibly proud of our team they've been really focused honestly for the last three years on.

Marni Shapiro: Our strategy is around modernizing our product assortment and that came from not only expanding some of the categories.

Marni Shapiro: <unk> well known for but as you mentioned some of the nuance smaller categories that can kind of round out our assortment and then become really compelling, particularly in gift ideas I think during the holidays.

Marni Shapiro: Our accessories expansion has gone extremely well in stores so the footprint of.

Marni Shapiro: Not only accessories handbags as you mentioned about our shoe assortment has become a very compelling.

Marni Shapiro: Growth part of our business, but also has a very strong gift, giving category as well, we now have shoes and over 80 stores and its growing considerably both in stores and online.

Marni Shapiro: And daily practice, we've been very very pleased with it.

Marni Shapiro: It's growing tremendously our teams are evolving the product assortment that are learning every day from what the customer is responding to we have some nice growth plans for daily practice overall. So thank you very much for your comments or having a good time and enjoying some nice positive results in holidays.

Speaker Change #126: Thank you one moment our next question.

Speaker Change #127: And that will come from the line of Janet Kloppenburg with J J K Research Associates. Your line is open.

Janet Kloppenburg: Hi, everybody.

Janet Kloppenburg: On everything.

Janet Kloppenburg: And how things are going.

Speaker Change #129: I have two quick questions. One say I was delighted to hear you say that you understand.

Speaker Change #130: Exactly who the urban outfitters customer areas.

And I'd love you to elaborate on that I have felt some confusion in the past and then Frank Melanie It seems like a mid single digit investment in marketing is really helping across all brands and I'm wondering if that level of spending will be maintained going forward. Thank you also much.

Speaker Change #131: And happy Thanksgiving.

Speaker Change #131: Yeah.

Hi.

Speaker Change #131: Question.

Speaker Change #131: Yes.

Speaker Change #131: And really laser focus on understanding and gaining.

Speaker Change #131: Deep and intuitive perspective, our customer.

We have established that urban outfitters customers are young people that are coming of age roughly agents from the ages of 16 to 26 or 28, and we've identified three segment.

Speaker Change #131: Pre college during college and post call it and I think what's different for US now is that we are.

Speaker Change #131: We aspire to be a much more welcoming brand or name sort of indicate.

Speaker Change #131: That we serve urban customer.

Speaker Change #131: And I think we recognize that young people are all across this country and suburban and urban community and so I think we aspire to be a bit more welcoming and broaden our reach of that but.

Speaker Change #131: But I would say, we're really focus on is that younger consumer just before during and after college and.

Speaker Change #132: John just to add.

Speaker Change #132: And to your second question based on our plans, we think that Q4 SG&A would grow at a rate in line with our sales growth or about mid single digit growth.

Thank you and I do show, we have one final question and that will come from the line of Ike <unk> with Wells Fargo. Your line is open.

Speaker Change #133: Hey, Thanks for taking the question on newly I guess the profitability on an operating margin is clearly there curious if you could comment on the cash flows of the business that's a positive.

Speaker Change #133: From cash business at this point or if you need more scale and then just to frame the UO gross margin clearly more starting to move in the right direction is there any way I don't know breaking Rohan.

Speaker Change #133: If you're able to get back to historic norms, what does that mean to the corporate gross margin, how many hundreds of basis points or how many basis points without the help of the total company. If you were able to get that improvement flow through thank you.

Speaker Change #134: Thanks for the question.

In terms of cash flow, yes, we are not yet cash flow positive as a company.

The interesting thing about our business is that we would be cash flow positive. If we had no growth and we were not buying inventory for future growth.

Speaker Change #134: But because we have to buy inventory ahead of future subscriber growth.

Speaker Change #134: What causes us to still not be cash flow positive.

Speaker Change #134: So it's an interesting dynamic.

Speaker Change #134: We deal within the rental business is not dealt with as much in the retail business.

Speaker Change #134: We've been learning.

Speaker Change #134: All that being said we are encouraged and excited about the progress we're making on cash flow positivity and we think there is the potential that we can be there next year. So.

Speaker Change #134: Very much in our line of sight and at some point in the near future, we're not exactly sure when but we are nearing it.

And then on your last question.

Speaker Change #134: The team has done a great job in the third quarter urban Outfitters team that is driving MMU rate improvement and knocking on wood, we think that can continue to do so in the fourth quarter.

I want to recognize that we realize that job is not done yet.

Speaker Change #134: So more meat left on the bone for the brand to continue to drive <unk> improvement throughout next year and.

Speaker Change #134: And then hopefully into.

Speaker Change #134: To hit positive sales and start to leverage off of the fixed expense. So.

Speaker Change #134: There is still opportunity left <unk> going into going into next year.

Speaker Change #134: And then as we said in the second leg of the terms of the profitability will be.

Speaker Change #135: Online sales.

Speaker Change #135: Okay, and I guess that concludes the call today. Thank you all for joining have a very very very happy.

Speaker Change #135: Thanksgiving.

Speaker Change #135: Yes.

Speaker Change #136: This concludes today's program. Thank you all for participating you may now disconnect.

Q3 2025 Urban Outfitters Inc Earnings Call

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