Urban Outfitters(US:URBN)2022-05-25 01:39Financial Data and Key Metrics Changes - Total company sales grew by 13% to a record $1.1 billion in Q1, driven by an 11% increase in Retail segment comparable sales and a 6% increase in Wholesale segment sales [16] - Gross and operating profit margins declined due to supply chain disruptions and increased inbound freight costs, leading to challenges in profit margins for the second quarter [19][20] - The company anticipates a 500 basis point decline in gross profit margins for Q2 compared to the previous year due to higher markdown rates and lower initial product margins [30] Business Line Data and Key Metrics Changes - Anthropologie group achieved an 18% Retail segment comparable sales increase, driven by strong full-price sales in apparel, particularly dresses [22] - Free People brand reported a 15% Retail segment comparable sales increase, supported by strong marketing campaigns and growth in the wholesale channel [23] - Urban Outfitters brand experienced a 1% Retail segment comparable sales increase, with a robust 44% comp in Europe offset by an 8% decline in North America [24] Market Data and Key Metrics Changes - The Urban brand in North America faced challenges due to inflation and difficult year-over-year comparisons, leading to expectations of underperformance in Q2 [13][24] - The company noted that the macro environment is impacting the Urban customer more significantly than those of Anthropologie and Free People, who are less affected by inflation [64] Company Strategy and Development Direction - The company is focusing on improving inventory levels and execution in the Urban brand, with plans to correct inventory issues throughout Q2 [24][32] - Capital expenditures for the fiscal year are planned at approximately $225 million, with investments in automation equipment to support growth in the Retail segment [33] - The company plans to open approximately 38 new stores while closing 16 stores during fiscal year 2023 [33] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued consumer demand for Anthropologie and Free People brands, anticipating positive sales in Q2 [12] - The company acknowledged the challenges posed by inflation and supply chain disruptions, particularly affecting the Urban brand, but remains focused on execution improvements [64][68] - Management expects SG&A growth to outpace sales in the near term but anticipates normalization in the back half of the year [79] Other Important Information - Nuuly segment saw significant growth, with active subscribers up nearly 200% year-over-year and 50% quarter-over-quarter, indicating strong market traction [25][99] - The company is experiencing elevated promotional activity due to a surplus of inventory across the retail sector [96] Q&A Session Summary Question: Operating cost inflation and freight cost outlook - Management indicated that freight costs remain significantly higher than normal and expect consistency into Q2, with potential improvement in Q3 [40][41] Question: Pricing actions and customer response - Selective price increases have been implemented, with minimal pushback from customers, although Urban customers are showing some hesitancy due to inflation [45][46] Question: Urban North America business performance - Management noted disappointing performance in the men's business but identified opportunities for improvement in the upcoming quarters [51] Question: Supply chain expense pressures and home category trends - Management expects some improvement in supply chain costs in Q3 and noted mixed performance in the home category, with growth in furniture but softness in certain gift categories [72][75] Question: Promotional environment expectations - An increase in promotional activity is anticipated throughout the year due to a surplus of inventory across the retail sector [96] Question: Nuuly growth drivers - Nuuly's growth is attributed to strong subscriber acquisition and retention, driven by customer interest in renting for events post-COVID [99]