Urban Outfitters(URBN) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue growth for Q3 2023 was 4%, reaching a record of $1.2 billion, driven by a 4% increase in retail segment comparable sales and a significant revenue increase from Nuuly, which grew 178% year-over-year [8][20][16] - Wholesale segment sales declined by 3%, and foreign currency translation negatively impacted total sales growth by approximately 200 basis points [9][20] - Total inventory increased by 19% compared to the prior year, a reduction from a 44% increase in the previous quarter [24][25] Business Line Data and Key Metrics Changes - The Anthropologie Group achieved a 13% retail segment comparable sales increase, driven by strong performance across apparel, home, and accessories [27] - Free People Group recorded an 8% retail segment comparable sales increase, with double-digit growth in the digital channel [31] - Urban Outfitters brand experienced a negative 9% retail segment comparable sales decline, primarily due to disappointing performance in North America [34] Market Data and Key Metrics Changes - Urban Outfitters' North American customers are facing economic challenges, leading to reduced discretionary spending and lower transaction frequency [12][54] - In contrast, Urban Outfitters Europe performed well, achieving a 13% retail segment comparable sales increase, benefiting from strong store traffic and improved inventory management [37] Company Strategy and Development Direction - The company plans to focus on improving inventory management and reducing markdown rates, particularly for the Urban Outfitters brand, to enhance profitability [15][61] - There is a commitment to entering the spring selling season with leaner inventories to reduce markdowns and improve margins [15][44] - The company aims to attract new customers through increased marketing efforts, especially for the Anthropologie and Free People brands [53] Management's Comments on Operating Environment and Future Outlook - Management noted a slight softening in demand in November, attributed to last year's strong early holiday shopping due to supply chain concerns [11] - The macroeconomic environment remains uncertain, but management is optimistic about improvements in supply chain costs and speed-to-market capabilities [14] - The company anticipates that the Urban Outfitters brand will need to adjust pricing strategies to better align with customer expectations and economic conditions [54][62] Other Important Information - Nuuly's active subscribers grew by 37% quarter-over-quarter, surpassing 120,000, indicating strong demand for the apparel rental business [16] - The company plans to open 10 new stores while closing 11, focusing on enhancing distribution and fulfillment capacity [45] Q&A Session Summary Question: Outlook for Anthropologie and Free People divisions in FY '24 - Management expects FY '24 to rely more on acquiring new customers and increasing transaction frequency, with AOV and AUR likely remaining static [52] Question: Urban Outfitters AUR compared to pre-pandemic levels - Urban Outfitters' AUR is approximately 5% higher than pre-pandemic levels, with plans to adjust pricing strategies to better meet customer needs [58][62] Question: Inventory management strategies for next year - Management believes it is possible to have negative inventory while still achieving positive sales, particularly in the first half of the year [65] Question: Current selling trends and consumer spending outlook for the holiday season - Retail segment comps for Anthropologie are currently high single-digit positive, while Urban Outfitters is experiencing low double-digit negative comps [72] Question: Differences in channel performance by brand - Anthropologie saw double-digit comps in both digital and store channels, while Free People performed better digitally [82]