Good morning, everyone. I guess we're live now. So thanks so much for joining us. Today we have the Fireside Chat with the Urban Management Team, Frank Conforti, Co-President and COO, Melanie Marein-Efron, who is the Chief Financial Officer. So we're gonna do this in a Fireside Chat format, and I'll turn it to Frank, because they gave us a nice little positive press release after the market yesterday. So if you can just go over some of those details.
Well, thank you, Adrienne, for doing this, and thank you all for being here, and ICR for hosting us. As Adrienne mentioned, we did release our holiday sales last night. We're very proud and happy and pleased with our results. We released a 10% top line growth for URBN. That was fueled by 8% retail segment growth, which was fueled by a 6% retail segment comp. That comp was driven first by Free People, with a +20% growth through the holiday season. So just continued to grow exceptional results on top of exceptional results. Within that, that number for Free People, FP Movement was a +45%, so 45% comp for FP Movement within the Free People number, and Free People collection was really strong as well.
Certainly, not a shabby result either. Anthropologie came in at +14% for the holiday season, so we thought they would be able to deliver double digits, and they did. So a really strong number there as well. Urban Outfitters, as we anticipated, still remain challenged for the quarter at -13% for the holiday season to date. Next up was Nuuly at +71%, so 71% growth on a year-over-year basis, and that's largely being driven by their increase in subscribers on a year-over-year basis. So that business continues to perform exceptionally well. Wholesale for us was a +15% for the holiday season to date.
I do just wanna call out that we don't necessarily anticipate wholesale to be a +15% for the quarter. There is some timing in there and some earlier receipts and that went out the door. We do think wholesale will be positive for the quarter. We think it'll probably be low to mid-single double digit or mid-single digits, excuse me, low to mid-single digits. So again, there was just some timing in that number there that drove that +15%. So very strong holiday season for us.
I think, for those of you that listened to our conference call, the season started out a little bit slower, just slightly slower early in November, and then as we got close to that holiday season of, you know, Black Friday, Cyber Monday, Cyber Week, things really picked up for us and maintained throughout the holiday season. So a lot of the research that was out there about the consumer waiting this year for that holiday period of time to go out and to purchase is what came through to fruition.
I think what that means for us from a quarter perspective and how we're thinking about the quarter, we think sales could be high single digits for the quarter, just that delta there being driven by wholesale coming down just a little bit. We do think our gross profit margin... I know Melanie talked on the call about being up about 300 basis points for the quarter, and that would be excluding the adjustment for impairment. We think now that our gross profit margin could be up about 350 basis points, excluding last year's adjustment for impairment, or more than that, if you were to look at it on an as-reported basis.
So, some healthy, really healthy gross profit margin expansion for the quarter is what we're planning on right now. We think SG&A will be close to slightly just above sales. It's gonna depend exactly where that sales number lands for the quarter. So you could see slight deleverage in SG&A, and I'm talking about tens of basis points. But most of that sales and gross profit margin expansion flowing through into operating profit, and right now, the way things are panning out, we believe we have the opportunity to double our operating profit on a year-over-year basis and land a really healthy quarter for the fourth quarter and finishing what was an exceptionally strong year for us.
That is a fantastic recap. But along those lines, digging a little bit deeper, so three topics over holiday.
Can you talk about sort of inventory levels as we exit? Number two, the overall health of the consumer. Not many people are putting up double-digit comps, so is it unique to yourselves, or what are you feeling in the consumer backdrop? And then the level of promotionality. Obviously, your GPM is going to be, you know, better than expected, but sort of the level of promotionality.
Sure. I'll take one and three, and let Melanie talk about inventory. We feel great about the consumer. You know, I think for our four of our five brands to be up double digits, I think consumer sentiment's in a good place, right? The labor market seems like it's in a good place. Inflation feels like it's coming down. So right now, we feel really good about the consumer, and we feel really good going into next year. You've got both Anthropologie and Free People with double-digit growth in new customers heading into next year. You've got Nuuly with double-digit growth in customers going into next year.
So, we're excited about where the consumer is, and our ability to execute heading into next year. The one thing I also didn't mention, which is a shame on me for not calling out, which is an important part of our release as well: we did have a personnel announcement, which does leave us, you know, more optimistic heading into next year about Urban Outfitters brand. We have a new president of North America, who will be starting on 5th February . Shea Jensen will be starting on February 5th. At this time last year, we did not have a president at the helm. That's critically important. You know, we run a difficult model, right? It's a lot of categories, a lot of classes, multiple channels.
You know, it's a fast pace, and I think that one of the things that that brand has needed was a day-in, day-out leader of the brand. I think Sheila has done an exceptional job in managing both brands, but it's really hard, you know, with a relatively new team, to keep everybody on the same page and to really execute at a high level. We've known Shea for a long time. Shea spent over 30 years with Nordstrom, and was a buyer for us, when, you know, selling in Free People. She was one of the merchants who purchased Free People, so has a relationship with Sheila. She also worked for many years with Tricia Smith, our global CEO of the Anthropologie brand.
So we've known Shea for years and couldn't be more excited to have her coming on board and helping to further some progress at the Urban Outfitters brand. I think the third thing that you asked, and I'll have Melanie talk about inventory, if I remember correctly, was just about the promotional environment. You know, the consumer did wait a little bit longer until the holiday period to purchase, and I think kudos to the industry and not... Sometimes that can be a nervous period of time, and you can see, you know, retailers start to jump the gun and start to pull promotions up and go heavier and deeper. It didn't feel like that happened, so we weren't forced to participate in that.
So, you know, our promotions from a Free People perspective, they'll be at near historic lows from a markdown rate perspective. Anthropologie will be fairly comparable on a year-over-year basis, and Urban Outfitters obviously is gonna, you know, had a high amount of promotions. But that's as much about the fact that they were over-inventoried coming into the holiday period, and we needed to take our medicine in order to clean inventory up and to get it to where it needs to be going into the spring season. So from a promotional perspective, we were not more promotional than we were last year at a URBN level, but there's some puts and takes there between Urban and Free People. Melanie, you want to talk about inventory?
Absolutely. Thanks, Frank, and thanks, Adrienne, for having us. Inventory, we are very focused on increasing our turns in our inventory this year. Anthropologie and Free People have made some great progress, and they are in a good position as we left the third quarter and as we expect for Q4. Recall, we did expect higher markdowns for Urban Outfitters, and we do think Urban Outfitters' inventory will be negative, and it will be in a better position than at the end of the third quarter. So we would expect, overall, our inventory growth in the fourth quarter to be less than the growth in sales, so to help us get faster and faster. Thank you.
Perfect. So now, as we kind of launch forward and take a look at kind of 2024, so we often like to ask managements at this time of the year, when you think about the planning of the business into 2024, are you looking at a macro backdrop that is, in the U.S., similar, worse, or better than the prior year? And any color commentary on anything sales or maybe SG&A, things that you might know at this point in time.
Sure. As we're thinking about going into the year next year, we feel good about the consumer, and, you know, I think the good, better, or worse is probably a little difficult for us because I think there was probably a lot of retailers that weren't feeling great going into the year last year, and we felt okay. We felt okay about the consumer, and I think, you know, we're in the point now where we feel as good, if not better, than we did last year. A lot of that is based on holiday performance, right? Double-digit growth, the consumer is buying at a reg price per from, you know, from a mixed perspective, so it's not taking promotions in order to drive those sales.
It feels like consumer sentiment's in a good place, and we think our brands are in a better place, believe it or not, even than they were last year, heading into the year. Again, I talked about double-digit growth in our customer base at Anthropologie and Free People. I talked about some additions and leadership at the Urban Outfitters brand and a strong subscriber growth at Nuuly. So we feel better heading into this year than we did last year. You want to talk a little bit about just where I think margins and SG&A went?
Absolutely. So, from a margin perspective, we still think there's some opportunity in IMU. You know, we've spoken before about our, our goal to have a 500 basis point improvement in IMU, over a three-year period. This will be the last year of that. We still think there's some opportunity. We've probably recovered most of the freight, in fact, all of the freight increases, kind of from the post-pandemic era, and now it's really our cross-functional initiatives that will support higher IMU. We also think there could be some markdown opportunity next year. So,
... which could fuel, probably less than 100 basis points of maybe 50 or 75 basis points of gross profit margin.
Yeah, I think between 50 and 100 is what we're-
Yeah
... what we're targeting.
And then SG&A growth, SG&A growth will be slightly higher than sales next year, and that's really gonna be a function of Urban Outfitters. We just cannot cut our expenses at the rate of the sales decline of that business. We, we still believe long term that we can manage that, and, and, but we will need the SG&A, the, Urban improvement in the business to see that. The other large brands, Free People, Anthro, and actually Nuuly as well, are able to leverage their expenses and grow expenses at a rate below sales. So we expect some deleverage in SG&A next year, although it won't be as high as it's been in the current year.
I think how all that, you know, and it's very early, and obviously, you know, retail can change on a dime, you know, would likely lead to double-digit operating profit growth for the year. So if you think about, you know, the strength that we've got in sales coming in, and the gross profit margin opportunity that we have, being just slightly offset by some SG&A, you know, we do think that there's double-digit operating profit growth for us next year. You know, we've set our target on getting to 10% operating profit growth and hitting a 10% rate. We certainly made a ton of progress on this this year, and we think we're gonna continue to make progress towards that goal next year.
Fantastic. Let me just remind people, you don't have a 53rd week, so we don't have to deal with-
We do not.
Correct.
Accept your modeling.
Thank you for that reminder.
Yeah. Thank you.
Just a reminder.
Thank you.
Okay, so speaking of day-to-day disruption, let's move to kind of a topic du jour, which is the Red Sea. We talked about it a little bit.
Yeah
... last evening. You have less than 10% of sales in Europe-
Mm-hmm
... but if you can just sort of give an update, sort of hour by hour, day by day.
Yeah, and it's, you know, it's funny you say hour by hour and day by day, but that really is the situation. You know, I think, I'm sure all of you are following it. On a Thursday, Maersk called us and said, "We're fine. We're gonna ship through the Red Sea." They had a ship that was hit, and then on Monday, they said, "We're not fine. We're not shipping through the Red Sea." And we're like: Oh, great! So within 72 hours, you know, we're now tracking, well, what containers went, what containers didn't go on what ship? So, you know, it's a really fluid situation right now.
You're 100% correct in that only 10% of our business right now flow is Europe, which is more impacted than the U.S. That being said, we do have India as a meaningful origin for us. It's about 25%-30% of our assortment comes out of that India region, India and Pakistan. That being said, most of our apparel that comes out of that region actually goes air. Free People uses that region significantly for their apparel, and with their speed model, they put a lot of that through air, so that wouldn't be impacted. What would be impacted would be the home category. Obviously, home, and especially from a decor perspective, even most of your gift and entertainment would not be eligible to go by air.
It would be too punitive from a cost perspective, so that will, you know, potentially have to have a 15-day delay. The good news is from a home perspective, it's not as fashion sensitive as, as apparel, so the 15 days isn't, isn't the end of the world. Of course, the, you know, the merchants, every day matters. But it's a category that has a little less risk from a, from a fashion sensitivity perspective and a little less markdown risk, so the, the incremental two weeks or so, sailing, down through the tip of Africa isn't, isn't the, the end of the world for us. And then we're working through what that would be from a cost perspective.
Again, it's not, it's not our largest region, but, but it is, it is a, you know, an origin for us that's, that's important. It is something that we're gonna monitor day to day, and we'll continue to give you an update on every quarter.
Great. This is a question that we get very often. So you've got two brands, you know, two-thirds of the business that's doing, you know, really great in a tough environment. UO has just continued to sort of struggle. I know it's a lot of it has to do with leadership and having sort of that day-to-day kind of alignment on initiatives. What can you learn from how Anthro and Free People... Well, Free People was always strong, but how Anthro turned maybe in the past year, and what can be overlaid to the UO brand?
Yeah, so Dick would pick on me if he said I didn't correct you and say... So we think about it as five brands now. So, you know, you've got Anthropologie, you've got FP, FP Movement, and Nuuly, and Urban Outfitters. And so we, we've got four that are posting, you know, double-digit results. I think, I think the thing that can be learned from the other brands that are doing well is sounds really simple, but it's not, and, you know, it does come down to leadership, and it comes down to talent. We don't think the Urban Outfitters brand model is broken in any way, shape, or form. We think that this is self-inflicted, that, you know, this is about our own execution.
We think that's it's a, you know, younger, price-sensitive consumer that's fairly transient. If you're not giving that consumer what they want, and you're not showing up in that differentiated, sort of creative, cool way. And we feel like Urban has lost a little bit of that cool factor, right now, and, you know, we're pretty excited to have some, you know, the right leadership heading into the year and some new additions to the team heading into the year to be able to help us with that execution on the model. And, you know, you've certainly seen it from, you know, because I know there's a lot of conversations about the Shein and about price, and Urban Outfitters has always faced price competition.
You know, when I started in the business now 16 years ago, it was American Apparel, and then I remember doing the analysis on F21, and when F21 moved into a mall, what would it do to Urban Outfitters? And, you know, and then, you know, it was Primark for over a period of time. So there's always been brands out there that had a sharper price point than Urban Outfitters, but that's never been a what our connection to our customer was. It was much more about a cool factor, about having that really cool collaboration, about having that really great item, the connection with music. You think about when Instagram was, you know, first became a thing, we led the way in followers.
We were leading all of retail, you know, from a digital perspective, and now, you know, I'd say we're probably a little bit behind on TikTok. So we feel like this is on us as a team, and this is an execution opportunity. And wow, think about the opportunity, right? We're gonna double operating profit in the fourth quarter, and Urban Outfitters is down. You know, both Anthropologie and Free People have momentum going into next year, which gives Urban Outfitters a little bit of time to continue to get that ship fixed and pointed in the right direction, since we were talking about the Red Sea.
We truly think that that is a meaningful incremental opportunity for us as we're able to do that and able to get that brand, that brand connected. And like I said, you know, heading into this year now with that president role filled, versus last year, having it recently opened, leaves us in a much more confident position than where we were last year.
... Fantastic! So we have a few more minutes, and I wanna spend quite a bit of time on Nuuly. This brand is pretty incredible. It's launched in 2019, one of the fastest concepts sort of that we've analyzed to get to profitability. Obviously, helps to have a strong merchandising platform. Third quarter, you made your first profit, which is significant. So, obviously, the strength in the fourth quarter. You've surpassed other models that have struggled in terms of active customers, and not by a little, but 198,000 active customers. What are you doing differently there? How big can this brand be?
We're super excited by the results. You're right, it's, it hasn't been that many years since we launched the business, and it's over $250 million in sales and just had its first quarter of modest but profitable quarter, which is terrific. We still think there's lots of runway to go. If you look at the brand awareness that Nuuly has, if you look at the retention of its existing customers, as well as the fact that there's a high propensity for people to refer and tell their friends about it, it's pretty exciting. We think it could be a billion-dollar brand. We think, you know, the successes that we're providing our customers with a highly curated product assortment, which includes both market and own brand products that they can't get on any other rental platform.
And, you know, really, it's both an advantage from a customer proposition, but also from a cost perspective. We're able to buy that product, obviously, at cost if it's our own brand, and these are some of our best sellers. So our best sellers in Anthropologie has been this Colette pants that many women probably in this room are wearing, and that's also a top rental. So we just think that there's lots of runway to go. And, you know, I think just to give you a little more thoughts on our success, you know, it also leverages the creative and merchandising, you know, DNA of URBN, which I think is also a differentiating factor versus our competitors. You know, it leverages trends and creative assets on the website, and it really does create a terrific customer experience.
Can you describe a little bit and talk a little about your target customer market, how... And I'll say, compared to, say, Rent the Runway, which is sort of very occasion-specific, that this is sort of a seven-day a week, so it fills a lot more of kind of her wardrobe needs.
Absolutely. I think by, you know, providing that customer... I would say the bull's-eye is probably in her late 20s, although there are customers that would be in my peer group. For the most part, it's women that really wanna rent these brands, and have both, you know, for their every day as well as, you know, skiing and exercise. It all rents coats in the winter. It really does provide a lot of utility for our customers, and I think that helps our retention as well. And people keep coming back.
Great. Can you also talk about the infrastructure investments that you've made, the new e-commerce facility, the standalone DC to process the goods, where we are in that investment curve, and kind of like future investments needed to support that business?
Look, it's a growth business, so we're always gonna be investing in it, but we've made a lot of the tech investments, and we're probably two-thirds away toward the logistical investment. So this current year or this coming year, next month, we're gonna be opening up a facility in Raymore, Missouri, which will have double the capacity of our existing facility. So we have a facility in Bristol, Pennsylvania, that can handle about 200,000 subscribers, which is about where we are now, and this will be able to handle twice as much. So we'll be set up for some, you know, a long runway of growth once those facilities are fully operational.
And I think, you know, when you think about the progress that we've made, as Melanie said, right, you know, less than four years out, hitting over $250 million from a top-line perspective and being able to turn profit, we believe we're gonna be profitable for the year next year. And, you know, I think that would be an incredible milestone to hit. We think we'll be in low single-digit operating profit rate is the opportunity that's ahead of us for Nuuly, and that's with a distribution center transition, right? So, we're at max capacity in Bristol right now, where we think the maximum capacity of that is about 200,000 subscribers, which is about where we're at.
This now, the new facility in Missouri, will be at least, we think, around 400,000 subscribers, so it gives us that headroom to grow. That's a big investment that we made last year that we're finishing now in the first quarter this year. So we think we'll be able to turn profit even with a transition to an incremental facility, which should lead for further growth then in the following years to come. And as Melanie said, continuing to leverage off on, you know, some of that technology that we've built and the team that we've built to support the concept.
We don't know where the ceiling is for Nuuly, but we honestly believe we're nowhere near it, from a top-line or a bottom-line perspective, and we're pretty excited.
Fantastic. So I'm gonna close with a little bit of a fun question. So it's the what? January ninth.
Yeah.
So I'm gonna ask you to make a prediction for this time next year. It can be anything, I mean, better if it's related to the business and the company, but a prediction from this time to next year, one from you and one from Melanie.
I'll give you two, since you told me it didn't have to be work-related. And I'm a die-hard Phillies fan, so I think Bryce Harper wins the MVP, and the Phillies win the World Series next year. So that's my non-work related. And from a work-related perspective, honestly, I just feel like we've got a ton of momentum, and I think our brands are really operating well. And I think, you know, we're sitting here next year, you know, talking about another strong year of progress towards 10% operating profit growth, continued customer growth, and continued execution on our goals. I think we feel pretty good about where the macro is right now, and our ability to operate in this current environment.
As a CFO, I have a hard time making predictions. I will say that.
Fair.
Instead of a prediction, I'm gonna say things I'm excited about for next year. I think opening the Free People Movement stores that we're talking about as a relatively new brand, to be talking about 24 or 25 new stores in calendar year 2024 is pretty exciting. I think, you know, a profitable year for Nuuly, given it being only four and a half years, is super, super exciting. The strength of the Anthropologie brand, Free People brand, continuing to deliver quarter after quarter, and, you know, some improvement in Urban are all the things that I'm excited about for next year.
Fantastic. Well, thank you very much.
Thank you, everyone.
Thank you.
Thank you, Adrienne.
Yeah. Thank you.