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Earlier this afternoon, company issued a press release outlining the financial and operating results for the three month period ending 04/30/2025. The following discussions may include forward looking statements. Please note that actual results may differ materially from those statements. Additional information concerning factors that could cause actual results to differ materially from projected results is contained in the company's filings with the Securities and Exchange Commission. For more detailed commentary on our quarterly performance and the text of today's conference call, refer to our Investor Relations website at www.urbn.com. I will now turn the call over to Dick.
10m 39s
Thanks, Ona, and good afternoon, everyone. We're excited to share that Q1 was another record breaking quarter for URBN.
10m 48s
Both sales and profits exceeded our expectations and easily outpaced last year's Q1 results. You'll hear more about these strong results from Frank and Forte our co president and COO. Then Maldi Marin Efron, our CFO, will walk you through our outlook for Q2 and beyond. I'll wrap things up with a few closing thoughts before we open it up for your questions. Now over to Frank. Thank you, Dick, and good afternoon, everyone. Today, I'm excited to share our company's first quarter results compared to last year and then I'll dive into some detailed notes by brand. Overall, our teams delivered another outstanding quarter. Exceeding our plans as we discussed on the recent fourth quarter conference call. Total uRBN sales grew by 11%, hitting a Q1 of $1,300,000,000 All of our brands delivered positive sales comps and four of our five brands performed exceptionally well posting record first quarter sales. Urban Outfitters also continued to make significant strides as the brand posted the first positive sales comp in quite some time, and delivered continued progress in reducing its operating loss compared to last year. Our sales growth was partly driven by a 5% increase in the Retail segment comp URBN comps were positive in both channels with stores outperforming digital.
12m 21s
Nuuly delivered impressive 60% revenue growth with a 53% increase in average active subscribers. Additionally, the wholesale segment saw a 24% revenue increase driven by a healthy rise in full price sales at Free People. Now let's talk about gross profit. URBN saw a 20% increase in gross profit dollars reaching a record $489,000,000 The gross profit rate also improved nicely by two seventy eight basis points which includes non recurring benefits of 74 basis points rising to 36.8%. The remaining two zero four basis point increase was due to better gross margins across all segments. The improvement in gross margins was due to leverage on occupancy and delivery expenses, and lower markdowns largely driven by the Urban Outfitters brand. In the quarter, SG and A increased by 8.1% leveraging by 65 basis points. The growth in SG and A dollars was primarily driven by increased marketing spend which fueled sales growth for all brands. The marketing efforts drove increases in traffic and transactions, both in stores and online, for total URBN, while New Lease campaigns resulted in healthy double digit growth in average active subscribers. Overall, total URBN operating rose by 72% compared to last year, reaching $128,000,000 while the operating profit rate improved by over three forty basis points to 9.6%.
14m 9s
Net income saw a 75% increase to $108,000,000 or $1.16 per diluted share. Moving on to brand performance, starting with Anthropologie.
14m 23s
The Anthropologie team had another fantastic quarter. Achieving a 7% increase in their retail segment comp which marks four years of consecutive quarterly positive comps. This success was fueled by equal strength in the digital and store channels both of which benefited from increased traffic. Every category saw positive regular price and total sales comps with strong performance across all apparel categories in addition to shoes, accessories, beauty, and home accessories.
14m 58s
The team at Anthropologie continues to do an excellent job with their strategy to expand their product offerings to fit their customer's full lifestyle. As mentioned on the last call, the brand recently launched Celandine, an exclusive in house resort wear label that offers year round vacation ready style. This category's growth has exceeded our expectations. Alongside Celandine, daily practice and the expanded assortments of intimates and loungewear are also seeing impressive growth, and we believe these could become significant categories in the future. Turning to the Home category, the brand saw impressive growth driven by the increase in home accessories and textiles. Both of which are benefiting from consumers' desire to refresh their homes. The team has focused on incorporating more newness into these categories catering to consumers' desire for more frequent updates for their homes. The brand's ability to create compelling product assortments in conjunction with strategic marketing investments and exceptional creative content have enabled them to succeed in their goal of attracting new, younger customers while deepening engagement with their existing ones.
16m 12s
The brand drove growth across new, retained, and reactivated customers in the quarter. These efforts led to strong traffic increases in both stores and digital during the first quarter. The Anthropologie brand delivered exceptional top line growth and the tenth straight quarter of double digit operating profit growth, resulting in a record first quarter operating income. Based on our current plans, we believe the Anthropologie Group could deliver a mid single digit positive retail segment comp in Q2. Next, I want to highlight the performance of the Free People team this quarter. They delivered an 11% increase in total retail and wholesale segment sales and double digit operating profit growth for the brand. Their double digit sales growth was driven by 3% retail segment comp a 26% rise in Free People wholesale segment revenues, and over 200% increase in non comp sales. The positive retail segment comp was driven by a low single digit comp in both the stores and digital channel.
17m 22s
Throughout the quarter, Free People saw positive comp sales growth across all major categories. The FP Movement brand, also delivered robust total retail and wholesale segment sales growth of 29%, driven by total retail segment growth of 16% a 6% Retail segment comp, and explosive 78% growth in FB Movement wholesale segment revenue. Non comp sales growth was boosted by the opening of 43 new stores, including 14 Free People brand and 29 FB Movement brand locations over the past twelve months. Based on our current plans, we believe the Free People Group's retail segment could deliver a mid single digit positive comp in Q2. Free People wholesale revenues increased by 26% during the quarter driven by full price sales gains in specialty and department stores. The profitability of Free People wholesale improved significantly from the prior year. Now let's move on to the Urban Outfitters brand. Urban Outfitters recorded a positive 2% global retail segment comp for the quarter. Congratulations to the team on much improved business and the first positive comp in some time. North America recorded a negative 4% retail segment comp and Europe an exceptionally strong positive 14% retail segment comp. The total global comp was driven by positive store comps, partially offset by negative digital comp in North America.
19m 3s
The digital business in North America continues to anniversary heavy promotional activity from the prior year. Which will begin to abate after the second quarter of this year. Positive global comps were a result of strong regular price business in most categories in both channels which led to a significant reduction in markdowns versus last year and an improvement in profitability levels for the brand. In North America, the teams continue to focus on the Pillars of Transformation strategy Shay spoke to last year. Focus on the customer, evolving the product assortment, Rebuild our customer base adapt our channels to offer a more relevant experience, and deliver profitable growth. The teams have evolved the product assortment to be more relevant for the customer. Denim, lounge, accessories, and home sales were all comp positive in the quarter. Notable market brands have been added to the assortment, including a success Bagu collaboration and the recent addition of the Nike brand. Currently available online and in 40 stores. Regular price sales for the brand were positive for the second consecutive quarter and accelerated from Q4 last year. Showing continued improvement in the product offering, inventory management, and marketing campaigns. Marketing and creative efforts have improved significantly.
20m 32s
Our focus on acquiring new customers has been successful, with positive growth in new customers, entering the brand in the right demographic. Lastly, as mentioned before, the brand showed an improvement in profitability last year, largely due to a lower markdown rate. Now turning to Europe. Our European business delivered a 14% comp driven by double digit comp increases in the digital and store channels. During the quarter, the brand achieved positive comps across apparel, home, and accessories. Strong sales comps and improved maintained margins fueled a healthy increase in operating profit for the European team. Based on our current plans, we believe the global Urban Outfitters brand could deliver a low single digit positive comp for the second quarter. Finally, let's touch on the Nuuly business. Which delivered another exceptional quarter. Nuuly added over 40,000 average active subscribers since the end of the fourth quarter, and has grown average active subscribers by over 110,000 compared to the prior year. This beat even our most optimistic expectations. This growth in average subscribers contributed to a 60% increase in brand revenue and added nearly 400 basis points of revenue growth to total URBN top line. The strong revenue growth in the first quarter resulted in leverage in almost every expense line item, helping to deliver a record first quarter operating profit of over 5%.
22m 11s
The current momentum in the Nuuly business has continued into May, where we now sit above 380,000 active subscribers. The performance at Nuuly over the past year has fortified our confidence that our business model is strong and the rental market opportunity is very large. We are thrilled that Nuuly now appears to be leading the industry with an opportunity to continue to see significant growth. Based on our current plans, we believe Nuuly could deliver a healthy double digit revenue and profit growth in the second quarter. Now moving on to tariffs. We would like to give you as much clarity as possible but unfortunately you all know this is not possible given the continued uncertainty with news on tariffs changing daily. We can only offer our perspective based on what we know today. Our current assumptions are based on a 10% global tariff on all items entering The U. S, except for items from China, where we are assuming a 30% tariff.
23m 12s
First, I want to acknowledge the amazing work our sourcing brand, and logistics teams have done. Over the last several years, the teams have worked hard to diversify our countries of origin, as well as dual source most of our own brand products. This means many of our products are made in two different origins enabling us to shift production from one country to another if needed. We currently have no single country that accounts for more than 25% of our production India, Vietnam, and Turkey are our three largest countries of origin, while China represents less than 5%. Quickly, after the announcement of tariffs, our team started working on how to mitigate the impacts with a primary focus on the customer's experience. We are working hard towards minimizing the impact on the consumer. We have several mitigation tactics that we've been working on. First, negotiating better terms with our vendors, Second, shifting our countries of origin where possible. Third, shifting our mode of transportation from air to boat and lastly, gently and sparingly raising some prices. Please note that any price increases will be very strategic. Protecting opening price points and only targeting areas where we believe we could raise prices without affecting the overall customer experience.
24m 38s
As of today, based on the previously stated assumptions, we believe that tariffs could have a minimal negative impact on gross margins in the second quarter and potentially a negative 20 basis points impact in the back half of the year. Although tariffs present a temporary headwind to our business, we are confident in our ability to manage through this environment and still achieve 50 to 100 basis points of gross margin improvement for fiscal year twenty twenty Again, I want to stress that this plan is based on what we know today. In summary, it was an exceptional quarter. All brands delivered positive sales comps. Both the wholesale and subscription segments drove double digit sales growth and all brands and geographies recorded healthy operating income improvement. We could not be prouder of the teams and their amazing execution. I will now turn the call over to Melanie.
25m 35s
Thanks, Frank, and good afternoon, everyone.
25m 38s
Let me walk you through how we're thinking about our second quarter financial performance. We're off to a solid start this quarter and based on what we're seeing so far, we're planning for total company sales to grow in the high single digits. In our retail segment, comp sales could grow mid single digit driven by mid single digit positive retail segment comps at Anthropologie and Free People brands while Urban Outfitters brand could be low single digit positive comps. At Nuuly, the brand could deliver mid double digit revenue growth driven by continued subscriber momentum. Finally, our wholesale segment could produce low double digit growth. As Frank mentioned, we believe gross profit margins could improve by about 50 to 100 basis points compared to last year. Both for the second quarter and the full fiscal year. This improvement could come from lower markdowns at Urban Outfitters and occupancy leverage partially offset by lower initial product margins due to higher U. S. Tariffs. Our current assumptions on tariffs are based on 10% global tariff on all items entering The U. S. Except for items from China we are assuming a 30% tariff. Turning to SG and A, we expect expenses to grow roughly in line with sales based on current sales performance and plans.
27m 2s
The planned growth in SG and A is mainly driven by higher marketing spend to support customer and sales growth along with increased store labor costs related to new store locations. As always, if sales performance fluctuates we maintain a certain level of variable SG and A spending that we can adjust up and down depending on how our business is performing. We're planning for an effective tax rate of about 23.5% for Q2 and the full year. Now on to inventory. While our teams continue to focus on increasing inventory turns, the uncertainty around tariffs means we are likely to bring in fall product a bit earlier. Because of that, inventory growth in Q2 may grow at a rate above sales growth. For FY 2026 capital expenditures are planned at $240,000,000 The FY 2026 capital project spend is broken down as follows: approximately 50% is related to retail store expansion and [indiscernible] approximately 25% is related to supporting technology and logistics [indiscernible] and the remaining 25% is for home office expansion to support our growing businesses. Lastly, we're planning to open approximately 64 new stores and close approximately 17 this fiscal year. Most of our net new store growth will come from FP movement Free People and Anthropologie.
28m 34s
Specifically, we're planning 25 new FP Movement stores 15 new Free People stores, and six new Anthropologie stores. As a reminder, the foregoing does not constitute a forecast but is simply a reflection of our current views. The company disclaims any obligation to update forward looking statements. With that, I'll hand it back over to Dick.
29m
Thanks, Melanie. What a fantastic start up to the year. Operating profit came in just shy of our ambitious 10% goal. An incredible achievement. Huge congratulations to all URBN teams for delivering such impressive results. Despite the noise in the headlines and the broader economic uncertainty, our customers continued to show resilience in Q1. We haven't seen any signs of a demand slowdown. In fact, customers were eager for fresh spring fashion. Our teams delivered. From compelling assortments to stand out store experiences and inspiring marketing. We exceeded their expectations. The result positive comps across every brand and every segment. This performance speaks volumes about the strength of our strategies, the quality of our execution, and the appeal of our brands. Most of all, it affirms the talent of our leaders and their teams. We're attracting new customers, keeping our loyal ones, and growing our market share across the board. Each brand is playing a valuable role in the URBN portfolio. Anthropologie and Free People are two larger brands continue to grow revenue and deliver healthy mid teen operating margins. FB Movement is growing faster than its sister brand and thanks to new store openings, and strong wholesale demand. And Nuuly, our women's apparel rental business, is one of the most exciting high growth concepts in the market today.
30m 42s
Both FP Movement and Nuuly are nicely profitable gaining brand awareness and showing real potential to scale. Urban Outfitters North America is making steady progress. Stores were comp positive for the quarter, and the number of new full price customers grew nicely. In Europe, after a slower start in Q1 last year, Urban delivered powerful comp sales gains that led to a jump in profitability. All in all, I'm delighted with how our brands are performing. Yes, we're keeping a close eye on supply chain risks and global uncertainty. But as Frank said, based on what we know today, we believe we can continue to grow revenue and expand margins not just in Q2, but for the full year and beyond. We're confident URBN is well positioned for continued success. Before we move to Q and A, I want to thank our co presidents, Megan Frank, our brand leaders, Trisha, Sheila, and Dave, and their incredible teams across merchandising, creative, and operations. I also want to recognize our shared service teams and our 28,000 associates around the world. Your hard work made this record quarter possible. So thank you.
32m 3s
To our global partners, thank you for your cooperation as we work together to navigate the new trade rules. And to our shareholders, thank you for your continued support. That wraps up our prepared remarks. Now let's take your questions.
32m 20s
Certainly. And ladies and gentlemen, we just that you please limit yourself to one question each. You may get back in the queue as time allows. Our first question for today comes from the line of Lorraine Hutchinson from Bank of America. Your question please.
32m 35s
Thanks.
32m 36s
Good afternoon. I was hoping you could talk about some of the drivers of success at UO Europe. Was it branded products? Different label products? And which of these learnings can you apply to help bolster the USUO business?
32m 54s
Okay, Lorraine, I'll try that and then that shield back me up. I'm going to ascribe much of the progress to [indiscernible] They have a number of really strong bottoms. That are propelling their business in that area, and now they have added great tops to that.
33m 19s
And to your question, the Urban brand in North America is also sharing in a number of those items. And it's helping them very much as well. So products is number one. Number two, I think they have a very strong marketing group. And some of their marketing initiatives have proven to be very successful in growing the customers. And I think that about does it. Jill, anything you wanna add?
33m 54s
I would add just that the women's wear in Europe has continued to find momentum. Over the quarter, starting in Q3 last year, they had tremendous growth. Q4 and that accelerated into Q1 very nicely. I do think there's strong partnership between Europe and North America that I'm quite excited about with Shay and Emma's leadership. So think we're only at the beginning.
34m 22s
Thank you. And our next question comes from the line of Adrienne Ya from Barclays. Your question please.
34m 30s
Great, thank you very much. I have to say I don't think I've seen all of the brands with this spot on at the same time in years. So really, Dick, like you said, congrats to like all the brand leads. My questions are you're welcome. So a couple of quick ones. [indiscernible] [indiscernible] I know at one point you were talking about kind of a different format perhaps making them smaller to be more productive. Has that actually happened yet? And then on Melanie, on the early inventory, is that to avoid tariffs? Because I know you're on a shorter cycle than most, or is it to kind of anticipate congestion? So just curious about that.
35m 17s
My final one would be, you're always on air. And to try to kind of cut some cost by going to boat increases sort of some uncertainty. So I'm wondering if that is consistent with the speed model. Thank you.
35m 36s
I can answer the inventory question, and then we can answer the other ones that you have, Adrian. So our inventory position at the end of the first quarter really reflects the fact that inventory transit times were faster than planned. We also probably had some early receipts to bring in inventory ahead of the uncertain tariff outlook, a lot of it had to do with the inventory arriving earlier than planned. In the second quarter, the story changes a little bit. I think it while there is some fashion risk of bringing product in early, we believe that it is prudent planning to bring in fall inventory, which is less sensitive to fashion early. Given the uncertain tariff outlook and any potential supply chain disruptions that could occur in the future. So those are our current plans for Q2, again, that we would likely have inventory ahead of our sales growth.
36m 27s
Adrian, to your last question, going from air to boat definitely adds about thirty days to delivery time. And you're right, there is always a risk as you go out in time that the fashion might not be as accurate as we would like it to be. To offset that, we are working very hard to use some of the advanced technologies to shorten that time period. Shay, I think Adrian wanted to know about smaller Yeah, hi Adrian. We have not per se made any adjustments yet, but we have a ton of flexibility over the next couple of years with our fleet as leases become available. And so, even as soon as a couple of this year. And so, as we look at we'll be looking either to relocate and downsize where we think we're over spaced or potentially downsize in place. Our goal is to make sure that we are positioned close to our customer. And so, as we have this flexibility, I think we'll be looking to do that where, again, we feel like we're over spaced.
37m 39s
You may want to talk a little bit about Houston store.
37m 43s
Yeah.
37m 43s
What size of that?
37m 44s
Yeah. One of those examples is one of our Houston stores where we'll be downsizing a couple thousand square feet and also applying our new store concept We're really excited about that and that'll open later this fall.
38m 4s
Thank you. And our next question comes from the line of Matthew Boss from JPMorgan. Your question please. Thanks and congrats on the nice quarter.
38m 15s
Thank you.
38m 16s
So Dick, you elaborate on performance by brand, what you've seen in May, maybe your larger picture view? On consumer spending on apparel in the back half of the year, all of the moving parts right now? And then, Melanie, on sustainable top line growth, at the Urban brand, what's a reasonable operating margin think for the Urban brand's multi year?
38m 41s
I'll take your first question. May to date, we see the comp sales being very similar to the Q1 print. When we look at comparisons against same period last year, we believe total retail segment comps could register in the mid single digits for Q2. I think Nellie went over that, but I'll read reiterate it. We think it might include mid single digit comps for both anthropology and Free People brands a low single digit positive comp for the Urban brand, and strong double digit growth in average active subscribers and revenues for Nuuly. And double digit sales growth for the wholesale segment. When you combined all of those, we believe that total URBN Q2 sales could increase in the high single digit range.
39m 44s
And then, Matt, I'll take your question on U. Return to profit. First, I just want to give Urban some more congratulations and airtime here. We're just really excited to see the continued progress that the team is making. You know, first positive comp in some time, first positive store comp in North America and sometime continued reduction in their markdown rate. Based on improved product performance, marketing and inventory management. The creative execution and marketing continues to improve, which has seen a new customer acquisition, just a ton of boxes being checked there, which is great to see. I don't know that we've landed exactly on a number as to where Urban should should operate from an operating profit just yet. I think we're uber focused on turning the business back to profitability. We know that that won't happen this year. Think in order to do it right, it's about slow and steady progress, capturing that right customer and really improving all those different metrics that I talked about. I think when you think about mid to high singles being a reasonable opportunity for the brand. But again, that's going to take some time and it's not going to happen this year.
41m 1s
We're just focused on continuing to make the progress, continue to claw back on loss and doing it right.
41m 11s
And our next question comes from the line of Paul Lejuez from Citi. Your question please.
41m 19s
Hey, thanks guys. Maybe just to go back to your margins for a second. Frank, reframe for us where rent and occupancy is today for the U. O. Brand versus where it was, let's say, pre pandemic twenty eighteen, twenty nineteen whatever is a good year you think to use. Same question for SG And A And That U. Brand. Just want to get an idea how much recapture opportunity there is on the margin as sales increase? Thanks.
41m 49s
Yeah. And those specific rates, Paul, change a lot as it relates to the mix of the business between stores and digital. As you know, we're going to follow the customer wherever they are.
42m
As she talked about store formats are going to be shrinking from a square footage perspective. That's going to affect your occupancy leverage. So I don't think those rates are as important from a focus right now. I think the important focus is on maintain margin improvement, which the brand is seeing driven by lower markdowns. And where we are is we've made a ton of progress, but we're not at historical averages just yet. We've bought back a lot, but there is still remaining opportunity this year and there will still be opportunity next year. I think the next leg after maintained is that they've now started to as a total brand, hit positive comps. And Urban North America has hit positive store comps and is inching even closer to positive total comps is leveraging that occupancy in those fixed expenses. I think we think we have opportunity to do that in the back half of this year.
42m 55s
And then continue that progress next year, which would be the next leg in clawing back that operating profit loss. Turning the brand back into profit.
43m 8s
Thank you. And our next question comes from the line of Alex Stratton from Morgan Stanley. Your question please.
43m 16s
Perfect. Thanks so much for taking the question. Just a couple from me. One just on guidance. You outperformed on gross margin quite a bit, but maintaining the full year guidance. Just curious kind of what's holding you back from flowing that through and the puts and takes as you see it on that line item for the rest of the year? And then just on the tariff mitigation tactic of very selectively taking price, I'm just curious what types of categories you see as having the biggest opportunity and also how quickly you can implement that.
43m 52s
I can take those, Alex. I just want to stress on price. You're right. It is different from one category to the next. But I want to stress that we're being extremely thoughtful and careful about protecting things like opening price points, targeting areas where we believe we could gently and sparingly raise some price points, but we're extremely focused on protecting that consumer experience. You're right, it's different from one category to the next.
44m 23s
It is not the biggest piece of our mitigation strategies by any means. And I just want to stress that with a high level of importance.
44m 31s
And let me add to that.
44m 33s
Frank, before you go through the rest it.
44m 37s
We are definitely considering this raising of prices as the last item that we will try in our portfolio of tricks. To try to offset this tax.
44m 53s
I think that what you'll see Alex, is that product that has a little bit more make in it has a little bit more embellishment and is a little bit probably a little bit higher priced. Would be where we would try to get a little bit extra if we need to. If we don't need to, we won't make the change.
45m 14s
And Alex, to your first part of your question, as it relates to the plans for the year, certainly, we're really proud of the Q1 execution and how the business continues to perform. It seems like the customer has held up. And certainly, our brands are likely gaining some market share and performing at a high level. I think planning the business right now you know, in total at a high single digits given the you know, the uncertainty all over the news and all over the media. Feels like an appropriate place to be and a conservative, hopefully, a conservative place to, you know, place to be The lion's share of the beat in Q1 was because we did our top line performance and deliver almost 11% top line growth. Hope that opportunity continues to persist, I think just given the constant news you know, around the uncertainty on the consumer, we feel like it makes sense to plan conservative, and I hope that our plans are conservative.
46m 17s
Thank you. And our question comes from the line of Dana Telsey from Telsey Advisory Group. Your question please.
46m 24s
Good afternoon and I echo the fact that seeing all three brands do such positive results. So nice to see with the path. Newly is very exciting. And would love to hear how you're thinking about the profitability profile of Nuuly compared to the base business. How you're thinking of pricing on Nuuly in regard to tariffs versus the other brands business? Is there a difference And are you seeing anything different in the customer in this environment with Nuuly and attracting new customers? And also, there any carryovers, any cannibalization or are they the same customers in the brands? Thank you.
47m 5s
Great, thanks Dana. I will try and hit each of those if I can recall them. Yeah, the business has been very exciting. We've been very, very encouraged with the first quarter. To grow active subscribers almost 23% within the quarter. It was just a really amazing feat for the team. We're feeling very good about it. From a pricing standpoint, we are aware obviously of all the tariffs commotion that occurring. Have not seen any sort of impact at this moment yet. In terms of taking price, it's a different proposition, obviously, for a subscription business to take price. Versus retail brands. We don't have any intentions to take price at the moment. And we're going to be navigating the cost pressures and the cost prices that we may incur the same way the other brands are here at the business. Dana, I just wanted to jump in on the nearly profitability [indiscernible] What we said from the start, obviously, felt like we could get this business to profit profitability and congratulations to Dave and team. Doing it so quickly hitting their first full year of profitability last year hitting above 5% in Q1 this year. We've also said that we didn't feel like it would be dilutive our 10% URBN goal.
48m 26s
And what that implies is that we think that business can run at 10% operating profit. I don't think we've set a goal beyond that, but I also don't think that's appropriate for a brand that's still so young and still has so much growth opportunity ahead of it and so much for us to learn. But we don't think that Nuuly would be dilutive to 10% is an achievable target for it down the road. Just continued congratulations to Dave and team on 60% growth. It's pretty damn impressive.
48m 59s
Thank you. Question comes from the line of Mark Altsvaca from Baird. Your question please.
49m 7s
Good afternoon. Thanks for taking my question and congrats on the the great results here. For Melanie, and or Frank, guess, first, could you quantify the markdown benefit in Q1 just of the 200 basis point kind of core gross margin improvement, more than half roughly half, any help there and how to think about that for the rest of the year. And then just bigger picture, Q1, as you mentioned, you're nearing the 10% operating margin goal. I think it would be unusual for the fiscal year to not exceed the Q1 rate, just looking at historical trends. And yet, it seems like there are some big levers ahead still on margin with UO profitability increasing over time, newly scaling So maybe if you could just speak bigger picture to how you're thinking about the long term algo Do you think you can take EBIT margins higher than the 10% rate or do you choose to reinvest the upside and drive a faster top line through increased marketing spend as approach that 10% goal. It'd be great to hear how you're thinking about that. Thank you.
50m 15s
So, I think and I are giggling a little bit because we know once we get near a target, we know the expectations always the bar gets raised in street once more. So, certainly we are still targeting a 10% operating profit rate and confident we can achieve it. We We delivered 100 basis points of improvement last year, reaching 8.6% in fiscal twenty twenty five based on our plans of 50 to 100 this year that would put us at 96. And certainly, we have the opportunity to beat that. What I would say is before we set a new goal, it's at the first one. And then let's prove we can operate at that. I you're absolutely correct in that with Urban's turnaround. And then once that business turns into profitability, with newly having opportunity to continue to grow that rate, Yes, there is upside. But for us right now, we set any new targets, I'd like to hit the first target and then we can get back to you what we think the upside is. As it relates to markdowns, for the first quarter, it was about half.
51m 19s
Of the 200 to four basis points that you mentioned.
51m 27s
Thank you. And our next question comes from the line of Marni Shapiro from The Retail Tracker. Your question please.
51m 34s
Hey guys, congrats to all the teams and Shay congrats to you on the Urban Improvements The site looks amazing, that Beck's Gort, that Georgie and Lake everyone looks like they wanna hook up. It's amazing. I wonder if you can touch on the changes you've made in marketing, specifically social media, because the brand has suddenly been in my feed very regularly with Haul's and in a very positive light, which is fantastic to see. And then if you could also just talk a little bit about on rotation, I guess, like, was the thinking behind this? Why Nike is a partner, though I love it? I'm just kind of curious what you're thinking was behind all of Yeah.
52m 15s
First of all, thank you, for the compliment. Great to hear. To your first question on social, it's a very keen observation, and I'll answer that really in two parts. Our team has been really working hard, and I would describe it as it's not really enough to just post on social anymore. And we've really taken a multi platform approach. You know, it's not just about Instagram. It's not just about Pinterest. And the team is really trying to get the right content the right platform, the right product and showing up in a truly authentic way and really optimizing for the And that really means trying to get into the feed. So, in your case, it sounds like we're being successful at pretty clear.
53m 5s
And secondly, I think, you know, we're really trying to engage with customers, be an authentic part of the conversation, Sometimes that means jumping into the conversation. Sometimes that means clapping back. Really talking about a lot of user generating content and allowing our pet voice to be amplified. And so I think it's great to hear that it seems to be working. We're really proud of the creative assets that are showing up out there. You mentioned the site. That's great to hear as well. Secondly, you talked about on rotation. Obviously, the Nike launch that happened last week, we're excited to have launched with Nike. Of course, a great brand out there. One of the most popular brands with our customer. I would take this concept really back to our strategy And a great example of our teams really focusing on the customer. We know that brands matter a lot to our customer. And, you know, essentially, brands are really how they identify themselves. It's also how they sort of create community. And so, the idea that that brands are important is really what led to what drives us to partner with great brands. Secondly, we've talked about this before.
54m 23s
These customers did not grow up as mall reps. They didn't grow up discovering retail retailers in the mall. They grew up quarantined in their house, and in many cases, brands found them on their phone, and they were targeted. And so they really value in real life discovery. And so on rotation, is really about taking those two things and bringing it to life in the platform of our store. And and so we're really excited to have launched on rotation with Nike. Think you can expect other brands, other brands to show up and on rotation in different stores and different ways And just a great example of our team really focusing on giving the customer what they want.
55m 11s
Thank you. And our next question comes from the line of Ike Boruchow from Wells Fargo. Your question please.
55m 20s
Hey, good afternoon. Let me add my congrats Two from me. First, maybe Frank or Melanie on the SG and A rate, I believe three months ago, said you expected flat for the year. Is that Is that reiterated? Because you're to reinvest more? Or should you expect a little scale given the momentum on the top line? And then just on UO, UO, the turnaround is working. I guess the question is, you expect this to be linear Would you expect the comp to take a step back because you battle margin in a certain quarter? Just kind of curious how you kind of envision this turn playing out over the next twelve months? Thanks.
55m 57s
So, I'll take the first part of your question, Ike. As it relates to SG and A for the full year, I would say I'm reiterating our guidance that we believe that full year rate of sales could be in line with sales, excuse me, rate of sales would grow in line with sales growth. Now, by quarter, the relationship between sales and expense growth could be uneven as a result of marketing campaigns and up other SG and A expense timing shifts.
56m 24s
Yeah, and it's Shay, I can take that answer. You know, I would say that we certainly hope that this is a sequential build. I think what you see in retail is is an example of the inflection point coming a bit sooner because of the nature of the price type in that business. In retail, it's a much larger penetration of regular full price, And so as the full price business and the health of that business returned a bit sooner because there's a larger penetration of full price. In the digital channel, we have had a larger penetration of disc discounting and promotional business, and as we face those headwinds, it's going to take a bit longer for us to see that inflection point. We think as we get through the second quarter and through the back half of that this year, we should see those trends play forward as we have seen in the retail channel.
57m 24s
Thank you. And our next question comes from the line of Janet Kloppenburg from JJK Research. Your question please.
57m 32s
Hi everybody and congratulations.
57m 35s
Remarkable Frank or Dick.
57m 39s
I think if you reach the high end of the gross margin guidance, you'll be at pretty much near historic levels on gross margin.
57m 51s
So, maybe you could talk a little bit about the opportunity for the historical levels to move higher.
58m 1s
And I also wanted to talk about the the new occasion businesses at Anthropologie.
58m 11s
Feels very much like what happened at MVMT where the product performed well. In the Free People stores, and then it was spun out And I'm just wondering, is there an opportunity for that to happen at Anthropologie as well? Thanks.
58m 31s
Janet, I think on the gross profit margin, the historical levels is probably not the right bar. For us. I think we have had the Urban Outfitters brand sort of masking a little bit of what the great improvement and consistent improvements been going on in anthropology and free people for some time now. We've done a great job as a company sort of lowering what our historical averages have been in markdown rates. And it's seen by the consistent mid to high teens operating profit that Anthropologie and Free People have been running at for the last several years. So, I do think, yes, you're right. We're close to eclipsing that But I do think that there's a new bar that is being set, and it's been a little hard to see that over the last couple of years.
59m 24s
Which where Urban has been. And you're starting to see that come to fruition as that brand is starting really that turnaround is really starting to take hold.
59m 34s
Hi, Jenna. This is Tricia. Thanks. We're super excited about our new businesses. Saladina and daily practice as well as our lingerie and, sleeper businesses are all, significantly outperforming the total. We don't really have any plans currently to spin off standalone stores, but I think as we continue to grow those brands over time, we'll continue to assess the opportunity 've had tremendous success with some pop up location experiences with our Celandine branch, so we'll continue to monitor that that over time. But no plans currently, but yes, very pleased with the growth of those brands and what they're contributing to the overall growth of Anthropologie.
1h 18s
Thank you. And our final question comes from the line of Simeon Siegel from BMO Capital Markets. Your question please.
1h 28s
Thanks. Hey, afternoon. Great job everyone.
1h 31s
So the wholesale EBIT margin looks more and more attractive like each quarter. Any thoughts to how large the wholesale business can become and how high is high for the margins for the channel? And then just two quick ones. What's the right way to think about the impact from carrier costs and broader delivery expense going forward? And then I think there was a comment about reduction in packages per order helping gross margin. Could you just elaborate on what that was as well? Thanks, guys.
1h 54s
I'll take the last ones first and then let Sheila talk about wholesale. Packages per order. Yes, we've done a good job at reducing reducing those.
1h 1m 5s
I think there's a lot that goes into planning inventory. And having it in the right place. Certainly thanks to the logistics team, thanks to Dave and the tech team for supporting that effort. There's a lot of moving pieces behind that and trying get that right and can have a meaningful impact and improvement from a delivery expense perspective. So, we've seen some of those benefits and hope that they will continue, and I think still opportunity to come there.
1h 1m 31s
As it relates to carriers, we haven't seen really any challenges right now. As Melanie mentioned, we've been faster. I think inbound has been faster than the the brands anticipated, which you've seen in inventory numbers and the costs have not been a challenge. What happens in the back half of the year as it relates to it relates congestion and maybe a lot of companies bringing stuff in earlier, your guess is as good as mine. It's something that we'll continue to monitor. But we're not experiencing any cost or speed pressures right now, but something we'll continue to monitor closely.
1h 2m 11s
Okay, and I can jump in with wholesale. Yeah, we are very pleased with our wholesale, both sales as well as profit. And I think we're committed to our profit. I think that was a goal coming out of the pandemic of how to get this channel to be consistently profitable with the right partners. And that is continues to be our strategy in FOLFIL, is to work and align with brands that have the same value proposition as us in terms of care of product and brand. And with that, we're seeing nice growth with those brands and continue to see a really good outlook. I would also say is without saying how big the wholesale business for FreePEA People and FP Movement could be, is on top of that partnership, we've been able to seed of our new labels with some wholesalers that we're really proud of. Whether that's our Friest label, or are we the free denim brand. And that's allowing us to grow into new account base, which we're quite excited about for the future.
1h 3m 13s
Okay, well, I think that concludes the session for today. I thank you very much for joining. And I hope to see you in a few months.
1h 3m 25s
You, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Key Insights
URBN delivered a record-breaking Q1 with total sales up 11% to $1.3B, all brands posting positive sales comps, and four out of five brands achieving record first quarter sales; gross profit increased 20% to $489M with a 278 bps improvement in gross margin.
Nuuly, the apparel rental business, saw 60% revenue growth and a 53% increase in average active subscribers, contributing nearly 400 bps to total URBN top-line growth and achieving over 5% operating profit; management expects continued double-digit revenue and profit growth for Nuuly in Q2.
Anthropologie and Free People both delivered strong results: Anthropologie achieved a 7% retail segment comp (10th straight quarter of double-digit operating profit growth), while Free People saw an 11% increase in total sales and 26% wholesale revenue growth; both brands are expected to deliver mid-single digit positive comps in Q2.
Urban Outfitters brand posted its first positive global retail segment comp in some time (+2%), with Europe up 14% and North America still negative but improving; management expects low single-digit positive comps for Urban Outfitters globally in Q2.
For Q2 and FY26, URBN expects high single-digit total sales growth, gross margin improvement of 50–100 bps (despite minimal tariff headwinds), SG&A to grow in line with sales, and plans to open approximately 64 new stores (mainly FP Movement, Free People, and Anthropologie); the company remains focused on reaching a 10% operating margin target and sees further upside as Urban Outfitters returns to profitability and Nuuly scales.
