Urban Outfitters, Inc.

Good day, ladies and gentlemen, and welcome to the Urban Outfitters Inc. third quarter fiscal 22 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to introduce Ona McCullough, Director of Investor Relations. Ms. McCullough, you may begin.

Good afternoon, and welcome to the URBN third quarter fiscal 2022 conference call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the three and nine month periods ending October 31st, 2021. The following discussions may include forward-looking statements. In today's commentary, unless otherwise noted, all comparisons will be made to the third quarter of fiscal 2020, referred to as It's important to note at this time the global COVID-19 pandemic has had and continues to have a significant impact on URBN's business. Given the uncertainty about the duration and extent of the virus's impact to the global retail environment, content discussed on today's call could change materially at any time. Accordingly, future results could differ materially from historical practices and results or current descriptions, estimates, and suggestions. Additional information concerning factors that could cause actual results to differ materially from projected results is contained in the company's filing for the Securities and Exchange Commission. On today's call, you'll hear from Frank Conforti, Co-President and COO, Melanie Moraine-Effron, Chief Financial Officer, and Richard Haynes, Chief Executive Officer. Following that, we will be pleased to address your questions. 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.urbn.com. I will now turn the call over to Frank.

Thank you, Ona, and good afternoon, everyone. Today we announce another record-breaking quarter. Before discussing the results, I first want to congratulate and thank all URBN team members. The record results we produced this quarter and this year are a tribute to your hard work, perseverance, and above all, your ability to successfully navigate a rapidly changing landscape. Thank you. I will now give a high-level view of our Q3 results, followed by a more detailed analysis by Brent. Total company sales grew by 15% to a third-quarter record of $1.13 billion, driven by total retail segment cop sales increase of 14%. Strong consumer demand across most categories, plus skilled execution by our team, drove nicely positive retail segment comps at all brands. Total sales were driven by robust strength in full price selling, which resulted in a record low URBN third quarter markdown rate. This helped to generate outstanding merchandise and gross profit margins to splice inflationary pressures from freight, raw materials, and wages. The combination of strong gross profits with well-controlled SG&A expenses led to all three larger brands recording double-digit operating profit margins. Overall, URBN produced a record third quarter results for total sales, operating income, and earnings per share. Although we're certainly pleased with record results, we are confident that a myriad of supply chain problems throughout the quarter held back both top and bottom line results. Lack of new receipts depressed sales most in August and September. As receipt flow improved somewhat in October, we saw a commensurate improvement in our comp trends as well, with October delivering the strongest comps of the quarter. That trend has continued into the fourth quarter, with quarter-to-date URBN retail segment comps exceeding their third quarter print. As of today, we believe we have sufficient inventory on hand and receipts coming in to support fourth quarter sales growth. Now moving on to detail by segment, starting with the retail segment. Retail segment sales increased by 16%. Comp store sales declined in the mid-single digit range, but improved throughout the quarter, with October coming in only slightly negative. As mentioned, lack of inventory in the first half of the quarter negatively impacted store sales. Total store traffic versus LOI was mid-teens negative, but healthy AUR gain partially offset that deficit. By region, traffic in the Southeast, Southwest, and Midwest continued to outperform the major metro markets in New York, California, and Canada. In Europe, traffic levels were stronger than the trend seen in North America. The digital channel continued its rapid growth registering mid-to-double-digit sales gains in North America and even larger gains in Europe. Overall, the strong digital performance was driven by increased sessions and improved conversion and higher AOV. Digital customer growth also remained strong with year-to-date total customers up 50% to LLY and 3% to LY. Shifting to the wholesale segment. Total wholesale sales decreased by 15% versus LOI. Lower sales at three-people wholesale will partially offset by an increase in UO wholesale sales. As we've discussed previously, three-people wholesale has adjusted its customer mix, cutting back some accounts to better align with its go-forward strategy of concentrating on full-price selling. While the strategy reduced sales in the short term, we believe it has benefited the brand overall and resulted in improved profitability in the quarter and less discounted product in the market. I will now provide more details by brand, starting with the Urban Outfitters brand. The Urban brand delivered a 7% retail segment comp versus LLY. Double-digit direct sales more than offset negative store comps. The brand drove increased sales despite a significant decrease in promotional activity during the quarter. focus shifted from offering frequent dollar and percentage off promotions two years ago to highlighting everyday accessible opening price points in key categories. This strategy resulted in nearly 400 basis points improvement in merchandise markdowns, healthy improvement in gross profit margins, and low double-digit operating profit margins. In North America, UO entered the quarter with tight inventory levels, especially in apparel, accessories, and shoes, and thus was highly impacted by supply chain-driven late receipts. Late apparel inventory and fewer promotions led to a deceleration in overall comps from Q2, but fueled strong double-digit regular price comps and a historically low markdown rate. In Europe, the brand experienced fewer delays in inventory receipts, better store traffic, and delivered better comps than its North American counterparts, also along with a very low markdown rate. Now turning to Anthropologie. The brand delivered a 9% retail segment comp versus LOI. Like the Urban brand, Anthropologie entered the quarter with tight apparel inventory levels, and like Urban, supply chain disruption stunted apparel sales. Retail segment comp sales accelerated each month in the quarter, fueled by strong double-digit digital sales, which more than offset negative comp store sales. Sales were driven solely by full price selling, with regular price comps jumping by more than 50%. This led to a reduction in markdowns, almost 300 basis points improvement in MMU, and low teens operating profit margins. The brand proactively planned to receive holiday home products early this year, leading to elevated home inventory throughout the quarter. As a result, the home category produced the strongest comps in Q3. Improved inflows of apparel and accessories inventory at Anthropologie beginning in October have boosted sales trends in these categories. Within the apparel category, denim produced the highest comp growth fueled by the Pilkro marketing campaign in early September. Sales of occasion and party dresses surged toward the end of the quarter as new receipts finally arrived. Momentum in that class has continued into November. We believe Anthropologie is well positioned to deliver exciting fourth quarter results as October's double-digit comps have accelerated in November with the customer shopping early for holiday trim, decor, home, and apparel. Now I will call your attention to the Free People brand. Once again, the Free People team produced an extraordinary quarter with retail segment comps achieving a staggering 55% gain versus LLY. Every product category recorded at least a strong double-digit regular price comp, while the Total Free People brand generated powerful triple-digit direct comps, which easily offset the slightly negative store comps. Store sales showed sequential improvement in the quarter, with October store comps turning positive. Free People's extremely low markdown rate for the quarter led to over 350 basis points improvement in merchandise markdown rates. Strong sales and gross margin growth all led to an impressive high-teens retail segment operating profit rate for the brand. The Free People movement brand also delivered an outstanding quarter. Retail segment sales grew by close to 300% versus LOI, and they opened six additional standalone movement stores, bringing the total number to 15 at quarter's end. November is off to a strong start at both free people and movement, so we believe both brands could produce stellar results again in Q4. Lastly, I will speak to Nuuly. As noted on our last call, our subscription rental business has seen a positive shift in customer behavior as COVID wanes and customers have returned to more normal behaviors. The brand is also in a better inventory position, which helps fuel subscriber count growth of 55% versus last quarter to 44,000 active subscribers. We believe we are on target to reach our goal of 50,000 subscribers by year's end. In October, the Nuvi brand launched Nuvi Thrift, a new resale app. The app offers users a peer-to-peer resale platform where sellers can sell products and receive either a cash payment or choose newly cashed with a ticker that can be then redeemed for purchases at any URBN brand. We are still in the early innings of these rental and resale businesses, and we are looking forward to continuing to grow newly customer-based over the coming year. I will now turn the call over to Melanie, our CFO.