Urban Outfitters, Inc.

Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. Second Quarter Fiscal 2023 Earnings Conference 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 zero on your touchtone telephone. As a reminder, this conference is being recorded. I would now like to introduce Una McCullough, Executive Director of Investor Relations. Ms. McCullough, you may begin.

Good afternoon and welcome to the URBN second quarter fiscal 2023 conference call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the six and three month period ending July 31st, 2022. The following discussions may include forward-looking statements. It's important to note at this time that 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 filings with the Securities and Exchange Commission. On today's call, you will hear from Richard Hain, Chief Executive Officer, Frank Conforti, Co-President and COO, and Melanie Moraine-Effron, Chief Financial 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 Dick.

Thank you, Ona, and good afternoon, everyone. Today I'll begin the call with some brief remarks regarding our second quarter results and make a few observations concerning the consumer and the macro environment. I will then turn the call over to Frank and Melanie who will provide more brand details along with our thoughts about future performance. Overall, URBN delivered positive revenue growth in the second quarter against our especially strong record-breaking quarterly print last year. Total retail segment comp sales increased by 1% versus Q2 last year and 24% against the same period in FY20. Anthropologie and Free People both posted robust retail segment comps against last year, increasing by 7% and 8% respectively. The Urban brand saw retail segment comps decline by 9%. Sales gain for Urban Europe partially offset significant weakness in North America. We believe much of the weakness was due to three factors. First is brand execution issues. These included inaccurate product distortion and oversortment that led to inventory problems. Second is severe inflation, which caused the urban customer to have less money for discretionary spending. And last is an exaggerated prior year comparison that included stimulus money that fueled demand. Although URBN sales grew in Q2, the operating environment remained challenging and weighed on profitability. Continued high inbound freight and transportation costs drove IMU lower, while higher markdowns versus the historic low rates we achieved last year hurt MMU. The combination of these two factors produced a year-over-year decline in gross margins and operating profits, even though SG&A expenses were well controlled and returned to a more normalized rate. Second quarter operating income was $86 million, a 48% drop from last year's record profits, but a 10% increase versus FY20. Customer shopping behavior at our brands has bifurcated, with affluence being the differentiator. Those brands with higher price points and serving a more affluent customer, in our case, Amp Topology and Free People, have a customer who is able and willing to continue spending despite the current inflation level. She's demanding fashion newness and shopping to accommodate her social calendar, choosing products tailored for going out. Demand at these two brands did moderate slightly from their robust pace in Q1. but both continued to record nicely positive sales throughout Q2. To date in August, both brands continue to perform well, with Anthro posting low teen and Free People high single-digit comps. For the urban brand customer who is younger and less affluent, the current inflation, especially around necessities like food, rent, and energy, is not a mere inconvenience. It's economically crippling. As a result, we see this customer spending much more cautiously on discretionary items and often waiting for promotions before buying. This is in stark contrast to the anthropology and free people customers who are driving strong full-price sales. If the current macroeconomic situation doesn't deteriorate further, we believe the customer bifurcation will continue through the entire second half. As a result, the urban brand performance is likely to suffer versus last year and produce negative comps, while the other two brands could remain nicely positive. Finally, I'm pleased to report that Nuuly, URBN's apparel rental service, continued to experience a strong positive response to its business concept and product offering in Q2. Active subscribers now exceed 90,000. a 15% increase from Q1, and a 200-plus percent jump from Q2 last year. In addition, Nuuly was able to nicely leverage the increase in revenue from these additional subs and make excellent progress toward profitability. We look forward to welcoming our 100,000th subscriber later this year and hopefully celebrating Nuuly's first profitable quarter sometime in FY24. With that, I'll now turn the call over to Frank to provide more details on our performance.