Urban Outfitters, Inc.

Good day, and thank you for standing by. Welcome to the Urban Outfitters Inc. Third Quarter Fiscal 23 Earnings Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. As a reminder, this conference is being recorded. I would now like to hand the conference over to your speaker for today. Ona McCullough, Executive Director of Investor Relations. Ma'am, you may begin.

Good afternoon, and welcome to the URBN third quarter fiscal 2023 conference call. Earlier this afternoon, the company issued a press release outlining the financial and operating results. for the nine and three-month period ending October 31st, 2022. 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. 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, Anna, and good afternoon, everyone. Today, I'll begin the call with some brief remarks regarding our third 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 their thoughts about future performance. Overall, third quarter business performed in line with our expectations, as discussed on the August call. URBN delivered 4% total revenue growth in the quarter against the strong third quarter last year. Retail segment comp sales also grew by 4%. Higher AOV and AUR were the principal drivers of positive comps. Nuuly also contributed to total revenue growth with an exceptional quarter that delivered revenues 178% above the prior year. Positive sales gains from the retail segment and Nuuly were partially offset by a wholesale revenue decline of 3%. and a 200 basis point adjustment to total revenues due to currency exchange rates. On our August call, we noted a bifurcation in our customer shopping behavior, with brands offering higher price points and serving a more affluent customer, posting better results. The anthropology, free people, FP movement, and newly brands all have customers who have been able and willing to spend despite the inflationary environment. In the third quarter, the customers of each of these brands drove strong demand. To date in November, we have seen a slight softening in demand. We attribute this to the unusually strong build-in demand during early November last year when many shoppers felt supply chain problems would lead to empty shelves during the traditional holiday period and thus made purchases early. Overall, sales in November are on track to achieve our Q4 goal of delivering a total company comp in the low single digits. Not all our brands, however, serve an affluent customer. Urban Outfitters customers are younger with less discretionary income and accumulated assets. And the current elevated inflation around necessities like rent, food, and energy has had a greater impact on them. These customers are transacting less often and when they do shop, they're looking for a deal. The UO brand in North America began the quarter with heavy inventory leftover from the bullwhip effect brought on by COVID-induced supply chain issues. The brand is working through this excess inventory and is planning to be much cleaner by the end of Q4. The brand also faces some operational issues like product over assortment. In Europe, the UO brand performed much better benefiting from extra strong store traffic, positive AUR, and excellent marketing efforts. Urban Europe, anthropology, and free people all drove strong full-price sales in Q3. If the current macroeconomic situation doesn't deteriorate further, we believe the customer bifurcation will continue at least through the holiday season. As a result, we believe the anthropology and free people brands could continue to post nicely positive results, while the urban brand might continue to underperform. Looking forward to Q1 next year, the health of the economy remains highly uncertain. But assuming we avoid a major recession, we believe there are several reasons for us to be optimistic. Supply chain costs have dropped precipitously over the last six months, and our speed to market capabilities are almost back to FY20 levels. These improvements combined with other actions we launched to build margins, like reducing our choice count by eliminating many smaller buys and placing deeper buys of alpha product, should result in favorable IMU compared to last year. We also remain committed to entering the spring selling season with leaner inventories, which would give us the opportunity to deliver lower markdown rates, especially at the Urban Outfitters brand. Lastly, and maybe most importantly, we believe strong fashion trends remain in place for all our brands. Finally, I'm pleased to report that response to Nuuly, our apparel rental business, continued to excel in Q3. On a quarter-over-quarter basis, active subscribers grew by 37%, surpassing the 100,000-sub milestone in early October. and now posting in excess of 120,000 active subs. Strong subscriber growth is allowing the brand to leverage expenses and make solid progress toward profitability. We look forward to celebrating Nuuly's first quarterly profit sometime in FY24. With that, I will now turn the call over to Frank to provide more detail on our third quarter performance by brand.