Urban Outfitters, Inc.

Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. Second Quarter Fiscal 25 Earnings Call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce Ona McCullough, Executive Director of Investor Relations. Ms. McCullough, you may begin.

Good afternoon and welcome to the URBN second quarter fiscal 2025 conference call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the three and six month period ending July 31st, 2024. 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'll hear from Richard Haynes, CEO, URBN, Frank Conforti, Co-President and COO, URBN, Tricia Smith, Global CEO, Anthropology Group, Shea Jensen, President, Urban Outfitters North America, and Melanie Moraine-Effron, CFO from URBN. 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, I will discuss our total company second quarter results versus the prior year, followed by some more detailed notes by brand. I will also provide some commentary on on our current trends and the macro environment. Overall, the teams delivered an exceptional quarter, which was nicely ahead of our plans as discussed on the first quarter call. Total URBN sales grew by 6% to a Q2 record of $1.4 billion, and four of our five brands continued to perform remarkably well, posting record second quarter sales and profits. Our sales growth was driven in part by a retail segment comp of 2%. Anthropologie and Free People produced a high single digit positive retail segment comp, which more than offset the high single digit retail segment comp decline at Urban Outfitters. Nuuly also delivered robust double digit revenue growth due to a 55% increase in average active subscribers versus the prior year. Additionally, the wholesale segment increased revenue by 15% driven by a healthy increase in regular price sales at free people. Now moving on to gross profit. URBN gross profit dollars increased 8% to $493 million, while gross profit rate improved by 68 basis points to 36.5%. The improvement in gross profit rate was primarily due to increased initial merchandise margins driven by strong execution of cross-functional brand initiatives in the retail, wholesale, and newly segments. These improvements were partially offset by a higher markdown rate at Urban Outfitters as the brand used incremental discounts to move through excess inventory. Now moving on to SG&A expenses. For the quarter, SG&A increased 8% versus a prior comparable quarter and deleveraged by 32 basis points. the deleverage was primarily due to the Urban Outfitters brand not being able to reduce SG&A at the same rate as their sales decline. While we did reduce our SG&A spending at the Urban Outfitters brand in Q2, we did not believe it was prudent to reduce expenses at the same rate of sales. The increase in total company SG&A expense dollars was largely due to increased marketing spend supporting the solid sales growth at Anthropologie, Free People, FB Movement, and Nuuly Brands. Anthropologie and Free People Brands' marketing efforts helped to drive double-digit traffic gains to the store and digital channels, while Nuuly's marketing campaigns helped to produce over 50% active subscriber growth. Total URBN operating income increased 10% versus last year to $145 million, with operating profit rate improving 36 basis points to 10.7%. Net income increased 13% to $117 million or $1.24 per diluted share. I will now provide more details by brand starting with Free People. The Free People team produced an outstanding quarter with global Free People group sales increasing 10%. The double digit increase in sales was driven by an impressive 7% retail segment comp and an 18% increase in wholesale segment revenues. The 7% retail segment comp gain was on top of the incredible 27% retail segment comp from last year. The sales comp was driven by a similar comp in both the digital and store channels. During the quarter, the Free People brand achieved positive sales growth across apparel, accessories, and movement. The FP Movement brand delivered 18% total growth, driven by 6% retail segment comp, new store growth, and over 60% wholesale segment growth. Congratulations to the Free People team on delivering another strong quarter, even while up against last year's exceptional second quarter performance. Customer response to the brand's fall trends has been positive, and the brand continues to gain market share. we believe the brand could deliver a low- to mid-single-digit positive retail segment comp in the third quarter. The free people wholesale segment sales increased 18% during the quarter, driven by full-price sales gains in department and specialty stores, partially offset by an intentional decline in sales to the closeout channel. The FP Movement brand led the way with strong sales growth in the quarter. Segment profitability improved significantly from the prior year when the brand had elevated closeout channel sales to reduce aging products. We believe the wholesale segment could continue to deliver double-digit sales growth and improve profitability versus last year in the third quarter. Now moving on to the Urban Outfitters brand. Urban Outfitters recorded a 9% retail segment comp decline in the quarter. This was largely in line with our expectations when we spoke with you in May with both North America and Europe showing slight improvement from their Q1 performance driven in part by higher promotions. UO's negative comp was a result of disappointing performance in both North America and Europe. Global retail segment comp declined in both the digital and store channels. As noted on the last call, Both the home and women's accessories categories are showing positive trends. Both categories recorded double-digit positive regular price comps, driving nicely positive maintained margin dollar and rate improvements. All other category sales comps declined in the quarter. As you know, new leadership joined the brand in North America earlier this year, and Shea Jensen, the president of UO North America, will speak later to the go-forward brand strategy in North America. Finally, I will touch on the Nuuly business, which delivered another exceptional quarter. Nuuly added over 25,000 average active subscribers versus the first quarter, ending the quarter with over 250,000 average active subscribers for the full quarter. The solid growth in average subscribers led in part to a 63% increase in brand revenue. As we have noted, historically Nuuly experiences the most significant growth in subscribers during the seasonally strong first and third quarters. A strong start in August bodes well for the Nuuly brand to continue to deliver healthy revenue growth in the third quarter. The strong revenue growth in the second quarter led to expense rate leverage in almost every expense light item and resulted in a record operating profit of $5.3 million and a 5.9% operating margin for the brand. We believe this level of profitability could continue in the back half of the year, which would make Nuuly profitable on a full year basis this year. Congratulations to the Nuuly team on an exceptional quarter. Now on to more recent trends and the macro environment. Towards the end of July and into August, we have observed a slight deceleration in retail segment sales compared to the second quarter run rate. While consumer traffic has remained consistent, overall purchasing activity has shown some softening. New product launches continue to resonate well, though customers appear to be exercising more discretion in their buying decisions. Given the recency of these trends, we are approaching our third quarter plans with measured caution. There are likely various macroeconomic factors influencing consumer behavior at this time, making it difficult to pinpoint specific causes. However, it is evident that the consumer sentiment has softened recently, and the duration of this trend remains uncertain. During this time of uncertainty, we believe it is prudent to keep inventory levels lean and manage expenses appropriately, and that is exactly what we plan to do. Despite a deceleration in trend, total company sales remain positive, and we believe retail segment comps could grow in the low single-digit range for the third quarter. Positive retail segment comps combined with robust revenue growth from newly and double-digit growth in the wholesale segment could result in a mid-single-digit increase in total Q3 URBN sales. I will now turn the call over to Tricia Smith, Global CEO of the Anthropology Group, to provide details on their brands second quarter performance as well as a strategic update.