Urban Outfitters, Inc.

Ladies and gentlemen, and welcome to the Urban Outfitters Inc. third quarter fiscal 26 earnings call. At this time, all participants are in a 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. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. And I'd like to turn the conference over to Orla McCullough, Executive Director, Investor Relations. Ma'am, you may begin.

Good afternoon, and welcome to the URBN third quarter fiscal 2026 conference call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the three- and nine-month period ending October 31, 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 filing for the Securities and Exchange Commission. 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.

Thanks, Ona, and good afternoon, everyone. The URBN teams delivered another outstanding quarter. Total revenues grew by 12% and net income increased by 13%, both new third quarter records. We are especially pleased to report that all brands produced positive comps across all geographies this quarter. This includes the powerful double-digit comps, the urban brand generated in both North America and Europe. and the exceptional growth in subscribers and revenue from the newly brand. The agenda for today's call includes comments from Frank Conforti, our co-president and COO, who will elaborate on Q3 performance by brand and business segment. After Frank, Tricia Smith, CEO of the Anthropology Group, will speak to the performance of that brand and their newly launched MAVE concept. Melanie Moran-Effron, our CFO, will then walk you through our outlet for the fourth quarter, and I'll wrap things up with a few closing thoughts before we open the call for your questions. Frank, the floor is all yours.

Thank you, Dick, and good afternoon, everyone. Today I'm excited to share our company's third quarter record results compared to last year, and then I will dive into some detailed notes by brands. Overall, our teams delivered another outstanding quarter, exceeding our plans and setting new sales and profit records. Total URBN sales grew by over 12%, reaching a Q3 record of $1.5 billion. All our retail segment brands delivered positive retail segment comps, while four of our five brands posted record third quarter sales, and Nuuly continued its impressive double-digit revenue growth. Our total URBN sales growth was partly driven by an 8% increase in the retail segment comp, with digital comps slightly exceeding store comps. Nuuly delivered strong 49% revenue growth, driven primarily by an increase of 118,000 average active subscribers compared to the prior year. Additionally, the wholesale segment delivered an 8% increase in revenue driven by growth in the specialty store accounts, which was largely fueled by healthy increases in FD movement. Next, I will turn your attention to gross profit. URBN saw a 13% increase in gross profit dollars, reaching a record $563 million. The gross profit rate improved nicely by 31 basis points, rising to 36.8%. Please note that this includes a $2 million impairment charge in the current quarter, which is worth 13 basis points. The improvement in gross margins was primarily driven by lower markdowns at the Urban Outfitters and Free People brands, as well as occupancy leverage driven by strong sales growth across all our brands. These gains more than offset lower initial product margins at all our brands due to increased tariffs versus the prior year. In the quarter, SG&A increased by 14%, deleveraging by 32 basis points. The growth in SG&A dollars was primarily driven by increased marketing spend, which fueled sales and customer growth for all brands. The marketing efforts drove increases in traffic and transactions, both in stores and online, for total URBN retail segments, while new lease campaigns resulted in healthy double-digit growth in average active subscribers. Overall, total URBN operating income rose by over 12% compared to last year, reaching $144 million, while the operating profit rate was consistent with the prior year. Net income saw a 13% increase to a new Q3 record of $116 million or $1.28 per diluted share. Now moving to brand performance, starting with the Free People brand. The team delivered a 9% increase in total revenue. Their sales growth was driven by a 9% increase in retail segment sales, including a 4% retail segment comp, significant non-comp sales growth and an 8% increase in wholesale segment revenues. The retail segment comp was driven by positive comps in both the store and digital channels across all geographies with an outperformance in accessory product sales. Non-comp sales grew by over 200%, driven by new free people and free people movement store openings over the past 12 months. The brand is planning to open 43 new stores for the year, including 18 free people and 25 FP movement stores. The brand is also encouraged by the strong results in Europe. While European operations are small relative to the total brand, new store openings continue to perform well, and the region drove a double-digit retail segment comp in the quarter, building on double-digit retail segment comps last year. I know Sheila and team are excited to capture more of the European market potential in the future. Within the Free People brand, the SP movement business delivered strong total growth of 18%, driven by a 4% retail segment comp, strong wholesale segment sales growth of 29%, and robust non-comp growth driven by new store openings. Continued strength in performance-related products is driving healthy new customer acquisition growth. The SP Movement brand saw increases in new, reactivated, and retained customers during the quarter. Based on our current plans, we believe the free people retail segment could deliver a low to mid-single-digit positive comp in Q4. Free people wholesale revenues increased by 8% during the quarter, driven by sales gains in all geographies, while specialty store accounts led the way versus other accounts. As noted on our last call, as we move through the back half of the year, the wholesale segment faces more difficult year-on-year comparisons versus the prior year. Based on our current plans, we believe the wholesale segment could deliver mid-single-digit comps in the fourth quarter. Now, let's move on to the Urban Outfitters brand. Urban Outfitters recorded a strong 13% global retail segment comp for the third quarter. Congratulations to the team on delivering the first double-digit comp in some time. UO North America recorded a 10% retail segment comp and UO Europe an exceptional 17% retail segment comp. The total global comp was driven by strong store and digital comps with positive traffic in both channels and positive conversion in stores. In North America, the UO team continued their focus on their customer and delivered a solid comp in both channels for the quarter, building on the strong start to the back-to-school season in Q2. In the third quarter, the business grew nicely across all major categories, anchored in strong regular price sales, new customer growth, and continued success in focused growth categories. Within women's, the denim business continued to be strong, complemented by pants, lounge, sweaters, and accessories. The brand is also encouraged by the progress in the men's apparel category, which delivered double-digit regular price comps in the month of October. In North America, from a marketing perspective, the team is focused on meeting customers in the moments and places that matter most. Whether that is across social channels, digitally, in our stores, or by hosting culturally relevant events. In the third quarter, the brand celebrated back to campus by hosting game day events at college campuses across the country, introducing and welcoming more customers into the brand. The brand also celebrated partnerships with some of Gen Z's most loved brands through On Rotation, a 360-degree brand spotlight, showcasing discovery, product engagement, and curated assortment. These engaging brand marketing events have been successful, driving an increase in unaided awareness and new customer growth. In Europe, the Urban Outfitters brand delivered an outstanding 17% retail segment comp driven by double digit comp increases in both the store and digital channels. During the quarter, the business achieved positive double digit comps across all major product categories. With these exceptional results, it is clear the European team is winning market share through amazing product execution and compelling marketing events and strategies. Moving back to the Urban Outdoors brand globally, We are proud to note that the brand delivered low single-digit operating profit margin in the third quarter. This significant improvement was driven by a remarkable year-on-year profit increase in Europe, followed by a meaningful reduction in operating loss in North America. Based on our current plans, we believe the Global Urban Outfitters brand could deliver a high single-digit positive retail segment comp for the fourth quarter. Now, turning to the Nuuly brand, which delivered another exceptional quarter. Total Q3 revenue grew by 49%. The impressive growth was primarily driven by an increase of over 40% in average active subscribers, reaching just shy of 400,000 average active subs versus the prior comparable quarter. Nuuly's growth added 3.5 percentage points of revenue growth to total URBN sales. Our primary focus remains on scaling the newly business and building brand awareness, which we are doing through investments in logistics and strategic marketing. We are pleased to report that our planned logistics expansion in Kansas City, Missouri, including increased storage capacity and the implementation of new sortation automation, remains on track. Our latest marketing campaign was successful in driving new customers and continues the positive momentum of the brand. Overall, Nuuly's continued strong performance highlights the large, growing opportunity for apparel rental in the U.S., and we believe we are making the appropriate investments to enable Nuuly to continue winning market share. Based on our current plans, we believe Nuuly could deliver healthy double-digit revenue growth in the fourth quarter. Now moving on to tariffs. the macro landscape remains consistent with what we discussed on our last call. We estimate that tariffs negatively impacted our third quarter gross margin rate by approximately 60 basis points, and we currently believe they will have an impact of approximately 75 basis points in the fourth quarter. Despite these headwinds, we still believe we can achieve approximately 100 basis points of gross margin improvement for the full fiscal year 2026. Our teams continue to work diligently on tariff mitigation efforts, including negotiating vendor terms, modifying our countries of origin, adjusting transportation modes, and strategically managing pricing. I want to emphasize that this plan reflects our current knowledge, and there is still a lot of uncertainty in today's environment. This uncertainty, in addition to our ongoing mitigation efforts, makes it challenging to predict the impact of tariffs beyond the fourth quarter. In summary, it was an exceptional quarter. All brands delivered positive retail segment sales comps, wholesale produced healthy revenue gains, and the subscription segment drove double-digit revenue growth. We believe we are on track to deliver record sales and operating profit for the year, including approximately 100 basis points of gross revenue and operating profit margin improvement despite tariff headwinds. We could not be prouder of the teams and their amazing execution. On that note, I will now turn the call over to Tricia Smith, Global CEO of the Anthropology Group.

Thank you, Frank, and good afternoon, everyone. In the third quarter, the Anthropology Group delivered an 8% retail segment comparable sales increase, driving 8% growth in total brand revenue. This achievement marks the 19th consecutive quarter of positive comparable sales for the anthropology group. Importantly, we were able to maintain strong double-digit profit rates through improved gross profit margins despite ongoing tariff headwinds. The retail segment's comparable sales growth was robust, driven by strong comps in both digital and stores across all regions. Category strength remained consistent across apparel, accessories, and weddings, complemented by an acceleration in sales trends within the home category. Turning specifically to apparel, our strength continues to be driven by the brand's multi-year focus on modernizing the assortment and elevating our own brands. These offerings remain our customers' most coveted selections and continue to drive substantial growth. This success is tangible. Own brand penetration achieved a historical high, increasing by over 100 basis points versus last year. We're strategically investing in these unique brands, including Maeve, Celandine, Lyrebird, and Pilcrow, which are supported by a strong design team and a distinctive creative point of view. We believe this customer affinity for our own brands positions them for continued outsized growth opportunities. Highlighting the power of our own brands, this quarter saw the launch of Maeve as a standalone brand, transitioning it from a beloved in-house label to a dedicated boutique concept. Our first Maeve boutique opened in Raleigh, North Carolina, and the results have exceeded our expectations with a high double-digit beat of our forecast. This launch has proven accretive to our business in the Raleigh-Durham area, driving increases in total store sales across the region, inclusive of existing anthropology stores. Furthermore, digital demand for both Maeve and anthropology in the trade area has outpaced brand-wide demand growth since the store opening. Building on this success, our next made boutique is scheduled to open at the end of fiscal Q4 in Atlanta's Buckhead Village District, with an additional location to be announced in the first quarter of fiscal 2027. Moving now to the home business, where we saw an acceleration in sales trends during the quarter. Anthropologie Home achieved high single-digit comparable sales, which was in line with total brand comparable sales, driven largely by the strength of our full-price business. Growth was concentrated in home accessories and textiles, and notably, regular price furniture sales turned positive during the quarter. Home accessories, a key point of entry for new customers, delivered double-digit comps and double-digit new customer growth. We're excited about the current trajectory and growth potential of our home business. Our brand-wide growth continues to be fueled by strong, positive, comparable sales across both digital and retail channels. In our digital channel, we drove double-digit session growth while holding conversion flat. We are continuously investing in our customer digital experience to reduce friction in the online purchase process and drive conversion. In our stores, the focus on service and experience is yielding results. Our in-store styling services grew double digits this quarter, and the high-touch, appointment-driven Anthro Weddings business significantly outpaced Total Brand Comp. These strong channel performances validate our strategic investment in both our physical store footprint and our digital capabilities. Building on the success in stores, we're executing a robust plan for new anthropology stores in addition to the May boutique launches. Year-to-date, in FY26, we have opened eight new stores in North America and plan to open an additional three before the end of the fiscal year. Internationally, we also have three new stores opening in the UK, with Liverpool and Glasgow opening earlier this month and Manchester opening later this week. Importantly, our new anthropology stores are not only exceeding our expectations, but are also driving outsized digital demand in their local market. By the end of fiscal 26, we will have 250 anthropology group stores globally. Underpinning our growth strategy is exceptional marketing that drives customer acquisition and retention. Our messaging this quarter was anchored by two high-impact campaigns. Our MAVE launch campaign, More You, More MAVE, which generated over 1 billion impressions, and our Anthro Always Fall campaign, a cinematic cross-category story. This approach successfully balances data-led discipline with emotionally resonant storytelling that speaks to new and existing customers. As a result, our total customer count grew high single digits this quarter, and over 30% of new customers have returned to make a second purchase, with our own brands driving the majority of this new customer growth. Looking ahead, we're expecting mid-single digit comps for Q4. We are committed to our strategy and focused on our North Star of product modernization, customer growth, and leveraging creative as we enhance our selling environments with exceptional experiences for our customers. I would like to take this moment to thank our incredible teams and global partners. The thoughtful, customer-obsessed way in which you work continues to delight our customers and supports the growth of our business. With that, I will now hand the call over to Mel.

Thanks, Tricia, and good afternoon, everyone. Let me walk you through how we're thinking about our fourth quarter financial performance Based in part on our start of the quarter, we are planning for total company sales to grow in the high single digits for the quarter. In our retail segment, comp sales could grow mid-single-digit positive with high single-digit positive retail segment comps at the Urban Outfitter brand, mid-single-digit positive retail segment comps at Anthropologie, and low to mid-single-digit positive retail segment comps at Free People. And newly, the brand could deliver mid-double-digit revenue growth driven by continued subscriber momentum. Finally, our wholesale segment could produce mid-single-digit growth. Based on our current sales performance and plan, we believe URBN's full-year gross profit margins could increase by approximately 100 basis points, with the second half growing by approximately 50 basis points versus last year. Within the remaining second half, fourth quarter gross profit margins could increase by approximately 25 to 50 basis points as lower product markdowns, particularly the Urban Outfitters brand, are partially offset by lower initial merchandise margins due to increased tariffs. Our current assumptions on tariffs are based on the announced tariff rate as of November 24th, which includes 50% tariff rate on goods from India. Turning to SG&A, we expect expenses to grow roughly in line with sales for the full year and fourth quarter based on current sales performance and plan. The planned growth in fourth quarter SG&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&A spending that we can adjust up and down depending on how our business is performing. We are currently planning for an effective tax rate of about 23.5% for the fourth quarter and 22.5% for the full year. Now on to inventory. In Q4, we expect inventory could grow at a rate similar to fourth quarter sales as our teams continue to focus on increasing our product turnover. For FY26, capital expenditures are planned at approximately $300 million. The FY26 capital project spend is broken down as follows. Approximately 45% is related to retail store expansion and support. Approximately 35% is related to supporting technology and logistics investments. And the remaining 20% is for home office expansion to support our growing businesses. Lastly, we're planning to open approximately 69 new stores and close approximately 17 this year. Most of our net new store growth will come from the FP movement, free people, and anthropology. Specifically, we're planning 25 new FP movement stores, 18 new free people stores, and 16 new anthropology 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.

Thanks, Melanie. As you've heard, our teams produced another great performance, with every brand contributing meaningfully to our outstanding results. Robust comparable sales across our brand portfolio demonstrated their power and the rigor of our executions. The Anthropologie, Free People, and FP Movement brands achieved record sales while successfully maintaining double-digit operating profitability. The Urban Outfitters brand posted strong double-digit comparable sales in both geographies driven by better product, improved marketing, and more full-price customers. As a result, the Urban brand delivered significant profit improvement versus last year. Complementing their retail results, newly our subscription rental concept continued its impressive trajectory of strong subscriber and revenue growth while delivering healthy operating profits. During the quarter, customer engagement was lively, with both store traffic and online session growth up sharply. Our customers responded enthusiastically to our compelling product offerings and distinctive brand experiences. and drove record third quarter results. This sustained performance is a direct testament to the strength and resilience of our diversified business model. We have built a strategic model that is sturdy across multiple dimensions. Our diversification by channel, spanning stores, digital, wholesale, and subscription services, and by brand, with a portfolio catering to different customer segments, provides inherent stability. Furthermore, our broad category offering, including apparel, accessories, shoes, home, and beauty, ensures that as customer preferences shift, we will remain relevant. This powerful multifaceted approach to diversification gives us high confidence that with smart execution, we can continue to grow our market share regardless of the operating environment. Looking ahead, November traffic and sales remain robust. Our retail segment comp sales are currently running slightly ahead of our stated Q4 plan to deliver mid-single digit comp growth. We anticipate the holiday season will, as always, be highly competitive and promotional. We have observed a slight shift in consumers' behavior. We believe customers were waiting a bit longer this year to make their purchases until seasonal promotions began. And we successfully met this shift with strong results in our early holiday events. As Frank noted earlier, despite the expected promotional landscape, we believe the power of our model allows us to achieve improved operating margins in Q4 versus the prior year. For now, we are focused on closing the year successfully by delivering another quarter and year of record-setting results and continuing to deliver shareholder value. Finally, my thanks to our entire URBN family, brands and shared services, for producing another superior quarter. I want to acknowledge the phenomenal job each of our brand leaders, their teams, and our co-presidents, Meg and Frank, have done. I understand the hard work and long hours you all devote to making our brands amongst the best in retail today, and I'm deeply appreciative. Our results are a testament to your effort and your talent. I also thank our partners around the globe for your cooperation as we work together to solve the problems imposed by tariffs. And finally, I thank our shareholders for your ongoing support. That concludes our prepared remarks. I now invite your questions.

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 11 again. We ask that you limit yourself to one question only. Please stand by while we compile the Q&A roster. Our first question comes from the line of Lorraine Hutchison with Bike of America. Your line is open.

Thank you. Good afternoon. I wanted to follow up on the commentary around pricing. I think the words you used last quarter were gently and sparingly, and I wanted to see, A, how much of a customer reaction you've been able to realize from these price increases, and B, if the expectation was that you would continue to protect opening price points, especially at the urban brand.

Hi, Lorraine. I'm going to ask Tricia to take that question.

Hi, Lorraine. We're being highly strategic and thoughtful about taking price, and these are definitely not across-the-board price increases. We've taken small price increases where we felt the price-value equation was appropriate and have seen really little to no price resistance where we did so. We also want to stress that we remain committed to maintaining our opening price points and our pricing architecture. and protecting those items that our customers count on to have great price value. Next, we're really spending very little incremental price increases over and above what we've already implemented this fall and holiday. We really don't anticipate price resistance. Our focus remains on protecting the integrity and the value of our product while we manage our cost structure appropriately.

Yes, and Lorraine, I want to emphasize that all the brands are protecting their opening price points. And furthermore, as we think ahead, we think that most of the price increases are behind us and that we'll have little need to raise prices next year.

Thank you. Thank you. Our next question comes from the line of Adrian Yee with Barclays. Your line is open.

Great. Thank you so much. I have to say, I mean, congratulations, every aspect, every geo, every brand. It's pretty amazing. So congrats to everybody. Thanks, Amy. You're very welcome. So, Trish, just on kind of you talked about the own brand penetration. Can you talk about kind of where you are in the journey of own brand, where it could go, and what the global footprint for anthropology may look like, Europe versus North America? And then for Frank and or Melanie, Just on UO, so we have a, I think you said a positive low single-digit segment margin in the quarter. Where does that bring us year to date? And I think earlier you had said that you didn't think that this year you could break that profit barrier, right, to become, you know, positive. So, I mean, there's so much opportunity after this. So, just a little color on kind of how you think about that for the year. Thank you.

Hi, Adrienne. Our own brand growth, as I mentioned in our opening remarks, has really been a source of strength for us as a brand, really leveraging the talent and strength of our design teams, our buying teams. As I mentioned, the penetration grew by almost 100 basis points versus last year, and we continue to plan and execute against our own brand growth, outpacing that of just our total. We have successfully launched Salandine, Lyrebirds, leveraging daily practice, and then really proud of the results the team's delivered with our maze expansion as a standalone brand and our concept store. So, continued growth. We believe it will continue to outpace the total of our brand and expecting that to continue. I would say from a global footprint for our brand, really proud of the team successfully opening two stores in the U.K., in the past several weeks and excited about the Manchester opening that will be opening at the end of this week. So we're in a place where I think we'll continue, as we mentioned, to open stores in North America. We'll continue to gauge the result of the stores that we're opening abroad in the U.K. and see an opportunity for us to continue to do so.

Trish, I also think it's worth mentioning Pilgrim.

And Pilcrow, yeah, definitely.

They're having a really good season with Pilcrow.

Yeah, Pilcrow has been a brand that has expanded significantly, and I would say several years ago from a penetration standpoint in denim, and that's grown significantly now as our number one performing denim lifestyle brand for anthropology has been significant.

And this is Brian, Adrian, thanks for your question. I just wanted to... Give an update on Urban. So, first and foremost, I just want to say it again. Honestly, a huge congratulations to the entire team on the turn and the overall results. It's really great to see the progress the teams are making delivering such strong sales growth and great profit improvement. As you noted, the brand was profitable on a global basis in the third quarter. This was driven by exceptional profit growth in Europe and a healthy reduction in the loss in North America. We're not ready to give a forecast for exactly what next year could look like. Our business in Europe is already profitable and certainly was boosted by the extraordinary comp results so far this year. And while North America has delivered a meaningful reduction to their losses, they still have a healthy opportunity to continue progress into next year. And I would say given the size of the opportunity in North America, It is possible that the brand turns to globally to be profitable next year on an annual basis, but we'd like to see exactly where this year lands before we commit to exactly what next year will look like.

Thank you. Please stand by for our next question. Our next question comes from the line of Matthew Boss with JP Morgan. Your line is open.

Thanks, and congrats on another nice quarter. Thanks, Matthew. So, Dick, could you speak to drivers of the further acceleration in business that you saw during the third quarter, notably at the urban brand? Maybe elaborate on early holiday selling trends that you mentioned, just how you see the setup for your brands through holiday. And, Frank, I think so with 100 basis points of operating margin expansion anticipated this year for the company, how best to think about margin drivers or levers beyond this year if we think multi-year?

Okay, Matthew, the drivers of the business across all the brands was the traffic, and traffic in stores and traffic online. And sales was almost exactly congruent with the increase in traffic. So I think that that's what did it. As we look into holiday, we think that the same thing is occurring. And we believe that the holiday season is likely to be very nice from a sales perspective. But we do expect it to be slightly more promotional than we saw last year. Let's say our customers aren't responding well to the new fashion. They are. And they are particularly responding to their gift-giving favorites. But they're waiting more patiently for anticipated promotions. And the events we've run so far have been very successful. So judging by the strength of those promotional events and the strong back-to-school season and the surge in customer spending on holiday decorations, I anticipate a very good holiday season.

And then, Matt, I can touch on operating profits. So, you know, obviously, we're extremely proud of what we produced last year, delivering 100 basis points of improvement, getting to 8.6%. And based on our current plans, we can deliver approximately 100 basis points of improvement fiscal 26, which would certainly put us very close to our 10% goal. As it relates to next year, I would just say it's a little early for us to commit to a rate. Obviously, as Melanie said, or as we target as a company, we're certainly going to target to keep SG&A at to below sales. So then that leaves gross profit margins. And I just think there's a ton of uncertainty as to where tariffs are going to shake out given potential deals, Supreme Court rulings. our tariff mitigation efforts are ongoing. And we'll have a better picture of this at the close of the year. But the one thing I do want to say with all that said around tariff impacts, if you were to ignore that for a minute, where our opportunities could land in gross profit would be driven by continued markdown improvement, largely from the Urban Outfitters brand. We still think there's opportunity to leverage store occupancy. As knock on wood, the brands continue to drive healthy comp sales And, you know, when you're excluding tariffs, we actually still think there's IMU opportunity, which is great to see at All Brands.

Thank you. Please stand by for our next question. Our next question comes from the line of Paul LaJoules with Citi. Your line is open.

Hey, thanks, guys. You mentioned pressure on IMU a couple times, but also lower markdowns. I'm just curious. Maybe you could talk a little bit about out-the-door merch margins and what you saw by brand. And then second, on Nuuly, I'm curious if you've seen any change in the demographics in terms of age, income, regional, of the new customers that you're attracting into that business versus what you've seen maybe several quarters ago. Thanks.

Paul, this is Frank. I can take the sort of out-the-door MMU, which was favorable given the markdown reduction for URBN. As we noted, sort of all brands were impacted by the tariffs, and the lion's share of the markdown improvement was driven by urban outputters, but three people also participated. had a favorable markdown rate in the quarter, and Anthropologie was just slightly up, but also did a really good job at offsetting their IMU and high gross profit gains overall as a brand for the quarter. So all three brands contributed within the retail segment to the gross profit gains for the quarter. And then, Dave, I don't know if you want to touch on Newell.

Yeah, Paul, thanks for the question on Newell. I would say that – largely we are seeing our customer base remain relatively stable in terms of, uh, the curve across age, uh, um, you know, subscribers, um, demographic, uh, geography. If anything, I would say we have seen a slight shift, um, ever so slight towards a slightly younger subscriber in terms of our new, uh, customer acquisition. And we've seen a penetration, uh, from a subscriber standpoint, uh, slightly heavier penetration into the southern region of the country, more so than other geographies, mainly from a new customer standpoint. But those are just slight changes. There has not been a big transition or a big change in the composition of our subscribers.

Thank you. Will you stand by for our next question? Our next question comes from the line of Mark Altschweiger with Bayer. Your line is open.

Good afternoon. Thanks for taking the question, and congrats on the strong results. Thank you. I wanted to follow up on gross margins. First, where was the upside versus your plan for the third quarter? Any surprises there by brand or on the markdown front? And then just for Q4, you're commenting on expectations for higher promotions over holiday given the shift in behavior. But you are maintaining your guidance for the full year. So, just curious what the offsets are there that are allowing you to hold that plan. Thank you. Sure, Mark. This is Frank.

I can take that. I think the outperformance in the third quarter was largely, you know, top line came in really healthy. So you got some better leverage as it related to store occupancy, which was great to see with all brands contributing to that. As it relates to the fourth quarter, you hit the nail on the head. We are maintaining our annual plan and expectation and hopes of delivering approximately 100 basis points of gross profit margin improvement. I would like to say I hope we're being conservative, but we do expect, as Dick noted, the holiday to be promotional. And, you know, if those promotional events are bigger than last year, that could have an impact on margins. And, you know, we're hoping that we're being conservative there. This does not mean, and I just want to be clear about this, that we're planning on more or deeper promotions because we're not. It just means over the past several years, we've seen this concept of hires being high and the highs being higher and the lows being lower as it relates to sales impacts. sales events, I should say. So, again, I hope we're being conservative with the level of improvement we're planning, and we're really excited and pleased to hopefully be able to deliver that 100 basis points on an annual basis.

Thank you. Please stand by for our next question. Our next question comes from the line of Alex Stratton with Morgan Stanley. Your line is open.

Thanks so much. Congrats on a great quarter. Maybe Frank or Melanie to start, I think you've put a 10% long-term even margin target out there, but you'll be very close if not there this year. So just curious how you think about that longer term and maybe what pushes you beyond it. And then while we have Tricia on the call, I just wanted to take a step back on Anthro. Feels like there's just been a structural change in the growth that that business delivers versus where it was at pre-pandemic. So I'm just curious, like, what's changed and how do you think about the durable growth rate for that business over time? Thanks so much.

And thank you for the congratulations, Alex. This is Frank. So, as I said, we are still targeting 10%. And knock on wood, we're hopeful we can get very, very close to that this year. Honestly, before we set a new goal, I'd like to hit the first goal. And, you know, as you know, and I think everyone knows, there's still plenty of opportunity for us to drive improvement. You've got things like the UO turnaround, which is certainly in play right now. That brand, as we said, will still have a healthy opportunity to drive operating dollars and profit rate gains into next year. You've got Nuuly growing at a really healthy rate, and that gives us opportunity from a profit rate perspective as well. As I mentioned, you know, I think with all the brands delivering positive comms, you've got store occupancy leverage and excluding what's going on with tariffs, which, you know, hopefully some of that changes in the future. I think all brands have IMU opportunities as well. So there's several levers out there that, you know, I think we can pull and hopefully deliver to exceed. But for right now, we're not setting a new target. I'd like to hit the first one. the first target first and, you know, hit that 10% and operate at it, and then we'll reset the goal.

Hi, Alex. I'll speak to Anthropology. Thank you for the question. You know, our team set out a little over four and a half years ago with really three strategic priorities, but really I would say first and foremost it was getting or delivering on our ability to drive full price sales, which was really focused on newness. A lot of that came from really focusing and investing in our own brands, as I had mentioned. But I would say as we've worked on modernizing our product assortment, diversifying the categories that we're able to deliver, and ensuring that we have a broad-based appeal for the multi-generational customer base that we serve has really been the bigger driver of that. You know, our customer base, as we've focused on growth and acquisition, but also retaining our existing customers, has delivered over 50% increase in the last four years in our total customer count. And I think as we leverage that and think about how we execute and we deliver experiences both in stores and our teams have been very, very focused on ensuring that those experiences and the service delivers and exceeds our customer expectations, but also investing, I would say, in our digital capabilities, multiple factors contributing to our ability to be able to deliver improved conversion. And then I would say just lastly, making sure that we really deliver on those exceptional experiences and leverage our team's capabilities of design and creative and buying. We believe that we've really built a sustainable model for growth coming out of, I'd say, pre-pandemic that we've been able to deliver on, and I'm proud of our team's ability to execute on those.

Thank you. Please stand by for our next question. Our next question comes from the line of Dana Telsey with Telsey Advisory Group.

Your line is open. Thank you. Good afternoon, everyone, and congratulations on the progress. As you think about the product, that's all I'm thinking about. As you think about the consumer, and, Dick, you mentioned it, some of them waiting closer for deals. Any framework for that? Is that across all brands, all demos, all regions, or – anything you're seeing in terms of the promotions that you need to drive. And then it was interesting on Newly with the continuing average active subscriber growth, over 42% or whatever, it sounded like on the gross margin commentary, some of them are buying more of the rental product now. Are you seeing that shift? Is it from all ages, all income levels, and how does that impact the margin? Thank you.

Thanks, Dana. The consumer pausing to wait for promotions, I guess I would chalk it up to intellect. I mean, they know the promotions are coming. As I said to you, we saw a very rapid progress in mid to late October in people putting items in their carts, And that signals to us that this was the beginning of, okay, we know what we want. We know there are promotions coming. So, why not wait? And if you think back maybe two or three years ago, when everybody was so worried about, oh, there's not, I guess it's because the transportation was difficult out of the Far East with COVID. And everybody thought, oh, there's not going to be enough to go around, and people started buying earlier and earlier. I think what we're really seeing is just a reversion to what we saw before COVID, when people did wait, and they did partake more in promotions. So, I don't think there's any particular magic to it. I don't think it says much about the consumer other than they're smart.

Dave, you want to take the newly? Yeah, sure. I'm happy to touch on it. Dana, you're absolutely correct. We did see a higher rate of sales to the customer in this quarter, and that has a lower gross profit than the subscription sales to the customer. There's a lot of ways in that we can sell product to the customer sort of in the box, through a marketplace, through their thrift website. We're not really seeing anything different from a demographic, from an age or geography perspective as to where those things are coming from.

And I think it will just be variable from one quarter to the next.

Thank you. Our next question comes from the line of Monty Shapiro with the Retail Tracker. Your line is open.

Hey, guys. Congrats to everybody. But Shay. But Shay. Shay. Oh, my God. And that cardigan with the flowers, that is like rich thrift store vibes. So good. So my questions are for you. I hate baseball metaphors. And I understand Europe is on solid ground, but I guess Where do you feel like UO is in this recovery process? And could we also just touch on men's? I feel like we glided by past. You had, you know, sounds like some stabilization and slight improvement in men's. I'm curious if the men's business is a smaller part of urban's business at this point, given it's been a little tougher even than women's. And is it still putting pressure on margins or is it neutral at this point?

Hi, Marty. Thank you for the nice comments. You're talking about the Rachel cardigan. It's one of our biggest and most beloved items. So I'm glad that you love it. Lots of customers do too. I'm really, really proud of that item. So I think your first question, where do we sit in the recovery? First, we recognize that this is a journey. We're incredibly proud of the team and You know, I think the team is executing really well on our plan. You know, they are saying acutely focused on the customer in Q3. Really, that was about occasions of getting back to campus. Game day was a big occasion and reentering campus life. From a product perspective, I think, you know, we continue to be, you know, excited about the categories that customers see us as a destination for. That would be Denim and Lounge and really anchored in our own brand, BDG and Out From Under. In marketing, the team continues to really delight customers, meeting them in places and moments that matter. Some exciting partnerships and activations in the third quarter, whether that was celebrating on rotation with UGG, which is our newest partnership, and on rotation experience or the partnership with Canva, which was a really exciting, proud moment. Our team, you know, through insights with customers, heard that 54% of young customers make wish lists for their holiday gift list. And so we partnered with Canva and had three unique formats that our creative team developed. with 100 products and drop-down menus just from Urban Outfitters. That experience is live today with lots of customers participating in it and something that we're really excited about. And from a channel or touchpoint perspective, feeling excited about the progress that teams are making there, seeing our creative really showing up in our stores, on our digital channels, across social. really evolved to be much more upbeat, really inclusive, and I think representing our product in a really, really delighting way. And we're excited to have opened two new stores, representing our new store environment. I think we're hearing great things from our customers. Certainly the environment is bright. I think more modern and flexible from our perspective, allowing us to ebb and flow with categorical performance. And we're really excited about the early reads we're seeing from a productivity perspective in those two stores as well. Your next question on MEN, we are real excited about what we're seeing in MEN. You heard us mention that perhaps on the last call. Real proud of the men's team and the progress that they're making. This started with their focus on the customer as well. And they identified an opportunity to really broaden the assortment as they broadened the range of customers that they were serving too. For them, that really meant being more versatile and focusing on young college guys. These are simple people. But we had an opportunity to really be more versatile and focus on more outfitting and wardrobing for this customer. So, the team had prioritized really redesigning and rebuilding our core items and anchoring in four categories. That's bottoms, pants, jeans, and sweats. Go figure. and some of their tops, so fleece programs and woven tops. And that is resonating really well. And so with some new customers in the business, really proud to see that we are now a destination where they have more to buy from us than ever. Men's is an important part of our business. And I think that we really have an opportunity to differentiate in the marketplace and be a destination, not just for our own branded products, but be a place where we can have some of the best national and discoverable brands for men. And that's something the team is working on as well.

Marnie, if I may, I'd like to say a word about Urban. As an ex-simple college guy who hasn't gotten much more complex as the years gone by, I want to give Sheila a big shout out and also the Both team leaders, Shea in North America and Emma in Europe, they both delivered outstanding quarter. And Shea and her team produced the double-digit comp sales that you've heard about and strong, very strong double-digit full-price sales. It shows that the turnaround strategy is working very well. In Europe, Emma and her team accomplished something I've really never seen in my many years in this business. They delivered a 17% comp sales gain with single-digit less comp inventory and very strong positive double-digit full-price sales. So, clearly, the momentum for both geographies is strong going into the holidays, and I just want to give my congratulations to all Global Urban brand employees.

Thank you. Please stand by for our next question. Our next question comes from the line of Janet Joseph Kloppenberg with JJK Research Associates. Your line is open. Hi, everybody. Can you hear me?

Yes, we can.

I don't have to tell you how excited I am about such a strong quarter, but I wanted to talk to Shay about Urban. When I look at it, Shay, and I've followed the company a long time, It looks like you are working to broaden the assortment and the customer that you're targeting. And I'm wondering if you could talk a little bit about that and if your pricing strategy has changed and if what they're doing in Europe is similar to what you're doing here. Thank you.

Hi, I'll take that first, Mrs. Shea. Yeah, one of the first things that we did was a lot of customer research, and I think that we had identified that we had become unintentionally niche or narrow as it related to our product assortment. We had been focused on a bit of grungy, a bit of... of a narrow assortment, and I think we recognized an opportunity to be a bit more broad and welcoming in terms of our assortment and listening to our customers, they told us very clearly, we love your denim, and we love your lounge, and we love those two brands, BDG and Out From Under. But we weren't giving our customers enough of those brands and enough of those categories. So that is what we've been focusing on, and the customer has been responding in, like, a lot. And sales. Yeah, and sales. And we're going to keep giving it to them as long as they keep responding.

And, Janet, I'm going to ask Sheila to talk about similarities with yours.

So I think the similarities of –

The consumer focus is very strong between Shea and Emma. Obviously, the customer is slightly different of what they want at any given time, knowing that Emma is touching on Europe, Germany, Netherlands, Spain, et cetera, and the countries that she's touching. And just like similarities in North America or New York and the South respond differently to products, I think Emma's Both leaderships are concentrating on their consumer, and that feels really, really good. There's great collaboration, sharing of products between both countries to find the best results for the consumer. I'm proud of Emma's growth because it's not only just coming from the U.K. now. There's double-digit growth coming from multiple countries that she's continuing to build on and will in the foreseeable future as their continued store growth happens in Europe. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Jay Sol with UBS. Your line is open.

Great. Thank you so much. I have two questions. First, I'm curious about your wholesale business. As you look into next year, I'm curious about the kind of orders that you're getting from your wholesale partners given, you know, it's possible they might have a different view of what 2026 might look like. And then there's some speculation today that Red Sea shipping lanes might open up. If that does happen, how might that impact your margins next year if shipping rates go back down to where they were? Thank you.

Jay, I can take the Red Sea shipping lanes. I would just say, you know, obviously, if that happens, the more lanes, the more opportunities, the better the opportunity is for us. But it's a little early for us just to speculate exactly what rates are going to look like and what the impact could be. But, yes, that would be a positive. You know, supply and demand are good things, and a greater supply of transportation opportunities is a good thing for us.

And I'll share and take the wholesale question.

So I'm going to answer wholesale.

It's an exciting time for wholesale because we're seeing the brand, both free people and SP Movement performed extraordinarily well within our wholesale account base. So we do believe that as we continue to react and learn from our customer, from our DTC perspective, we have only opportunity to continue to fuel our wholesale channel with the partners that we built. I think SP Movement had a spectacular quarter at wholesale this year, and we don't necessarily see that slowing down. We see our specialty store business be thriving as we specialize our product into the outdoor space, our studio space, and the international opportunity we have with both brands. So we're really excited.

I believe that finishes the call. I thank you all very much. I wish you a very, very happy Thanksgiving. I know you've got a lot of work to do. There was a backlog of companies reporting today, so I appreciate it. And we will talk to you soon.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.