Urban Outfitters, Inc.

Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. Fourth Quarter Fiscal 26 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. I would now like to introduce Ona McAuliffe, Executive Director, Investor Relations. Ms. McAuliffe, you may begin.

Good afternoon, and welcome to the URBM Fourth Quarter Fiscal 2026 Conference Call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the three- and 12-month period ending January 31, 2026. 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. 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. Please note, on today's call, management will be speaking to our financial results on an adjusted basis, which do not include non-core adjustments for charitable donations to a donor-advised fund in the current year and a release of income tax reserves from the prior year. Each of these items is detailed in our press release, as well as the investment presentation that is posted to our URBN Investor Relations website. I will now turn the call over to Nick.

Thank you, Eleanor, and good afternoon, everyone. The URBN teams delivered exceptional fourth quarter results to close out a record-breaking year. Total revenue grew by 10% in the quarter, hitting their record $1.8 billion. Adjusted earnings per share jumped an impressive 38% for the quarter and 35% for the full year. We achieved this even though tariffs negatively impacted our product margins beginning in the second quarter. I'm also pleased to report that the positive momentum we've seen all year continued through the holiday season. All retail segment brands delivered positive comps with standout performances from FP Movement, and Urban Outfitters. Newly, meanwhile, maintained its torrid pace of subscriber growth. The Urban brand also reached a huge milestone by returning to profitability for the full year. Frank Pancorti, our co-president and COO, will now provide a deep dive into our fourth quarter and full year results. After Frank, Melanie Marin-Effron, our CFO, will walk through our outlook for fiscal 2027. I will then wrap things up with a few closing thoughts before we open the call for your questions. Frank, the floor is yours.

Thank you, Dick, and good afternoon, everyone. Today, I'm excited to share our company's fourth quarter record results compared to last year, and then I will dive into some detailed notes by brand. Overall, our teams delivered another outstanding quarter. exceeding our plans and setting new sales and operating profit records. Total URBN sales grew by over 10%, reaching a Q4 record of $1.8 billion. All our retail segment brands delivered positive retail segment comps, while four of our five brands posted record fourth quarter sales. Newly continued its impressive double-digit revenue growth and our wholesale segment delivered 9% overall revenue growth. Our total URBN sales growth was partly driven by a greater than 5% increase in the retail segment comp, with digital comps slightly exceeding store comps. Newly delivered strong 43% revenue growth, driven primarily by an increase of over 120,000 average active subscribers compared to Q4 last year. Additionally, the wholesale segment delivered a 9% increase in revenue driven by growth in the specialty store accounts, which was largely fueled by healthy increases in SP movement. Next, I will turn your attention to gross profit. URBN saw a 14% increase in gross profit dollars, reaching a record of nearly $600 million. The gross profit rate improved nicely by 101 basis points, rising to 33.3%. The improvement in gross profit margins was primarily driven by lower markdowns at the Urban Outfitters and Free People brands, in addition to occupancy leverage driven by strong sales growth across all our brands and leverage in delivery expense due to a reduction in packages per order. These gains more than offset lower initial product margins at all brands due to increased tariffs versus the prior year. In the quarter, SG&A increased by 9%, leveraging by 14 basis points. The growth in SG&A dollars was primarily driven by increased store payroll expenses to support the retail segment store's net sales growth and increased marketing spend, which fueled sales and customer growth for all brands. The marketing efforts drove increases in traffic, both in stores and online, for total URBN retail segment, while new lease campaigns resulted in healthy double-digit growth in average active subscribers. Overall, total URBN operating income rose by 27% compared to last year, reaching a Q4 record of $159 million while the operating profit rate grew by 115 basis points. During the quarter, we made a $46 million contribution to a donor advised fund, which is included in other expense and income line item on our income statement. We intend to use this fund to support our charitable initiatives in the coming years. Net income increased 33% to $131 million or $1.43 per deleted share. Moving on to brand performance, starting with anthropology. The anthropology team had another solid quarter, achieving a 4% increase in their retail segment comp, which marks five years of consecutive quarterly positive comps. This growth was fueled by strength in the digital channel while store comps were flat. The positive retail segment comp was driven by positive comps in all major product categories. Apparel growth was fueled by a continuation of a strong bottom cycle, which remains a key driver of resortment. Additionally, the brand saw significant strength in its own brands, such as Maeve, Pilkro, Celandine, and Lyra Bird, all of which are resonating deeply with the customer and reinforcing our unique product positioning. Turning to the home category, performance was primarily driven by strength in home accessories, where fresh product introductions are successfully capturing the customer's desire to refresh their living spaces with new fashion. We are also encouraged by the recent improvements we see in furniture, which we believe presents an opportunity for growth in the coming year as we continue to lean into our unique home aesthetic. The anthropology team continues to drive customer acquisition by pairing compelling product assortments with strategic marketing investments and exceptional creative content. These efforts were instrumental in driving growth across new retained and reactivated customers during the quarter. This broad based engagement led to the traffic increases we observed across both our digital and store channels. Overall, We are pleased with the brand's execution, and based on our current plans, we believe the brand has the ability to deliver positive comps at a mid-teen operating profit rate in fiscal year 2027. Next, let's turn to Free People, which delivered another impressive performance this quarter. The team achieved a total revenue increase of 10%. This growth was driven by positive retail segment comps non-comp store growth, and strong gains in the wholesale segment. The retail segment comp of over 5% was broad-based across both our store and digital channels, while store performance outpaced digital during the quarter. Customer traffic was nicely positive across both channels, supported by a healthy increase in AUR in stores. Furthermore, customer acquisition and overall customer growth were positive across both channels, fueled by compelling content and execution delivered by the brand's creative, marketing, and product teams. The wholesale segment delivered a 10% increase in revenue during the quarter, led by the continued strength of FP movement across our wholesale partners. Importantly, across the free people group, regular price sales improved nicely versus the prior year. reflecting the high quality of the brand's offerings and strong customer demand. This execution combined with well-controlled inventory allowed the Free People Group to deliver record operating profit for the fourth quarter. The Free People brand had a solid fourth quarter with total sales growth of 3% and a retail segment comp of 1%. These positive comps were driven by successes in both gifting and self-purchasing across several key categories, including accessories, intimates, bottoms, and sweaters. The FD Movement brand remains a standout, delivering exceptional results with total revenue growth of 29% and an impressive retail segment comp of 21%. This performance was fueled by the brand's ability to consistently deliver technical innovation and fresh fashion in the active wear space. The expansion strategy for FP movement remains on track, which successfully opened 12 new stores during the quarter, bringing the total to 88 retail locations to date. We continue to see strong performance from these new sites, which play a vital role in driving brand awareness and accelerating customer acquisition. Based on these strong results, the brand plans on opening at least 21 additional stores in fiscal year 2027. To lead this high growth business into the next chapter, URBN is happy to welcome Andrea Perez as FP Movement's first global president. Andrea will report directly to Sheila Harrington, global CEO of the Free People and Urban Outfitters groups. Andrea is uniquely positioned to steer FP Movement as a premier performance lifestyle brand. Her expertise in disruptive marketing and a deep-seated passion for women's sports make her the ideal leader for this stage of our expansion. Looking ahead to fiscal year 2027, we remain confident in the underlying strength of the Free People Group. Given the consistent execution within the core collection assortment, and the ongoing growth of FP movement. We believe the retail segment is well positioned to deliver positive comps with mid-teens operating profit rate for fiscal year 2027. Additionally, we believe the wholesale segment can deliver healthy growth with a consistently strong profit rate for fiscal year 2027. Now, let's move on to the Urban Outfitters brand. which continued its positive momentum with a global retail segment comp of 10%. This performance was driven by a healthy 8% sales comp in North America and a strong 12% sales comp in Europe. The Europe comp was particularly impressive given the difficult comparisons from the prior year. Most importantly, this growth was anchored by a significant improvement in markdown rates. as the brand drove positive comps through strength and regular price selling. A significant milestone for the year was the global Urban Outliers brand return to profitability. We finished the year modestly above breakeven, driven by a substantial reduction in our North American operating loss and a robust increase in profitability in Europe. In North America, the team delivered positive comps across all major categories. Within women's apparel, the strong bottoms trend continues to fuel growth, complemented by an incredible performance in our key items and proprietary collections. In North America, the marketing and creative teams remain committed to meeting our customers where they are. The brand has seen great success in diversifying their social platforms and optimizing their creative. across Reddit, Pinterest, and TikTok. The brand's recent partnership with Canva was a highlight, generating significant engagement through thousands of holiday wish lists. Moving forward, the team is leaning further into user-generated content and exploring emerging platforms to amplify the brand's voice. In Europe, the business continues to be a standout performer, The European team achieved a significant increase in profitability for both the quarter and the full year, driven by the strength of their store business, which led to healthy operating profit growth. Their consistent execution in product and marketing is allowing them to continue capturing meaningful market share. Looking ahead to fiscal year 2027, we are excited by the trajectory of the global Urban Outfitters brand. We believe the brand is well-positioned to deliver positive retail segment comps for the year while continuing to make meaningful progress in growing their profitability. Now, moving to the Nuuly brand, which delivered another exceptional performance this quarter. Total revenue grew by 43%, driven by a 40% increase in average active subscribers compared to the prior year Q4. This scale allowed the brand to deliver approximately 130 basis points of operating margin improvement during the quarter, fueled by efficiencies in logistics and the natural leverage of our operating expenses against strong revenue growth. Looking at the full year, Nuuly achieved several significant milestones. The brand surpassed its goal of $500 million in annual revenue. and increased its total profitability by over $21 million. This resulted in full-year operating profit margin growth of over 260 basis points. These results are a testament to the team's ability to scale the business profitably while maintaining high levels of customer demand. Zulie's continued strong performance reinforces our confidence in the large and growing opportunity for apparel rental in the U.S. We believe the total addressable market for this category remains significant. And as the clear leader in this space, Nuuly is uniquely positioned to capture that demand. As we move into fiscal year 2027, we remain committed to scaling this business and driving long-term value for the URBN portfolio. We believe Nuuly could continue to deliver mid-double-digit growth rates as the brand grows in scale and marches towards $1 billion or more, while improving their profit margins. Now, I want to briefly touch on tariffs. We estimate that tariffs negatively impacted our fourth quarter gross and operating profit rates by approximately 75 basis points, while negatively impacting the year by approximately 35 basis points. Note that these impacts are net of our mitigation efforts. Now onto the current year. The recently announced Supreme Court ruling and subsequent Section 122 announcement certainly changed things. These recent events were not contemplated in our original plans for fiscal year 2027, which Melanie is going to talk about in a few minutes. If the Section 122 tariffs stay in place for the year or expire in July, we do believe there could be an incremental IMU benefit to our current plans. There are certainly a lot of external discussions about what will or won't happen over the coming months. So, we are cautious about planning for change until there is more clarity. In the meantime, our teams continue to work diligently on all our tariff mitigation efforts. And I think given the overall results in fiscal year 2026, they have done an outstanding job. We cannot thank the brand and sourcing teams enough for their efforts. In summary, fiscal year 2026 was a year of exceptional execution and record-breaking results across the URBN portfolio. For the full year, we delivered total sales growth of 11%, supported by positive retail segment comps at all our brands, strong revenue gains in our wholesale segment, and robust revenue growth in our subscription business. Our focus on regular price selling, inventory discipline, and tariff mitigation efforts resulted in 126 basis points of gross margin expansion, driving a 15% increase in gross profit dollars. This discipline, combined with our strong top line performance, enabled us to deliver 28% operating profit growth and an impressive 35% increase in earnings per share for the year. We finished the year delivering 128 basis points of operating profit rate growth, just shy of a 10% operating profit rate, despite the significant tariff headwinds that negatively impacted profit margins for the year. As we look ahead to fiscal year 2027, our brands are well positioned with fresh assortments, healthy inventory levels, and a clear strategic focus. We remain confident in our ability to drive continued growth and deliver long-term value for our shareholders. I want to thank our teams for their incredible dedication and hard work in making this a historic year for URBN. Now, I will turn the call over to Melanie Marie Neffron, our Chief Financial Officer.

Thank you, Frank, and good afternoon, everyone. On today's call, I will discuss our thoughts on the first quarter and full year fiscal 2017. As we begin fiscal year 27, we believe we could deliver positive high single-digit total company sales growth for the full year. This growth could be driven by mid-single-digit retail segment comps, mid-double-digit revenue growth at Newly, and mid-single-digit growth for the wholesale segment. For the first quarter of FY27, we believe we could deliver positive high single-digit total company sales growth as well. This growth could be driven by mid-single-digit retail segment comps driven by high single-digit positive comps at Urban Outfitters, mid-single-digit positive retail segment comps at Free People, and low single-digit positive retail segment comps at Anthropologie. Newly could deliver mid-double-digit revenue growth. Finally, our wholesale segment is planned to achieve mid-teen revenue growth for the first quarter. Based on our current plans, we believe our full-year FY27 gross profit margins could be up approximately 25 basis points versus last year, with the second half showing a benefit to IMU. This guidance reflects the tariffs in place prior to the Supreme Court ruling overturning the IEPA tariffs this past Friday. Based on the current sales performance and plans, we believe our first quarter gross profit margins could be down approximately 25 to 50 basis points versus last year, excluding the impact of last year's non-recurring gain in Q1 FY26, which contributed positively to gross profit margins by approximately $5 million for the 36 basis points last year. The reduction in gross profit rate could be primarily due to lower IMU due to the increased tariffs. Based on our current sales performance and financial plan, we believe total growth in SG&A could outpace sales growth for both the first quarter and full year. The annual growth in SG&A dialers primarily relates to strategic technology investments to support the sustained growth of new leads and the speed up of our internal product lifecycle process through agentic AI. We believe that these technological investments will provide significant benefits for years to come. The investments in agentic AI tools allow our teams to elevate their creativity, execution, and accuracy. As the product lifecycle gets faster and decisions are made closer to customer demand, we anticipate long-term financial benefits in the form of higher sales and lower markdowns. We believe the delta between SG&A and sales growth rate will be larger in the first half of the year than the second half of the year. In Q1, SG&A could grow several points ahead of sales growth due to the timing of marketing investments at the newly in anthropology brands along with increased technology investments. As always, if sales performance fluctuates, we maintain a certain level of variable SG&A spending that we can fluctuate up and down depending on how our business is performing. Our annual effective tax rate is planned to be approximately 22% for the year and the first quarter. Now, moving on to inventory. In the coming year, we will continue to be focused on increasing our product terms. We believe that our inventory levels could grow at a rate at or below sales growth. For FY27, capital expenditures are planned at approximately $385 million. The FY27 capital project spend is broken down as follows. Approximately 40% for retail store expansion and support, approximately 40% for logistics investments, and the remaining 20% for technology investments and home office expansion to support our growing businesses. The logistics investments are to expand our capacity and automation in both the subscription and retail segment businesses. We will be opening approximately 57 new stores and closing approximately 14 stores during fiscal year 27. Our net new store growth is primarily being driven by the growth in FP Movement, Free People, and Anthropologie stores. During FY27, we plan on opening 21 FP Movement brand stores, 13 Free People brand stores, 14 Anthropologie stores, and 8 Urban Outfitters stores. Based on our current plans, we plan to repurchase shares to at least offset any dilution that may occur in FY27. Of course, share repurchase activity will be contingent on market conditions and Board of Director authorization. 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. Now, it is my pleasure to turn the call back to Dick Hayne Chief Executive Officer of URBN.

Thank you, Melanie and Frank. That's a great summary. As you've heard today, FY26 was a landmark year for URBN. Our record results are a direct reflection of the strength of our brand portfolio and the talent of our teams. We entered the new year from a position of strength, and I'm optimistic about each brand's ability to continue capturing market share in FY27. While there is always much prognostication regarding the macro environment and health of the consumer, we currently view both as positives for our business. We believe the macro economy is strong and we see no shift in our customers' behavior, except for that due to extreme weather. Customers remain highly engaged and are responding enthusiastically to fashion newness and our creative experience. The future looks bright for URBN. Our diversified model, spanning multiple brands, categories, channels, and geographies, gives us a solid foundation from which to grow. But the real magic of our brands is built by the outstanding talent and creativity of our team. Their dedication and hard work allow us to remain relevant as preferences shift and ensure we consistently please our customers. This in turn builds brand equity and drives long-term value. The record-breaking results we celebrate today are a testament to that talent and the leadership that orchestrates it. I offer my sincerest thanks to the entire URBN family especially to Meg and Frank and all our brand leaders. I also want to thank our global partners and our shareholders for their continued support. That concludes our prepared remarks. We now invite your questions.

Thank you. If you have a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit your questions to one per caller. One moment, please, while we compile the Q&A roster. Our first question is from the line of Lorraine Hutchinson with Bank of America. Your line is now open.

Thank you. Good afternoon. I wanted to focus on anthropology, which has a bit of a volatile fourth quarter. Can you talk about how they ended in 4Q and began 1Q and how you're positioned from an inventory perspective as we enter spring?

Tricia, you want to handle that?

Yeah, I'm happy to provide a little bit more color on that. Our sales accelerated coming out of the holiday period with receipt of new spring transitional product that was received in December. This contributed to a high single-digit comp in January, which resulted in a 4% comp increase for the quarter and was higher than our 3% forecasted comp. The change in our sales trends in January improved most significantly in our stores prior to the impact of the storm that was mentioned at the beginning of the call, but have fallen behind our plan in the weeks of February in both apparel and home categories. Our DTC demand trend, however, in the January and February combined time frame is relatively in line with our plan in the mid-single-digit range in both apparel and home. Our teams have been hard at work at chasing into product categories that have outperformed and have a firm grasp on what the customer is telling us she wants. We believe that those receipts Those receipts will flow into stores in mid-March along with normalized spring weather trends and will positively impact our sales on the quarter. We're planning to deliver low single-digit comps in Q1 and low to mid-single-digit comps in FY27. In response to the inventory question, our apparel inventory is in pretty good shape. And I mentioned our teams are reacting to the positive sales trends that they saw in January. Our overall home and furniture inventories were front-loaded earlier in the season. and proving to do really well, both from an overall performance perspective as well as benefiting from an earlier start to the season with intentionally higher in-stock rates. We have included a slight increase in our markdowns into our plan in reaction to a slower start of the quarter in stores. But as a reminder, our key one has represented a historically low markdown rate for the last several years.

Thank you. Our next question comes from the line of Paul Lejouet with Citi. Your line is now open.

Hey, thanks, guys. It seems like Rose Margin came in a bit better than what you had previously guided as of the third quarter call, even though Anthro, I think, during the holiday period did have some increased markdown pressure. So just curious what came in better or worse than planned. It seems like mostly better. And then also just wanted to understand if you could, Just give a little bit more color on the first quarter to date across brands, what you're seeing and how that was impacted by weather.

Thanks. Paul, I'll take your first question on gross profit margin. You are correct. It did come in better than we were planning for in the fourth quarter. It was largely due to lower markdown rates than what we were planning for at both Urban Outfitters and Free People. We also finished the top line a little stronger than what we were expecting as well, which drove some nicer than planned leverage in store occupancy. And then, Dick, you know, if you wanted to go into the sales on the quarter.

Sure. Paul, we're planning on delivering mid-single-digit total retail segment comps for Q1. Let me just break that down by brand if I could. Anthropology is planned to close single digits. Currently, the brand is slightly behind that plan due to soft store sales. Free People is planned to deliver mid-single-digit comps and is currently running ahead of that plan. And Global Urban Outfitters brand is planned to produce high single-digit comps and is currently meeting the plan. Weaker than planned store sales is the major issue negatively impacting planned comps. Digital sales are fine. We believe one major cause of softer store sales has been the extreme weather events in February. Now, those extreme events are mostly located on the east coast, but the west coast also had their share with torrential rains. in non-impacted regions are actually running ahead of plans. So, we feel confident in our ability to achieve our total retail segment in Q1. In addition, both our wholesale and subscription segments are running slightly ahead of their Q1 plans. Therefore, we want to reiterate our confidence in producing high single-digit total company revenue gains in the first quarter.

Thank you. Our next question comes from the line of Matthew Boss with JPMorgan. Your line is now open.

Great. Thanks. It's Amanda Douglas on for Matt. So, Dick, could you elaborate on product category or marketing opportunities that you're focused on this year for the Urban Outfitters brand to further improve sales productivity in North America and support your comp outlook for that brand this year?

Amanda, I sure could do that, but I want to pass it along to Shay because she's much closer to it and much more knowledgeable about it, and I don't want to put my foot in my mouth.

Hi, Amanda. It's Shay. Thanks for the question. You know, I think we continue to be focused on listening to our customer from a product perspective and reacting right now. She's clearly voting for bottoms across the business, whether that's woven bottoms, denim, or lounge bottoms. and certainly looking to outfit her back to those bottoms. Accessories continues to be a category that's resonating with our customers. And then gifting and novelties, whether that's hydration or some of the novelties that customers love to come in and discover in our stores. So we continue to be looking to fuel those categories as well as support new and upcoming categories, whether that's our men's business or some of our footwear businesses that are emerging. From a marketing perspective, really proud of the team's efforts. Last year, we acquired a million new customers to the brand, and those customers are regular price customers who are spending more with us and shopping more frequently. I think our mission in marketing is really to connect with customers and provide a great experience. Increasingly, that means finding them on a diverse range of social and digital platforms. In the past quarter, and I think looking ahead, that means really accelerating our efforts on platforms like Reddit. You heard Frank mention TikTok, Pinterest, Connected TV, and even out in OpenAI platforms. In Q4, we're really proud of the partnership we had with Canva. We're the first retail partner they had. If you happen to be a parent of a teenager, you know that that is probably the most popular place that teens build gift lists and wish lists. And looking ahead, we're excited to continue that partnership, to share our creative with those customers, to acquire new customers. And I think looking ahead, hopefully, to build a lot of new back-to-school wish lists as well.

Thank you. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Your line is now open.

Hi. Good afternoon, everyone. As you think about the real estate strategy for 2026, it seems like last year you started out with a number and it came in higher. And given that this year's store openings and closings, or at least store openings, seem a little bit lower than last year, is that the same thing as things come up? And then lastly, with the new tariffs, any other thoughts on pricing? Will there be any additional changes on any of the brands? Thank you.

Dana, I'll take the real estate strategy and then ask Frank to talk a little bit about his favorite topic, too. You're correct that when we give plans for the year, we only include those stores that have signed leases. We have a whole group of stores that we are interested in and we are negotiating with, But we don't include those until there is a signed lease, and we think we can get it in, I'm sorry, open in the year that we're talking about. So, yes, I think there's an opportunity, particularly in a brand like FP Movement, to have a few more than 21 store openings. But I don't know if that's going to happen or not, because we're still negotiating. Frank, do you want to talk about tariffs?

Absolutely. Thank you, Dan. As if you haven't for all week. So I can talk about your pricing question, Dana. I think as all of you know, as we've discussed on previous calls, we've really only taken price pretty sparingly and strategically where we felt like the specific style could support the price value equation for the customer. We were also really careful to make sure that we were protecting our opening price points and the overall penetration of opening price points to our business. I think given this approach over the past year with minimal increases, right now we don't have any plans to change our pricing strategy in fiscal of 27 as it relates to the change in the tariff.

Thank you. Our next question comes from the line of Mark Altschweiger with Baird. Your line is now open. Thank you.

Good afternoon. Thanks for taking my question. Wanted to drill down on the margin outlook a bit, guiding to 25 basis points gross margin expansion as well as some SG&A margin pressure. I don't think you specifically quantified that, but it seems to point to the flattish margins for the year. So, with that in mind, can you just update us on how you're thinking about the medium-term opportunity relative to the 10% long-term target? And then relatedly for the year, I was hoping you could just drill down a little bit by brand to help us understand the puts and takes. I think you said anthro, pre-people, each plan mid-teens, which is, I think, close to where you were in 26. And then UO continues to improve. So just wondering why we wouldn't perhaps see more year-on-year improvement given that UO is making such quick progress. Thank you.

Hey, Mark, thank you for your question. Certainly multiple parts to the one question there, but see if I can hit it all. As it relates to the first quarter, as Melanie mentioned, we do think gross profit margin could be down approximately 25 to 50 basis points. And keep in mind that's taking into account the one-time benefit we received in the prior year, which was roughly $5 million at 36 basis points. That decline is largely due to the lower IMU as a result of the higher tariffs from the prior year. As you mentioned, we are planning for gross profit margins to improve by approximately 25 basis points for the full year of fiscal 27. I think this improvement could be driven by lower markdowns as well as occupancy leverage. I would just also note that That plan does not contemplate the recent changes that have, you know, that have come about with the recent Section 122 tariffs. So if the Section 122 tariffs were to remain in for the full year or expire in July as it currently sits today, we certainly believe we could achieve greater than 25 basis points improvement gross profit margin for the year. I think just, you know, certainly there's a lot of opinions around what's going to happen with tariffs. Hopefully it's positive for us. So, we're cautious about committing to a bigger number. Yes, SG&A is planned slightly ahead of sales for the year as it relates to the technology investments that we're making. We're really excited about those investments and think that they're going to pay off for many years to come. The SG&A is a little different as it looks from a quarter to a year basis. We've got some marketing timing that hits in Q1, which evens out over the course of the year and marketing and creative is pretty flat on an annual basis. I do think if the, you know, the tariff landscape remains consistent with where it is today, you know, there is that upside opportunity to our original 25 basis point plan and gross profit margin, which, you know, would flow through to the bottom line and add to op income.

Thank you. Our next question comes from the line of Brooke Roach with Goldman Sachs. Your line is now open.

Good afternoon, and thank you for taking our question. I was hoping to dive a little bit deeper into the anthropology products and marketing. Can you speak in more detail about the adjustments that you're making to product today and how you feel about the competitive positioning of the brand this year? What changes are you making in marketing to drive more consistent store traffic over time? Thank you.

Thanks for your question, Brooke. Overall, I think we feel really good about the product assortment and the brand's performance in the quarter. our strategic priorities have really been about modernizing our product assortment, and our women's apparel business really led the brand's positioning. As Frank mentioned, our particular own brands, which grew additionally in penetration, driven by the strength of Maeve and Pilcrow, and particularly in the bottoms business. So I think in the early signs, as I mentioned in January, we were getting some really good reads on the strength of bottoms overall, In particular, we pulled a campaign together that was focused on a pant edit and got some really great productivity and early reads on the customer's response. So the trends are good. Our home business continues to perform well. We're on our third quarter of comp increases in the home business and driven by our home accessories and textiles. And then really happy to say that our full-price furniture business has rebounded with double-digit positive comps for the last consecutive quarters in full price. So overall, I think the product categories are performing well. I think we'd like to have some better weather to be able to drive some better results in our stores that could offset the closures and the unseasonably cold weather. Our store marketing strategies have really been omni-strategies. And we don't believe that traffic is the problem. We had some nice performance from a traffic perspective in stores in Q4. And aside from the storm-related closures and weather-related events, we're finding that our traffic is not the problem, and we feel pretty confident once we get through some of these weather-related issues, our ability to be able to continue to drive on these strategies will continue throughout the year.

Thank you. Our next question comes from the line of Jay Soul with UBS. Your line is now open.

Great. Thank you so much. You know, my question is just on Urban Outfitters. It sounds like the profitability of the North American business got a lot better. Can you just talk about maybe what the EBIT dollars were, what the margins are at the end of the year with Urban Outfitters, North American, where you think that can go? And then also, Frank, just on the opportunity for tariffs, if, you know, some of the tariffs kind of are lessened or go away, What is the possible upside there? And can you also talk about like India, Bangladesh, some of these countries where the U.S. created some bilateral deals? What impact is that having on the business? Is that driving a little bit of improvement in IMU? That would be good to know. Thank you. Sure. And thanks for the question, Jay.

First, I just want to say it again. It's just a huge congratulations to the entire team on the turn and overall results at Urban Outfitters. It's just It's really great to see the progress the teams have made in delivering such strong sales growth. And they did just marginally return to profit in fiscal 26, which was driven by exceptional profit growth in Europe. Europe is nicely profitable. And it was a healthy reduction in the loss in North America. There's still opportunity there for the North American business and I think, you know, given the continued momentum of the brand overall globally on the top and bottom line, we are planning to build on what was achieved in fiscal 26. We believe the brand can achieve a low single-digit operating profit rate in fiscal 27 and can continue to build on that number, recovering a high single-digit operating profit rate in the coming years. So, you know, it's been great progress, and we're looking to continue to build on that. As it relates to the tariff and some of the deals that were in place, which I think because they were deemed IEPA deals, they sort of go away. But the India deal itself, that was baked into our plans as we talked about sort of the approximately 25 basis point gross profit margin improvement for the year. We felt like we would see that benefit more into the second half of the year, as you cleared through inventory that had the higher tariffs. And then you start to, you know, sell through inventory with the lower tariffs and benefit the second half of the year. I think, you know, as it relates to the current Section 122 tariffs, if they remain in place for the entire year or expire in July, in either scenario to that, it's incremental to the benefit and to the improvement that we're currently planning for the year. I think for us right now, I think we're a little cautious. It seems like there's a lot of things moving before we, you know, get comfortable calculating that number. But, you know, it's a nice benefit for the full year. And, again, you would start to realize that a bit in the second quarter, but much more meaningfully in the second half of the year.

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

Hey guys, congratulations on a great quarter and a nice start to spring. Generally, can we talk a little bit, I'm just curious on newly, are you seeing your subscriptions, people coming in, are they staying longer in the subscriptions? And I'm curious if you're seeing any change to the people that are coming into the subscriptions, older, younger, anything like that. I know you had a big push on campuses at one point. And then just following along, are you seeing any change, especially during the holiday season, presuming some people gifted Nuuly subscriptions, that these customers are coming into the other brands from Nuuly?

Yeah, Marnie, thanks for the question. We did sell a fair amount of gift cards during the holiday season, and that's always a great way to activate new subscribers. It's something our subscribers love to gift to their friends and family, so it's an excellent way to onboard new subscribers. I would say generally we are seeing, I think I mentioned this on the last call, we are seeing a very ever so slight lowering in the average age of our subscriber, but it's very, very small. I think it is partially related to the kind of acceleration, I would say, that we're seeing from some of our college subscribers and university subscribers, particularly in the South. But it's It's a trend, but it's not a trend that's, you know, of such magnitude that it's distorting anything of significance. So I wouldn't put too much stock in that as a big trend. I would just generally say, though, that, you know, we are seeing through the holiday season subscribers remaining strong, very positive year-over-year subscription growth and performance from the newly business. And, you know, we remain incredibly excited about what Nuuly is and what the potential is with the business to just wrap up our first full year delivering over a billion or half a billion dollars in revenue. No Freudian flip there. Half a billion dollars in revenue was a big goal of ours that we set out at the start of the year, and we were very proud and happy to accomplish it. as well as the bottom line improvement that we were able to show. And we remain very excited about what the overall TAM, the total addressable market, is for this business. And what's really exciting about it is that we still see an incredible awareness gap in the market. And everything that we do to continue to grow awareness and get more and more folks aware of even the concept of renting clothing and fashion, really just continues to contribute positively to the overall business growth. So we think there's a big market here that we're continuing to go after. As we continue to grow awareness, we are seeing the fruits of that effort in the subscriber base growing. And we think the future is bright for where we can go, and we're excited about pushing further upwards to that billion-dollar number. That's our goal.

Thank you. Our next question comes from the line of Ike Borochow with Wells Fargo. Your line is now open.

Hey, thanks, everyone. Let me get my congrats as well. Two for me, just, Dick, on the UO quarter date, I think you said it was in line with the high single. Can you just give some color U.S. versus Europe within that quarter date? And then on Free People, I guess I want to ask, so Free People brand comps only up one in the first quarter. Are you expecting the – I assume you are, but are Free People brand comps ex-movement expected to remain positive? And then you're bucking the trend on athletic for sure. Is there anything you saw in the fourth quarter on movement that gives you any kind of just concern on the overall category weakness? I mean, again, it seems like you're going to say no because of the comp, but just had to ask about the separation of brand versus movement and kind of what's in your expectation. Thank you.

Hey, thanks very much for that one question. I'll start with UO. North America versus Europe. Both geographies are on plan. Europe's a little bit higher plan than North America, but they're both very strong. And we're very happy to see that. In North America, I have to say, we're seeing the same thing about weather. So store sales are a little bit softer than than we would have planned, than we did plan. And we think it's the same thing as we're talking about with anthropology, is that the consumer right now is a little reluctant to go out and shop. I'm not sure she feels the necessity, on the east coast at least, to go out and buy spring clothes when the temperatures and 8 to 10 inches of snow are on the ground. Sheila, do you want to talk about free people? Because I think you have a great story to tell.

Yeah. So let me, I'll start with free people and then I'll move to SP Movement. So free people, while only a single digit comp in Q4, what we saw was an acceleration from Q3 into Q4 in our regular price. And we actually walked Markdown business purposefully. So we're in an extremely good health position. And I think our margin is year best in history for the Free People brand in Q4. So, I think lots to be proud of, lots of categories on fire, and certainly a very, very strong store business. Now, as we move into Q1 of this year in February, we see even a further acceleration within the brand, and that's despite walking, again, a lot of markdowns. So, Knock on wood, we feel very positive about the momentum that that brand currently has. And then on FD Movement, we are thrilled with our Q4 results. I think great acceleration from Q3 into Q4 across all channels of business, also direct and stores. I think we hit on some strong gifting within the business that helped fuel it. Both our performance and our QFrom or streetwear business was great. were both positive double-digit up, though. So we saw the strength of acceptance of something unique in our brand positioning really resonating with our consumer. And that's something that I know Andrea is extremely excited to build on as we sort of move this brand forward into the next generation. We feel thrilled with what the team has done, and I am more than excited about what is going to happen under new leadership.

Thank you. Our next question comes from the line of Simeon Siegel with Guggenheim Securities. Your line is now open.

Thanks. Hey, good evening, everyone. Frank, to your point, the improvement at UO is really fantastic. Just as you think about the domestic business at this point, what are the pressure points driving the loss? And then can you guys quantify the delivery expense leverage you got from that reduction in package per order? How do you think about the opportunity there going forward? And maybe just speak to that uptick in fulfillment capex this year. Is that related to that at all? Thanks. Yep.

So the improvement in delivery per package is due to really two things. One is We've gotten smarter about inventory positioning, and, you know, certainly that's being driven by the use of AI and technology driving, you know, us being smarter about which distribution center we should be, you know, east, west, coast, center of the country distribution. in stores, and that's helping from a package per order perspective. I think we've also gotten smarter and slicker about consolidating some orders. So that's also driving some of those gains. I think, you know, there is some opportunity to see some of those incremental benefits into fiscal 27 as well. To hit on your logistics question from the capital perspective, it's really kind of broken into two buckets. One is for newly as a Dave and team continue to drive 50% year-over-year growth. We've got to expand capacity. So that's a great place to be. They hit really strong numbers, and it equips over $500 million. In addition to that, there's automation that's layered into the capital plans for the newly business, which we think will, once live, up and running, and we're learning to drive that car faster. We'll provide for some nice leverage in logistics. There's also, I think for those of you that visited the Kansas facility that supports the retail segment, if you remember there, I called it the dance floor that was wide open. We're building out the second phase of our automation on that facility to further support our digital business that is growing, and that also should provide a benefit from a delivery and logistics perspective. As it relates to your urban question on where the opportunity lies, I think we talked about this as, you know, sort of almost like a two-legged race, and the first one being about product margins. And the team's really done a great job, you know, walking away from the promotions that, you know, the high-level promotions that they experienced over the last several years and recapturing their markdown rates. I think there's still a little meat left on the bone there, but nowhere near the opportunity that we saw a year and two years ago. The next big opportunity now is just about driving positive sales and driving those comp sales to leverage off on things like store occupancy, and other fixed costs, right? You heard about us in the fourth quarter, and certainly, Urban was a big driver of that in the improvement in their top line and driving the improvement off of those fixed expenses. So, that's the next big leg of the race for the federal catapult, the Urban Alchemist brand here in North America .

Thank you. Our last question comes from the line of Janet Kloppenberg with JJK Research Associates. Your line is now open.

Hi, everybody, and congratulations. Really a beautiful year. Really, really beautiful. I wanted to ask Shea, you know, Frances did a great job on the operational and logistic side, but I was wondering if Shea could talk a little bit about the merchandising opportunities that you owe, what you got right, what do you need to get more right, you know, maybe what wasn't as good as you thought it would be, just so we could understand it when looking at the assortment. Thank you, and congratulations again.

Yeah. Hi. Thank you for the question. The first thing I just want to say is, Everything that we're doing is focused on our customer and we're consistently and constantly reading and reacting and really trying to leverage the speed of the URBN supply chain, which is a really fantastic asset. I think one thing that we heard very early on is that our customer really values our denim brand, BDG Denim. And so we've been working over the past, better part of the past two years to really feel denim. I think if you were to walk in our store two years ago, and come back in our stores today, that's an area that you would see a tremendous difference. Based on the reaction of denim, our customers have also now extended into woven bottoms. Where you have a great denim business, you typically have a great pant business. And that business has now grown as well. The second area of our business that customers told us that they loved is our lounge business. They love the fabrications. They love the comfort. And that's a business we've been working to grow really rooted in. our own brand, Out From Under. And that's now also expanded into what we call Aaron Core or maybe F Leisure. We have a proprietary collection that we've been building out and extending on based in one of our core fabrics. And I think if you walked in our stores, you'd also see a notable difference in that area, in the Out From Under area. And a third sort of big difference that I think you'd see is our accessories department. We know that our customers love to style themselves. It's how they define their individuality. And we have really expanded the accessories business, whether that's a handbag, a scarf, a hair clip, or what have you. And we're just thrilled with the business we're seeing there today, really excited about what the team's done, and overall excited about the response of the customer.

Okay. That does it. Thank you very much. I'd like you all to think straight.

This concludes today's conference. Thank you for your participation. You may now.