Urban Outfitters Inc. reported a record third quarter with strong results across all of its brands, and company executives indicated they are bullish heading into the crucial holiday selling season with a fairly optimistic outlook, but also a good dose of caution about consumer spending.
“November traffic and sales remain robust,” said Urban Outfitters Inc. CEO Richard Hayne in an earnings call with investors. “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,” he added. “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 event.”
Hayne thinks this change in consumer behavior is not a signal of softness, but rather a return to pre-pandemic shopping patterns.
“As I said to you, we saw a very rapid increase in mid to late October in people putting items in their carts, and that signaled us that this was the beginning of, ‘okay, we know what we want. We know there are promotions coming, so why not wait?’” he said.
“And if you think back maybe two or three years ago, when … 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,” Hayne said. “I think what we’re really seeing is just a reversion to what we saw before COVID. People did wait. And they did partake more in promotions.”
“So, I don’t think there’s any particular magic to it,” he concluded. “I don’t think it says much about the consumer other than they’re smart.”
Strong Traffic Drives Q3 Results Company-wide
Total company sales in the third quarter ended Oct. 31 grew by 12% to $1.5 billion. Net income rose 13% to $116 million.
Total company retail segment comp sales jumped 8%.
By brand, comp sales in the retail segment increased:
- 13% at Urban Outfitters
- 9% at Free People Group
- 8% at Anthropologie Group
The wholesale segment grew 8% driven by Free People, while the Nuuly subscription rental business surged 49%.
“The drivers of the business across all the brands were the traffic,” Hayne said. “Traffic in stores and traffic online.”
Frank Conforti, co-president and COO, said on the call that the company believes it is on track to deliver record sales and operating profit for the year.
Urban Outfitters Brand Turnaround
A big highlight of the quarter was the significant progress made in the turnaround of the Urban Outfitters brand, which has struggled in recent years.
“Congratulations to the team on delivering the first double-digit comp in some time,” Conforti said on the call.
In North America, Urban Outfitters’ comp sales grew 10%, while in Europe, comps surged 17%.
The brand also achieved a low single-digit operating profit margin in the quarter.
The improvement is being driven by better product and marketing, and an increase in full-price customers, according to the company.
“The denim business continued to be strong, complemented by pants, lounge, sweaters, and accessories,” Conforti said of the brand’s performance in North America.
There has also been progress in men’s apparel, which “delivered double-digit regular price comps in the month of October,” he said.
The marketing team is focused on meeting customers where they are, including on social media, at in-store events, and at culturally relevant happenings such as game day events at colleges around the country, Conforti said.
On the call, Shea Jensen, Urban Outfitters Brand President for North America, said the team realized the assortment had become too “niche or narrow” and too focused on grunge.
In response, Urban Outfitters has broadened its appeal and is giving customers more of what they want, including in its popular denim and lounge categories, and with its BDG and Out from Under house brands.
“We had been focused on a bit of grungy, a bit of a narrow assortment,” Jensen said. “And I think we recognize an opportunity to be a bit more broad and welcoming in terms of our assortment and listening to our customers… and the customer has been responding.
