Urban Outfitters Inc (URBN) 2025 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Urban Outfitters Inc. fourth-quarter fiscal '25 earnings call.

(Operator Instructions)

I would now like to introduce Oona McCullough, Executive Director of Investor Relations.

Ms. McCullough, you may begin.

Good afternoon, and welcome to the URBN fourth-quarter fiscal 2025 conference call.

Earlier this afternoon, the Company issued a press release outlining the financial and operating results for the 3- and 12-month period ending January 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 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.

I will now turn the call over to Dick.

Thank you, Oona, and good afternoon, everyone.

We're pleased to announce record fourth quarter sales and full year profits, both of which surpassed our expectations.

Speaking of those results on today's call, you will first hear from Frank Conforti, our Co-President and COO.

Following Frank, Melanie Marein-Efron, our CFO, will talk about our current expectations for fiscal '26.

Then after my brief closing remarks, we will be pleased to address your questions.

I will now turn the call over to Frank.

Thank you, Dick, and good afternoon, everyone.

Today, I will discuss our total company fourth quarter results versus the prior year, followed by some more detailed notes by brand.

Please note, today, I will be speaking to our financial results on an adjusted basis, which do not include prior year noncore adjustments for asset impairments, lease abandonments, a release of income tax reserves, and a change in the revenue recognition method at Nuuly.

Each of these items is detailed in our press release as well as the investor presentation that is posted to our URBN investor relations website.

Now on to our results.

Overall, the teams delivered another exceptional quarter, surpassing our plans as discussed during the third quarter conference call.

Total URBN sales grew by 9%, reaching a Q4 record of $1.6 billion.

Four of our five brands performed remarkably well, posting record fourth quarter sales.

Additionally, the Urban Outfitters brand made significant progress in reducing the brand's operating loss versus the prior year and improving their sales trend.

URBN sales growth was partly driven by a 5% increase in the Retail segment's comp due to a high single-digit DTC channel comp and a low single store comp.

Both Anthropologie and Free People achieved a high single-digit positive retail segment comp slightly offset by a low single-digit comp decline at the Urban Outfitters brand.

Nuuly delivered roust double-digit revenue growth, thanks to a 53% increase in average active subscribers compared to the prior year.

Additionally, the Wholesale segment saw a 26% revenue increase, driven by a healthy rise in full-price sales at Free People.

Now turning to gross profit.

URBN saw a 17% increase in gross profit dollars, reaching a record $528 million.

The gross profit rate also improved nicely by 200 basis points rising to 32.3%.

This is on top of a 290 basis point improvement in gross profit rate in the fourth quarter last year.

The current year's increase was due to better gross margins across all segments.

The improvement in the retail segment, primarily driven by a reduction in markdowns with Urban Outfitters leading the way with significantly lower markdowns versus the prior year, followed by an improvement at Anthropologie.

Additionally, the Retail segment gross margin benefited from increases in initial margins at both Anthropologie and Free People.

In the fourth quarter, SG&A increased by 9%, leveraging by 18 basis points as a rate to sales.

The growth in SG&A dollars was primarily driven by increased marketing spend, fueling sales growth for the Anthropologie, Free People, FP Movement, and Nuuly brands.

The marketing efforts of Anthropologie, Free People, and FP Movement boosted traffic to both the store and digital channels, while Nuuly's campaigns resulted in a healthy double-digit growth in average active subscribers.

Total URBN operating income rose by 54% compared to last year, reaching $125 million, while the operating profit rate improved by over 220 basis points to 7.7%.

Net income saw a 49% increase to $98 million or $1.04 per diluted share.

I will now provide more details by brand, starting with Anthropologie.

The Anthropologie team delivered another exceptional quarter with an 8% Retail segment comp and their ninth straight quarter of year-on-year double-digit operating income growth.

Positive comps were driven by a double-digit increase in the digital channel and a mid-single-digit increase in the store channel.

All categories delivered positive regular price and total sales comp during the quarter with broad-based strength across apparel categories.

I know Tricia and team are also very proud to report that the Anthropologie Home category posted its first positive regular price and total sales comp for the year.

The Anthropologie team continues to execute on their strategic initiative of expanding the end-use-offering of products to serve their customers' full lifestyle.

In January, Anthropologie launched Celandine, an exclusive in-house resort wear label offering year-round vacation-ready styles, which can be found in select locations seasonally and online all year round.

Celandine, Daily Practice, and the brand's expanded assortment of intimates and lounge continue to experience outsized growth and we believe could be meaningful growth categories moving forward.

Additionally, Anthropologie continues to succeed on their goal of attracting new, younger customers while deepening engagement with existing ones.

The brand continues to make strategic marketing investments supported by outstanding creative content, which drove positive increases in store and digital traffic as well as an 11% increase in total customers for the quarter.

Impressive sales growth and healthy margin expansion coupled with well-managed expenses, drove record operating profit dollars for the brand in the fourth quarter.

Based on our current plans, we believe Anthropologie could deliver a mid-single-digit positive Retail segment comp for the first quarter and full year of fiscal '26.

Next, the Free People team produced another outstanding quarter with total retail and wholesale segment sales increasing 13%.

The double-digit increase in sales was driven by an 8% Retail segment comp, a 27% increase in Free People Wholesale segments, and a 194% increase in 'non-comp' sales, driven by continued successful new store openings.

The positive Retail segment comp was driven by a low double-digit DTC comp and a mid-single-digit store comp.

During the quarter, the Free People brand achieved positive comp sales growth across all major categories.

The FP Movement brand delivered robust total growth of 34% driven by a 19% Retail segment comp.

A 66% increase in FP Movement store base, while the FP Movement Wholesale segment exploded in the quarter, achieving over 90% growth versus last year.

Non-comp sales growth was driven by 32 new stores, 7 Free People, and 25 FP Movement locations opened over the 12 months.

The brand continues to have outsized new opportunities, driven in part by continued expansion in FP Movement, which will open an additional 20 locations in fiscal '26.

Based on our current plans, we believe the Free People Group could deliver a positive retail segment comp in the low to mid-single-digit range for the first quarter and full year of fiscal '26.

Free People Wholesale revenues increased 27% during the quarter, driven by full price sales gains in specialty and department stores.

Free People Wholesale profitability improved significantly from the prior year when the brand utilized close-out channels sales to reduce aging products.

We believe Free People Wholesale could deliver mid-single-digit growth for the full year, while the first quarter could exceed that growth for fiscal year '26.

Now I'm moving on to the Urban Outfitters brand.

Urban Outfitters recorded a 3% decline in the Retail segment comp for the quarter.

This healthy improvement in the current year sales comp trend was driven by a high single-digit positive comp in Europe, offset by a high single-digit negative comp in North America.

In addition to the improved comp sales performance, we are pleased with the growth in the merchandise margin rate, driven by significantly lower markdowns and an improvement in regular price selling.

This led to a continued reduction in the brands operating loss compared to last year.

In North America, the improved sales trend and meaningful maintained margin growth was due to positive regular price comp.

This marks the first time the brand has delivered positive price comp in North America in over two years.

The positive comp were the result of strong performance in key categories such as home, women's accessories as well as denim and loungewear within women's apparel.

Last year, the North American team focused on stabilizing the business, realigning strategic priorities and rightsizing inventories which led to improved profitability in the third and fourth quarters of fiscal '25.

As we start the new year, the team is pivoting to a renewed focus on growth, beginning with regular price growth.

Within women's apparel, team is building upon the solid growth of denim and lounge while applying learnings into other bottoms categories as well as introducing athleisure.

We have full confidence in the brand team and their strategies, it is encouraging to see the progress they are making.

Turning to Urban Outfitters based in Europe.

Our European business delivered a positive high single-digit comp, driven by a double-digit comp increase in the digital channel and a mid-single-digit comp increase in the store channel.

During the quarter, the brand drove positive comps across apparel, home, and accessories.

Strong sales comp and improved maintained margins fueled a healthy increase in operating profit for the European team.

Based on our current plans, we believe the global Urban Outfitters brand could deliver a low single-digit negative to flat comp for the first quarter and flat to low single-digit positive comp for the full year fiscal '26.

Finally, I will touch on the Nuuly business, which delivered another exceptional quarter.

Nuuly added over 20,000 average active subscribers versus the third quarter, ending the quarter with 300,000 average active subscribers for the full quarter.

The solid growth in average subscribers led in part to a 56% increase in brand revenue.

The strong revenue growth in the fourth quarter resulted in expense rate leverage in almost every expense line item, which helped deliver a record fourth quarter operating profit and another Nuuly first.

Its first full year of profitability.

Nuuly recorded full year operating profit of $13 million and mid-single-digit operating profit rate for the year.

As we have noted, historically, Nuuly experiences the most significant growth in subscribers during the seasonally strong first and third quarters.

An already strong start in February bodes well for the Nuuly brand to continue to deliver healthy revenue and profit growth in the first quarter and full year of fiscal '26.

I will now turn the call over to Melanie.

Thank you, Frank, and good afternoon, everyone.

On today's call, I will discuss our thoughts on the first quarter and full year fiscal '26.

The following forward-looking statements reflect comparison to first quarter and full year '25 results adjusted for certain one-time items.

As we begin FY26 we believe we could deliver mid-single-digit sales growth first quarter and full year.

This growth could be driven with single-digit retail segment comp for the first quarter and full year, driven by low to mid-single digit positive Retail segment comp at the Free People brand and mid-single-digit positive Retail segment comp at Anthropologie.

We believe that Urban Outfitters brands first quarter retail segment comp could be low single-digit negative to flat comp with gradual improvement as the year progresses.

Nuuly could deliver revenue growth for the year, driven primarily by continued subscriber growth.

Finally, our wholesale segment is planned to achieve mid-single-digit growth for the year, while the first quarter could deliver low double-digit revenue growth.

Based on the current sales performance and plans, we believe our gross profit margins could improve by approximately 50 to 100 basis points versus last year for the first quarter and full year FY26.

The increase in gross profit rate could be primarily due to lower merchandise markdowns at the Urban Outfitters brand, followed occupancy and delivery expense leverage.

Based on our current sales performance and financial plan, we believe total growth in SG&A could grow in line with sales growth for the first quarter and year.

The growth in SG&A dollars primarily relates to higher marketing expense to drive growth in customers and sales, as well as increased store labor costs related to new store openings and investment in technology support the needs of our business.

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 24% for the year and 23% for the first quarter.

Now moving on to inventory.

We ended FY25 with slightly elevated inventory level as we intentionally brought in product early to avoid the impact of a potential East Coast port strike.

In the coming year, we will continue to be focused on increasing our product turns.

We believe that our inventory levels could grow at a rate at or below sales growth.

For FY26 capital expenditures are planned at approximately $240 million, the FY26 capital project spend is broken down as follows: approximately 50% is related to retail store expansion and support, approximately 25% is related to supporting technology and logistics investments, and the remaining 25% is for home office expansion to support our growing businesses.

We will be opening approximately 58 new stores and closing approximately 19 stores during fiscal year '26.

Our net new store growth is primarily being driven by growth in FP Movement, Free People, and Anthropologie stores.

During FY26, we plan on opening 20 FP Movement stores, 16 Free People stores, and 15 Anthropologie stores.

Based on our current plans, we plan to repurchase shares to at least offset any dilution that may occur in FY26.

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 congratulations to our team for an outstanding fourth quarter.

The holiday season was exceptional, with consumers eager for fresh fashion and distinctive gifts.

Our brand teams created well-executed assortments, captivating in-store experiences, and inspiring marketing campaigns.

Customers responded and drove strong revenue gains across all our business segments.

I will now discuss our performance for fiscal year '25 versus prior year results.

For the year, we delivered impressive 8% revenue growth, adding nearly $400 million, to reach a record of $5.6 billion.

At the same time, our gross profit margin grew by 122 basis points, which drove a 22% increase in operating profit.

This, in turn, lifted earnings by 26% to $4.06 per share and easily made FY25 the most profitable year in URBN history.

Last year, I described our customers' mood as enthusiastic rather than exuberant.

I believe this remains an accurate description today.

Customer demand has remained remarkably consistent.

They're hungry for the latest fashions and our designers and merchants continue to create product and assortment that please them.

In short, we're gaining new customers and increasing market share across all segments.

For the Retail segment, this translates to more traffic to our stores and websites.

In FY25, web sessions grew by high single digits.

For Nuuly, our subscription rental segment it means capturing more active subscribers.

And at year's end, average active subscribers had increased by more than 50%.

The wholesale segment added over 300 new accounts and total sales increased by 15% for the year.

With the sales of spring products off to a good start and subscriber counts continuing to grow, we are optimistic that fiscal '26 will produce even more record results.

All brands are adding value to the total URBN portfolio.

Our two biggest brands, Anthropologie and Free People have shown consistent revenue growth and produced healthy mid-teen operating profit margins.

Nuuly and FP Movement are two of the most exciting high-growth concepts in the market today.

Both are nicely profitable and both continue to expand brand awareness and demonstrate the potential scale further.

Lastly, the Urban Outfitter brand has stabilized in North America and is showing recent improvement in profitability.

The team is now focused on acquiring new customers and driving profitable full-price sales.

In Europe, Urban has once again posting strong comp sales after a brief hiatus in the first half of FY25.

I'm excited by our entire portfolio of brands.

We see opportunity to drive solid revenue growth while expanding margins.

FY26 and beyond.

We're confident that URBN is poised for continued success.

In closing, I congratulate and thank our Co-presidents, Meg and Frank, our brand leaders, Tricia, Sheila, and Dave; their merchant, creative and operating teams, our Shared Service teams, and our 28,000 associates worldwide.

Their collective efforts produced another record year, and I thank them.

I also recognize and thank our many partners in the globe.

And finally, I thank our shareholders for their continued support.

That concludes our prepared remarks.

I now turn the call over for your questions.

(Operator Instructions) Lorraine Hutchinson, Bank of America.

You had set a goal to improve IMU by 500 basis points by the end of last year.

Did you hit that goal?

And what should we think about next for your opportunities around the IMU line?

Hi, Lorraine.

This is Frank.

So as you mentioned, we just completed our final year of that initiative.

And obviously, we feel great about the progress we made.

Each brand supported by our sourcing and logistics teams honestly delivered really meaningful IMU growth over the past three years.

We did fall just short of our goal, but we still are going to continue to work driving additional improvements in the coming years, and we still think that there's opportunity there.

Paul Lejuez, Citi.

Can you maybe talk about the mix of branded product versus own brand or private brands within the Urban Outfitters and Anthro businesses?

Just curious where penetration is for each?

And what is the strategy going forward?

Whether -- just curious if we should expect any changes this year on that mix?

Okay.

Paul, I'm going to ask Shea to take the Urban side of the question and then pass along to Tricia to talk about the Anthropologie.

Hi, Paul, thanks for the question.

We're excited about the brand growth that we're seeing in Q4.

Brand growth actually outpaced total Urban Outfitter's growth.

That did come from mostly non-apparel brands just because of the lead times that we see in the apparel categories.

But as we look to this year per your question, growing national brands is a part of our strategies.

We know it's important to our customers, and we're excited about what's to come.

We don't necessarily have target in terms of penetration.

I think we're going to let the customer guide us.

But we're excited about some of the big brands that we have lined up, and we're excited about the progress we made in Q4.

Hi Paul, this is Tricia.

Growing our own brand penetration at Anthropologie has been a strategic growth driver for us for quite some time.

We have hit 70% own brand penetration now in women's apparel and feel like there's continued growth opportunity.

We're looking at the continued outsized growth that we've seen from our -- Pilcro, our denim brand.

Maeve, our number one brand and a customer favorite, we've got significant growth plans for.

So I don't know that the penetration will increase remarkably more than it is currently because we still see opportunities around it with great market brands.

But overall, it's continued to be a growth driver for us, and we believe it will continue to.

Matthew Boss, JPMorgan.

So Dick, could you speak to any notable trends across categories that you see emerging this year and how do you see this position to capitalize?

And maybe just more near term, if you could elaborate on spring sales off to a good start, maybe just looking through weather.

Okay.

Matt, I'll try to do that.

Fashion, really, there's one word for it.

We're in a bottom cycle, and all of our brands are selling bottoms very briskly and the baggier, the better.

Now the fuller bottoms that are selling so well also require slimmer tops in order to complete the little over big silhouette.

So we're selling a number of tops well, but nowhere near as briskly as the bottom.

Also performing for us are outerwear, that shouldn't be a big surprise given how cold it's been in the Northern climes.

Sneakers continue to dominate our shoe sales.

That's been going on now for a number of years.

I don't see any change on the horizon for that.

And then, of course, FP Movement and Anthropologie's activewear concept of Daily Practice are both performing very well.

And Anthro's new resort concept called Celandine is also performing very well.

And finally, as Frank mentioned, excluding furniture, home and gift categories at both Anthropologie and Urban Outfitters are experiencing strong full price selling.

So that gives you an idea about the selling, and I will just now repeat mostly of what Frank said, which is our plan for Q1 comps are to be in the low to mid-single-digit range.

And if I can do it by brand, for Anthropologie, we believe it will be a mid-single-digit comp, for Free People, a low to mid-single-digit comp.

And there, I want to remind everyone that Free People is up against a plus 17% comp from Q1 of last year, and this is their most difficult quarter.

And then finally, we think there will be a flattish comp for the Urban brand.

It can be a little bit on the negative side, a little bit on the positive side. but it's too difficult to call.

So if we combine all of those in the retail segment, with forecast for our whole sales and subscription segments, We believe that total URBN Q1 revenues could increase in the mid- to high single-digit range, very similar to where we were this past quarter.

Dana Telsey, Telsey Advisory Group.

With the improvement in the Urban Outfitters division, Shea, I think you gave out the five pillars of the transformation strategy.

Where are we on each one now?

And is there any shift in how you see it progressing as we go through the year?

And then just on the Anthro business, the customer profile is changing.

And obviously, the new collection that just came out, Celandine, what should we be expecting there in terms of product innovation moving through '25?

Thank you.

Hi Dana, thanks for the question.

I think that we're making good progress.

We feel really proud about the pace that we're on.

We're excited to be entering this new year pillar one, as you might remember, was that we wanted to remain acutely focused on our customer.

And I think the team is doing a really nice job continuing to let the customer guide all of our decisions.

I don't think we'll ever be done evolving our product assortment with that in mind, but we've made great progress.

You've heard that we had the first regular priced sales comp in a few years.

And I think that came in both of our channels. that feels really good.

We had nice comp increases in several of our categories, notably in denim, in lounge and accessories and in our gifting categories, and that came at a really relevant time as we were in holidays and those categories were important to customers.

As we turned quarter into the new year, we have eyes on really building and sort of fortifying women's apparel more holistically, and we're excited about that.

From a marketing perspective and acquiring new customers, the team is very hard at work, particularly as we think about showcasing our evolved creative, where the team has evolved our creative to be much more upbeat and more welcoming as we think about welcoming a much more broad audience into our brand.

Hopefully, you've had a chance to check it out.

We're very proud of it.

And we love seeing it out there in the wild.

And socially, you may have seen us show up on a number of different platforms.

And the team has been working really to show up in unique ways depending on the platform.

And that's really by way of not just posting but engaging, in new forms and new mediums on those platforms.

Really proud of the efforts in terms of operating with more discipline.

As you've heard that we have cleaned up our inventories and delivered really solid (inaudible) improvement and profit margins, and that will continue as we enter into this next year.

The last pillar was evolving the channel experience, and that's something that we're really turning to as we enter this year.

So overall, I couldn't be more proud of the team's progress.

This is a process, and it is going to take some time, but I think we're really proud of the pace and particularly as we think about turning the tide on regular price selling.

Okay.

Tricia, do you want to talk about Celandine?

Hi Dana, thanks for the question about Celandine.

We couldn't be more thrilled about the results.

As you know, we launched the brand in January at 120 stores, and it's exceeding our expectations by quite a bit.

Our goal with Celandine was to have a strong, differentiated view for resort wear for our customer, and that spans cover-ups, accessories, shoes, beauty products, and swim and kind of broad-based across all categories, they're performing very well.

Also excited we've tested a very small edit of swimwear in a handful of stores and have seen a quite bit of success there.

So we'll go slowly in terms of what that assortment looks like.

But so far, it's performing well.

The customer is responding really positively and really enjoying the ability to be able to shop kind of that broad base across all of those needs for resort wear and it's been additive and nicely positive to this 120 stores that we've launched Celandine.

So we'll see how many of the stores that can expand into.

But overall, we're happy with the results so far.

Mark Altschwager, Baird.

Congrats on the strong year.

I wanted to ask about just the real estate plans here.

I guess, just first on Anthropologie, it looks like you're planning to really ramp the store growth for the first time in a few years.

The brand has seen nice momentum for a while.

So I guess the question is, sort of why now in terms of ramping the store growth at Anthro?

And just any detail you can share on unit economics as we look to model that out.

And then conversely, Urban Outfitters North America, you're guiding to a reduction there, similar to what we saw last year.

Just update us on the overall thoughts on where the size of that footprint will shake out and how that rationalization this year should affect the brand level profitability?

Thank you.

Mark, I'll call the same two people, but in opposite order.

Tricia, do you want to start off?

Sure.

Hi Mark, we have really been focusing on our store performance really for the last few years.

And that started with prioritizing a full-price business, which allowed us to deliver nice growth in our store operating profit model.

As well as some top line comp as the teams have done really a fantastic job at looking at our store edit, the product assortment that we put in the size and the different stores that we support.

We have said a year ago, we believe that we can get 270 stores globally with Anthropologie.

And with the 15 stores that we've announced now for fiscal year '26, we're nicely on our way there.

We'll be up 250 stores.

So I think kind of why now would be -- we've seen nice growth in the brand.

Our teams have done a really nice job in getting to profitability and intend some nice store operating profit.

And we believe that we've got a good model and formula that we feel like we can accelerate and expand and we're excited about it.

Okay.

Thank you.

Shea, do you want to talk about Urban?

Yeah.

For us, you may have -- you may recall that our real estate strategy right now is really about making sure that our locations position us close to customers.

And over time, we had really seen some population shifts of young folks.

And so we either are closing stores where we find ourselves not adjacent to customers and/or we are overspaced.

Average size of store today is roughly 10,000, and we think we should be more in the 6,000 to 8,000 range.

And so we're closing stores either where the location is wrong, or we need to rightsize the location.

So you'll see that roughly equates to the stores this year.

So ultimately, we think that should equate to an improvement in our productivity as well over the course of the next couple of years.

Okay.

And Mark, I'm going to call on Sheila talk about FP Movement because I want everybody to get a full picture of the real estate.

Okay.

So yeah, FP Movement, we opened our first store just five years ago.

We are -- ended this past year, just over 60 standalone stores.

Really excited about what the stores are doing in terms of introducing the brands to different consumers.

We will open another 20 stores this year, at least.

And we think we're going to keep pace to that as long as the stores continue as profitable as they are for the next foreseeable future.

We think the brand has about 300-plus stores in it in North America.

I just want to emphasize how good the store economics are.

And the fact that you can open them this rapidly, congratulations.

Okay, next question?

Ike Boruchow, Wells Fargo.

Congrats on the results.

Two questions from me.

Number one, based on the holiday comp you guys reported specifically to Anthro and Free People and the reported comp, there must have been some January slowdown.

It doesn't sound like anything at all is wrong because of the outlook you guys have given.

But can you maybe just walk us through what's kind of transpired over the past month or so?

There's been a lot of volatility in the space.

So I would love to hear your perspective.

And then if I could, on the year, just is there any chance on the Nuuly guide you could actually guide us the number of active subs that you're baking into your plan?

Okay.

I'll take a shot at the first one.

I think a lot of the, as you call it, softening is not -- it's delayed demand, and a lot of that delayed demand is because of weather.

We see across all three brands, stores and warmer weather markets are nicely, and I mean nicely, outperforming their northern counterparts on a comp basis.

This gives us a lot of confidence that our spring assortments are correct and they are being well received.

So I think that almost all of that is due to weather.

Now there is some, probably lag, of people spending a little bit more money on the holiday time and wanting to a bit of a breather, and we've seen this, I think, for the last three or four years.

So that may be a factor, but I think it's much more about weather.

Dave, do you want to talk about Nuuly?

Yeah, sure.

Thanks for the question, Ike.

Look, we are very excited about where the Nuuly business is headed.

We see a lot of opportunity.

We've come through this past year with well over $350 million in sales, our first profitable year, over 50% growth.

And we, as mentioned in the commentary, have seen that trend continue into the first quarter, and we've actually been very excited about the momentum that we've seen so far in February.

So we're very bullish on the year and we're looking for some exciting growth this year as well.

We are -- have an internal goal, which I recognize will no longer be internal, the minute I mentioned it to you.

But we have an internal goal to get this business $0.5 billion this year, and that's what we're shooting for.

That's what the team has lined up for.

And we think that it's an achievable goal.

Something that we're very excited and proud of having done in five or six years of this business getting off the ground.

So that's what we're shooting for and that's where we think we're headed.

Alex Straton, Morgan Stanley.

Just a couple for me.

Maybe for Frank, just can you walk me through the toggles that get you to that 50 to 100 basis points of gross margin expansion range.

And then I'm not sure who mentioned that Anthro and Free People were at, I think, a healthy kind of mid-teens operating margin level.

So I'm just wondering is there a difference really between the two?

And then kind of how do you think about the profitability opportunity at those two banners going forward?

Thanks a lot.

Sure, Alex.

Happy to take your question.

On gross profit margin, as we said, we feel like we could deliver 50 to 100 basis points for the first quarter and the full fiscal year.

That improvement could largely be driven by lower markdowns at Urban Outfitters, as they're up against a higher rate from the prior year and higher than historical averages.

Despite leveraging nice improvements over the previous two quarters, they still have a long way to go and a lot more to give there.

Additionally, it's not just UO.

As I said, although they relate -- remain the biggest opportunity.

There is opportunity for leverage and occupancy expense as our stores continue to perform well.

The mix of having rental subscription subsegment, which doesn't have store occupancy.

Also benefit's occupancy and adds (technical difficulty) gross profit margin opportunity.

We also have opportunities in delivery expense, leveraging our existing rates and continuing just to be better about inventory placement, which also provides for opportunity around delivery expense leverage.

I don't think that there's a notable difference, to be honest with you, between Free People and Anthropologie mid-teens operating profit.

I think both of those brands would tell you that there's still some more margin opportunity.

But to be honest with you, that's not really baked into URBN's growth and opportunity from an overall profit rate.

I think what's exciting about both of those brands is the top line growth opportunity.

So they just continue to acquire customers at a really healthy rate as well as expand the share of wallet within the customers, right?

You've heard from Tricia talking about Celandine and Daily Practice, you've heard from Sheila talking about Free - est and We The Free and some of their other category expansions.

And you're able to see that in the expanding -- not just the share of wallet, but the additional customer growth.

So I think their growth and their addition to our bottom line is going to be more about the top line growth and it will be margin opportunity, although there's still some there, but not nearly as much as Urban.

Marni Shapiro, The Retail Tracker.

Congratulations.

Frank, can you walk us -- you had mentioned a 10% operating margin.

Can you walk us from today to there.

And I'm curious if that's all on Shea's head.

And also as a follow-up to that, Shea.

I'm curious, when Urban is good -- and you've had some really good products.

When Urban's good, your shopper is less concerned about price.

They're more interested in the right fashion.

So as the customer has been price sensitive lately, as you've seen improved products, are you seeing a reversion back to that behavior that was more typical of the Urban customer?

And any insight going on the men's side, and -- I mean, God, that market's so boring right now, but any insight would be great.

Marni, thanks for the question.

I'll start off and let Shea have a minute there.

And yes, getting that 10% is all about Urban.

No, I'm just kidding.

We are still targeting a 10% operating profit rate.

And honestly, we're very confident that we can achieve it.

We just delivered almost 100 basis points of improvement, reaching 8.6% this year.

And as we've noted here today, we believe we can achieve another 50 to 100 basis points of gross profit margin improvement in fiscal '26, which gets us that much closer.

As you said, UO is certainly our biggest opportunity.

It's great to see that stability and the turning starting to take hold there.

But UO is not the only opportunity.

FP Movement, which is running at a mid- to high-teens operating profit margin and growing at a rate faster than total URBN could contribute nicely to our profit growth and rate expansion, especially when considering the long runway of growth that, that brand has.

Anthropologie delivered another record operating profit year in fiscal '25, and I know the Anthro team believes that the brand can continue to deliver more and is planning to do so for years to come.

Nuuly just delivered their first year of operating profit.

A big congratulations to Dave and the team for delivering that.

And as Dave just mentioned, reaching $500 million this year is now, I guess, a public goal.

But continued -- given their continued growth and leverage opportunities with that top line growth, we're confident that they're going to continue to build on this past year's performance from profit dollars and from rate growth.

And lastly, Free People.

It's been honestly one of the most consistent and profitable brands in our industry for over a decade now and continues to have growth opportunities in all sales channels through continued category expansion and customer acquisition.

So I think what you're hearing from us is we have a lot of different drivers across all of URBN that gives us a real opportunity to hit and run a 10% operating profit rate I can tell you that this is definitely something that we have targeted, and we talk about a ton as a leadership team.

Okay.

I'll take your question.

First on price.

Price is probably the most dynamic thing that we deal with.

And just to remind you that our ambition is to price everything at the best price value that we can.

And that's across a range of good, better and best.

When we talk to customers, what we heard from them is that we were missing a more accessible price point.

And really, that's what we have been hard at work addressing.

And so we have expanded and -- our opening price to be roughly 12% of our offer today. but we also know that customers do turn to us for more inspiring sort of that best price point.

And we do have things across our assortments that are selling really well at that price point today.

So I think, just to be clear, we do want to offer that range, but the work we've done lately was really to meet the need we heard from customers in that more opening price point.

As far as men's, I actually think that's one of the areas that we uniquely can differentiate in the market today.

There is work to do in terms of the men's assortment.

I think we're really excited about getting to that point, have not really conquered that yet.

I think it's something that we're looking to turn to, but I definitely think it's an area that we are uniquely positioned to differentiate in and really, really excited to get there.

And Marni, I just want to emphasize, I guess, on the historian here.

The Urban customer has always been one that is what we call high-low, they want a price point that is low, except for the things that mean an awful lot to them.

And when we carry those kinds of products, price is not an issue.

It doesn't matter how much they cost, they find a way to get it.

And so I think that that's what Shea's talking about, and that's the kind of assortment that Urban has to carry.

Janet Kloppenburg, JJK Research Associates.

Congratulations on a wonderful quarter and a great year.

A couple of questions.

I have a million questions, but I'm only going to ask two of those questions

(technical difficulty).

But anyway -- when you say that you expect kind of flattish comp at UO in the first quarter and for the year.

And I might be off on the first quarter.

Are you saying that Europe will be up, and North America will be down, but down less than it has been?

Is that what you're saying, Dick, and Frank given -- Okay.

Go ahead.

I want to come back to Frank anyway.

Go ahead, yes.

Let's just answer that.

That's exactly what we mean, is that we can't tell exactly how high up the European business will be and we can't tell how much improvement North America is going to get.

And that's why it's difficult for us.

And unlike the other ones where I said might be mid -- low to mid-single-digit comp.

It's very difficult to say the low single up or down.

So that's we mean.

I think we are right on the cusp.

And I would -- if I had to place bets, and boy, I'm getting icy looks from all -- they're looking down at the table, like don't do it, don't do it.

They're like, let's not jinx it, let's not jinx it.

Go ahead

Okay, I won't jinx it.

But I think you know what I mean.

Yeah.

You're making progress is what I'm hearing.

And Shea, I think these look a lot better.

I have to tell you.

I know the website, too, but when I go to the stores and see the storytelling it's just significantly better than it's been in a long time.

And then for my friend, Frank, so let's say that the US business for Free People gets to be flat to up low-single-digits, the US business.

What does that mean about the profitability outlook for this year?

Because at ICR, we talked about it not really going back to profitability, rebounding until '26 for you, you guys call '27.

Yes.

And I think just for everyone, I think you were talking about Urban there.

Yes.

And as we talked about at ICR, we felt like for the year, Urban could be flat to low single-digit comp positive.

As Shea talked about the pillars and sort of we talked about the stages of Urban's improvement, and we sort of talked about it as like two stages.

One, was recovering margin and -- due to better inventory control and honestly, just better product and better product assortment.

You starting to see that take hold now over the last two quarters and into the first quarter of this year, you're starting to see that margin recapture.

But that's not going to be enough.

The brand has to return to positive comp in order to leverage off on things like occupancy.

As Shea mentioned, obviously, having the ability to transform our fleet into being more productive into slightly smaller stores will have improvement over time.

But we know that we need to drive top line improvement to get there.

So I think the brand has the opportunity to drive meaningful improvement this year, but will not reach breakeven this year, that's going to be a longer-term horizon that will rely on not just the margin recapture, which we believe we started and you're starting to see in the results, but it's going to take the top line sales to hit comp positive, which we also believe that the brand has the opportunity to do this year as well.

Simeon Siegel, BMO Capital Markets.

Nice end of the year.

Just to follow up on the last two actually.

It's just interesting that this year, Urban did drive the smallest revenues of your big three.

So maybe taking a step back, how are you thinking about how large the Urban Outfitters revenues division should and could be over the mid to long term?

And then just Frank, the margin expansion is great to see the confidence in the 10% is great to hear, the mid- to high teens for the brand's great to hear.

Just curious where you see that also in the long-term company level the margin opportunity going?

Thanks.

Okay, Simeon.

First up about the Urban brand, there is no way that the Urban brand can't be $1 billion to $2 billion brand.

And we will get there, it's just how long is that going to take?

So that gives you an idea.

Can it be bigger than Free People?

I'll let the customers decide that.

And I think a good example of that is in stores, right?

We're going through this time right now that we're transitioning to some smaller footprint stores and we're transitioning to where some of that younger consumer has moved.

But we don't think the quantity of stores that we can have in North America is any different than it ever was.

So there will be a transition period here where you'll see some of that going on.

And then additionally, as Dick talked about $1 billion to $2 billion here in North America.

Europe continues to have a significant opportunity.

And that business is probably largely penetrated from a store perspective in the UK, but it's still very well underpenetrated Europe, and we've seen some really nice results there and have laid some investments there to continue to support growth in the European market.

So -- then you have to think about the size of that opportunity for that brand across growth continents.

Still really has meaningful growth opportunities ahead of it from a top and from a bottom line perspective

--

And so nobody gets -- misunderstand so does Free People.

Enormous opportunity in Europe.

And their European stores are doing quite well, and they're profitable.

So we're bullish on Europe, and we're bullish on both Urban and Free People.

And Simeon, I appreciate the question.

And I think what you're hinting at is could we get better than 10%.

And I think there's always that opportunity.

I think we set that 10% margin goal as an opportunity for us, but as you know, right, with Urban being challenged right now, if they could get to flat, it would be meaningful.

You've already got Free People and Anthropology operating in the mid-teens.

I don't think we know what the ceiling is for Nuuly, but we've talked about -- we felt like it absolutely could get to at least 10%.

When you add those things up, yes, it's north of that number.

I'm not going to give a time horizon or exactly what that number is.

But I think what you're hinting at is absolutely true.

I think that opportunity does certainly present itself, and it's certainly something we're excited about.

And that concludes our call.

I thank you all very much for participating.

And I certainly thank all the folks sitting around the table for giving and delivering a tremendously good fourth quarter.

So thank you.

This concludes today's conference call.

Thank you for participating.

You may now disconnect.