Urban Outfitters 3Q17 Earnings Call Notes

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Urban Outfitters’ (URBN) CEO Richard Hayne on Q3 2017 Results

Strength in digital channel offset weakness in brick and mortar

“Within the digital world, customers continued to migrate from desktop to mobile as preferred method of interaction. Mobile devices now account for almost 2/3 of total Company digital sessions. The strength in the digital channel more than offset the weakness in stores with total retail segment comp sales increasing by 1% in the third quarter. The disparity in channel results demonstrates that the consumers’ affinity for digital shopping continues to grow. Her expectations around functionality and service levels in this channel are also growing. This is why we continue to make significant investments in personnel and technology that will expand our online assortments, enhance and personalize the digital experience, give us more insight into customer preferences and permit us to deliver orders faster and more reliably. Improving our capabilities in the digital channel is one of our strategic priorities.”

Shift in fashion silhouette continues

“During the quarter, we also saw a shift in fashion silhouette, that I’ve alluded to on prior calls, begin to strengthen. This emerging trend which seems to have its roots in Europe, is not impacting all brands equally. Predictably, younger, more fashion-forward customers are adopting these new looks more readily. So in Q3, the Urban and Free People brands benefited from the shift while the Anthropologie brand did not. In the fashion industry, times of rapid change, like we see when silhouettes shift, offer the greatest opportunities but also pose the greatest risks. Now let me turn your attention to the Anthropologie brand where third quarter top-line results were very similar to Q2. ”

It can take 3-4 years for a fashion shift to take place

“I actually think that it was 2006, 2007 if I recall correctly, but you might be right. I think that we’re in another shift that is similar. It’s going to take awhile. Probably takes three to four years to actually get through and as I said, the ups and downs in that period can be reasonably severe. So I think that each of the brands has a different customer segment that will adapt to the shift at different times and at different levels.”

Frank Conforti

Expenses will leverage in DTC but that will deleverage expenses in stores

“This is Frank and you’re right. That dynamic on DTC has been going on for some time and I think as it continues to increase in penetration, you’ll continue to see delivery expense and logistics expense to leverage relative to the total of URBN. Where there’s an incremental offset though is relative to the increased penetration, you do see reduced — and leverage relative to store property, so as DTC increases, it does deleverage delivery expense and logistics expense but it does then provide for some offset opportunity in store property.”

David McCreight

Customer metrics are strong, just buying less apparel at a lower price

“customer metrics are super strong. She’s just buying less apparel and apparel at a lower price and, as that cycle turns back and you combine and then we come out of the apparel cycle in positive shape and you add to it the power of the other expanded categories, we think it could really become a very nice inflection point when you think about the strength of the in-store experience and then what we’re investing in in digital as well. ”