Urban Outfitters 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Big increase in days stores closed due to weather

“Comparing the last two Januaries, the number of store days across all brands in which stores were closed for a full or partial day, jumped from 13 to 312.”

Comps fell by 6% for the holiday

“total Urban brand retail comp sales for the holiday season dropped by 6%. Retail comp sales deteriorated further in January, due to weather and continued poor product execution.”

No fundamental change in the young adult market

“Now let me say, that I believe there are no fundamental structural changes in young adult market, other than the disruption caused by the internet and mobile technologies, both of which we have been discussing now for many years.”

Sales dependent on hits and misses

“Sales correlate directly with fashion hits and misses, and I believe the Urban brand has had fewer hits than normal. It’s that simple.”

Urban organization became too siloed

“Quite frankly, the Urban brand organization became too siloed, with too little communication across functional areas. The great creativity that has been the hallmark of our success became stifled. So we are restructuring, instituting new procedures and communication, elevating all creative functions to a more central role, and refocusing on our core 18 to 28 year old age group.”

Last quarter’s issues continue in this quarter

“the successes and challenges I had outlined above for the fourth quarter, have continued into the first quarter of fiscal 2015. The Free People and Anthropologie brands continue to perform nicely, but the weather is still far from normal, and the Urban brand is still underperforming. ”

Current quarter sales and margins will be pressured

“I believe that current quarter sales at the Urban brand will remain well below those achieved in the first quarter last year, and margins will likely be under considerable pressure.”

Going up against tough comps now too

” think one of the biggest differences between the fourth quarter and the first quarter is the opportunity for improvement at both Anthropologie and Free People, they are now up against more difficult comparisons than they were in the fourth quarter, as they are lapping even incrementally better business, so there is less opportunity for them to provide a little bit cover for where the Urban business is currently challenged. And we did see a deceleration in the Urban business in January and then also into February although it may be partially related to the weather.”

This was an issue of fashion, not something broader

“There are certainly many theories, sort of floating as to why many of the folks in the young adult market seem to be having difficulty. But I think if you look at the historic performance of many of those people having difficulty, you see them all clustered around that difficulty beginning somewhere in the late second to early third quarter of 2013; and that suggests to me very clearly, that it is the fashion issue, not a structural issue. I mean, its not as if fast fashion, all of a sudden it came into the market in September of 2013 and caused disruption. Its not as if some folks who might be out of work, just happen to expand in September of 2013.”

We have started to migrate lower in age and we need to reverse that

“I believe that over the last four or five years, the Urban brand has moved somewhat south, in terms of each group penetration. This is a lot of anecdotal information, as well as some statistical information that we received from our web shoppers, and so I don’t think this is a good place for us to be. We have always said that we want to be college and post college, in terms of the customer that we try to serve, and that’s an 18 to 28 year old customer. And to the degree that we get down into the 14 and 15 year old group, that is a group that wants a very different kind of product, and a very different price structure. So we do want to move to the 18 to 28. in order to do that, I am very convinced from years of experience, that that customer wants better products and wants higher quality; and so that’s the direction that we are going to go”

Not breaking out DTC channel

“I can tell you that, the direct-to-consumer channel is growing at a faster pace and the penetration is increasing. But we are not giving out the exact penetration anymore, because we just want ourselves internally, as well as externally, to be focused on pleasing the customer, and not focusing on one channel versus another.”

Shipping used to be an income positive proposition. No longer

“the only structural change within our DTC margins, is the difference between delivery expense, and if you go back seven, eight years ago, net delivery expense was actually income. And I think those days are essentially gone, as most brands are free over threshold or offer a fair amount of promotion throughout the course of the year. ”

DTC a little higher margin than retail

” the DTC business continues to be a slightly more profitable channel than where the store channel is, and we would expect that to continue for some time”

Faster replenishment of styles is key

“There is no question that faster replenishment is one of the keys to success today. When most people talk about fashion, they mean something different than supply chain. They talk about price points, and we believe that that fashion as a supply chain concept is correct, and we are trying to move towards that, slowly but surely, and we will get there.”

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