Urban Outfitters FY 1Q17 Earnings Call Notes

Urban Outfitters’ (URBN) CEO Richard Hayne on Q1 2017 Results

Deflation is impacting apparel spend

“As for the apparel category, I believe she is still buying approximately the same number of items per year, but because of unit price deflation, her total annual spend on apparel is down on a year-over-year basis. This has been true for a number of years and it continued in the first quarter this year.”

Need to invest in more proprietary products

“we believe it is important for URBN to continue to invest in the following areas: larger assortments and a higher penetration of proprietary products in all categories, especially in the expanded ones; new and enhanced capabilities, including better marketing, to support the rapidly growing and changing direct-to-consumer channel;”

Our customer is in relatively good shape

“Obviously, the retail industry is going through a rather painful period of rationalization. Rarely have I read so many negative articles about our industry. Unlike much of what has been written, I don’t believe the consumer is the problem. I think our customer is in relatively good shape.”

America is overstored and overstocked

“The problem as I see it is more of a supply issue, especially in the apparel category. Simply put, America is over-stored and overstocked. We have approximately 10 times more retail space per capita than our European counterparts and more direct-to-consumer choices too.”

Companies have been trying to drive demand through promotions rather than product differentiation

“Rather than trying to differentiate their products and experiences, many retailers try to drive demand by offering constant and ever-larger price promotions that erode not just the bottomline, but brand equity as well. When that isn’t enough, companies start closing stores in an attempt to right-size their fleets.”

We think bricks are synergistic with clicks

“Our brands were early direct-to-consumer adopters. And while we continue to invest more in electronic shopping capabilities, we also strongly believe that bricks is synergistic with clicks, and that a well-conceived and executed store strategy is a powerful competitive advantage. Another advantage for URBN brands is that most of our offerings consist of unique products. This is increasingly important in the age of comparison shopping via the internet.”

Price deflation has been ongoing in retail for 25 years now

I think that I was talking about the industry, where there has been price deflation. And I think the price deflation is going on for probably 20 to 25 years now. Not exactly sure, I haven’t looked back at the statistics, but it’s long time and it’s ongoing.”

Green shoots in fashion

“The fashion trend, yes, I talked about a lot of, what I would call, green suits, early in spring. And I think the number of those green suits have proven to be correct. I see a lot of fashion excitement and newness out there. I think our Urban and Free People brands are the ones that typically get to those things quicker.”

David McCreight

Comp is lagging in May, I’d say it’s the weather’s fault

“And Lindsay, you wanted us to talk about a bit about May to date, and Ill do that. So far in May, our retail segment comp is lagging behind the first quarter trend, and I’m going to attribute that, as far as I can tell, to whether. If I had to say which weather, the three biggest reasons I’d say, weather, weather and weather. And then the follow-up reason to that might be the calendar.”

The weather has been really bad on the East coast

“I would direct you too the weather in the first week of May, we had six out of seven days of rain here in the Mid-Atlantic and temperatures were somewhere between 10 and 20 degrees below normal. The differential that we’re seeing between the comps on the West Coast where the weathers behave relatively normally and the East Coast where it’s been atrocious, is up to almost a 1,000 basis points, which is extremely unusual. So we believe that’s one sign.”