Urban Outfitters FY 4Q16 Earnings Call Notes

Richard A. Hayne – Chairman, President & Chief Executive Officer

Excessive markdowns began to subside last year

“Looking ahead, comparisons look favorable for the brand. Excessive markdowns began to subside last year as Q1 progressed. So as the brand begins to anniversary fewer promotions, I believe Urban comps could benefit from the regular price sales momentum that began in early FY16 and has continued to date.”

Fashion retailers had a difficult 2015

“Now, let me say a few words about the macro-environment. As all of you know, fashion retailers had a difficult 2015. The consumer’s appetite for fashion seemed to be inversely related to price. It’s relatively easy to list the many headwinds that might have caused such a phenomenon: anemic growth; stagnant household incomes; increased spending on non-discretionary items like healthcare, education, and shelter; increased competition from newer retailers, both traditional and online; stiff deflationary pressures; and continued competition from other trending categories like electronics and dining out.”

Apparel was the outlier because there hasn’t been a change in fashion to drive spend

“why then was apparel the outlier? To me, the answer is simple: fashion, or more accurately, the lack thereof. The last major fashion shift was ten years ago when the skinny bottom returned to popularity. Since then we’ve had all varieties of skinny: low-rise, high-rise, color, black, white and print; washed, sanded, sliced and destroyed; yoga and active; leggings, jeggings and stretch.

Today, the customer has a closet full of various skinny bottoms and she has many, many long tops and sweaters to go over them. Without a fashion need to drive her purchases, the customer can easily defer her apparel spend. Surely, a major fashion shift is the cure for the current apparel malaise. I am not predicting exactly when that change will come, but I am certain it will. Meanwhile, the good news is I see more fashion excitement this spring than I’ve seen in quite a few years.”

The death of the retail store has been greatly exaggerated

“To paraphrase Mark Twain, the death of the retail store has been greatly exaggerated. Granted, North America is over-stored and many retailer’s underperforming units will have to close, and it certainly is true that the role of the store in the digital age is changing, but I envision the brick and mortar store as an equal partner with the virtual store in this new omni-channel world. There’s no better proof of this than the current rush by most pure-play retailers to open their own retail stores.”

It’s pretty clear that fashion is going through a change right now

“As far as the fashion lull, I think it’s pretty clear that the fashion is going through a change right now, and I think it’s a fashion silhouette change. We’ve been with big over a little now for the better part of 10 years. And I think it’s nearing the end of its lifecycle. And when that happens, there is often a lot of staleness or slowness in the innovation in the fashion world. People lack sort of excitement and inspiration because a number of people are still with the old fashion as Meg talked about, some people are with the new fashion and some people just sort of check out altogether because they don’t know what to do. I think that that is always a predictable – what happens predicatively at the bottom of the cycle. As a new fashion is born and starts to catch on, there is a point at which the innovation starts to ramp up and there is tremendous amount of excitement that surrounds the newness.”

Francis John Conforti – Chief Financial Officer

Direct to consumer outperforming stores

“Within our retail segment comp, the direct-to-consumer channel continued to outperform stores, posting a double digit sales increase, driven by increases in sessions, and conversion rate, which more than offset a slight decrease in average order value. Negative comp store sales resulted from decreased transactions and average unit selling price, while units per transaction were flat. The negative transactions could have been affected by traffic, which was down at each of our brands’ comp stores during the quarter. “