Urban Outfitters, Inc. (URBN) Earnings Call Transcript & Summary

Good morning. My name is Oona McCullough, Director of Investor Relations for Urban Outfitters, Inc., and it's my pleasure to welcome you to the URBN Annual Shareholders' Meeting. Due to government regulations meant to suppress the spread of COVID-19, we are holding our annual meeting virtually this year. If you are logged on to the Lumi platform, you will see the agenda for today's meeting on your screen. The agenda for the formal portion of today's meeting has 3 major components: First, the election of 9 directors to serve until the 2021 shareholders' meeting; second, a proposal to ratify the appointment of Deloitte & Touche as company's independent registered public accounting firm; and third, to hold an advisory vote on approval of the company's executive compensation. [Operator Instructions] Before turning the meeting over to Dick Hayne, I call your attention to the company's disclaimer that 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. Now I'll turn the meeting over to Dick Hayne, Chairman and CEO of Urban Outfitters, Inc.

Thank you, Oona. It's my pleasure to welcome URBN shareholders, directors, employees, service providers and friends of the company to our first virtual annual meeting. Our agenda for today includes brief introductions; formal business management discussion of recent business trends; and finally, a question-and-answer period. As Oona mentioned, polls will close after my introductions and before the formal meeting is called to order. Now on the introductions. First, I would like to recognize the company's brand and shared service leaders, all of whom are either with me in our home office in Philadelphia, Pennsylvania or are present virtually. They are Frank Conforti, Chief Financial Officer; Meg Hayne, Chief Creative Officer and CEO of the Free People brand; Hillary Super, Global President of the Anthropologie Group; Sheila Harrington, President of the Free People brand; Trish Donnelly, Global CEO of the Urban Outfitters Group; Dave Hayne, President, Nuuly and Chief Digital Officer; Calvin Hollinger, Chief Operating Officer; Dave Ziel, Chief Development Officer and Managing Director of the Food and Beverage Division; Barbara Rozsas, Chief Sourcing Officer; and Azeez Hayne, General Counsel and Company Secretary. For purposes of today's meeting, Azeez will also function as the judge of elections. I thank each of you for your dedication and excellent work this past year. In addition, I thank you for your remarkable job as this pandemic has disrupted our businesses. You have worked hard and gotten so much done under such adverse circumstances while also having to learn completely new ways of working. So thank you. Moving on, it's my pleasure to introduce our Board of Directors. Our Board is composed of 9 directors besides me. They are Ed Antoian, Sukhinder Singh Cassidy, Harry Cherken, Scott Galloway, Meg Hayne, Liz Lambert, Jess Lawson, Wes McDonald and Todd Morgenfeld. These 9 colleagues have provided valuable advice, guidance and oversight to me and the company. I thank them for their counsel and service. I also thank our non-executive directors for their leadership and voluntarily forgoing the remaining portion of their cash compensation for the fiscal year 2021. Their self sacrifice sent a powerful message to our 24,000 employees around the globe and to our shareholders. So thank you. One Director I would like to recognize and give a special thanks to is Jess Lawson. Jess is rotating off our Board this year after 35 years of continuous service. He joined the Board when our company had 5 stores, all clustered in the Amtrak corridor between Washington, D.C. and Boston. Jess has helped guide our growth as we opened more stores, both nationally and internationally, create additional brands and launched our digital catalog and wholesale businesses. I thank him for the innumerable contributions he's made over the years. Jess, the company and I will miss your intellect, your wit and business acumen. Thank you. We have 2 service providers attending the meeting virtually. Each is ready to answer questions should any arise. The first is Felix Orihuela, representing our transfer agent and vote compiler from American Stock Transfer Company. And second is Bill Park, partner in charge from URBN's independent auditing firm, Deloitte. Thank you, gentlemen, for your service to our company this past year. My introductions are now complete, so we'll move on to the next item on the agenda and conduct the company's formal business. The polls are officially closed, and I call the meeting to order. The first item of formal business is a statement concerning the giving of notice and the presence of a quorum. Azeez, would you report on these 2 matters?

This meeting is held pursuant to printed notice dated and mailed to each shareholder of record on March 30, 2020. Sufficient votes are present in person or by proxy to constitute a quorum.

Thank you, Azeez. Since we have a quorum, we will conduct the other 3 items of formal business that appear in the proxy statement. The first item is the election of directors. Nine nominees for director are listed in the proxy statement provided to shareholders. They are Ed Antoian; Sukhinder Singh Cassidy; Harry Cherken, Jr.; Scott Galloway; Margaret Hayne; Richard Hayne; Elizabeth Lambert; Wes McDonald and Todd Morgenfeld. If elected, each nominee will serve a term expiring at the Annual Meeting of Shareholders in 2021. The next item of business is the reappointment of Deloitte as the company's auditor for the fiscal year ending January 31, 2021. The third and final item of business on our agenda is the nonbinding shareholder advisory vote on executive compensation. Azeez, please announce the voting result for each of these items.

All 9 directors listed in the proxy materials have been elected by a majority vote. The shareholders have ratified the appointment of Deloitte as the company's independent registered public accounting firm, and the shareholders have approved the company's executive compensation in a nonbinding advisory vote.

Thank you, Azeez. The items of formal business as outlined in the proxy have now been addressed by the shareholders. The actual vote from today's meeting will be reflected in a Form 8-K filing in the next few days. As always, the Board will review and carefully consider their voting results. Please note, the company has prepared and issued an annual report on Form 10-K. This report outlines the company's recent operating results and financial condition. The 10-K is available online at urbn.com. With that, the formal portion of today's meeting is closed. Moving on, I would like to provide a short update on recent business trends. Our company entered fiscal '21 with strong positive momentum across all 3 brands. All major product categories were comp positive with women's apparel sales, especially brisk. For February, URBN recorded a total retail segment comp of plus 11%. We were excited to deliver our spring/summer assortments and were confident they would produce outstanding Q1 and Q2 results. We certainly hadn't factored in the possibility of worldwide viral tsunami. But suddenly, that's what we were facing. As the number of virus cases accelerated in early March, we grew concerned about the safety of our staff and customers. So on March 14, we made the painful decision to close all stores to the public. After taking steps to ensure our associates' safety, we began reworking demand and inventory models. Our assumptions in mid-March were that most stores would be permitted to reopen in May. And once open, customer traffic and sales would be light at first and then rebound slowly over many months. Both assumptions have been correct so far. In addition to controlling inventories, we also focused on reducing expenses and managing cash flow. To accomplish this, we put in place many cost-cutting and cash retention measures, all of which have been outlined in previous press releases and on our earnings call. Through the supply chain disruptions and store closures, our already vibrant digital business remained operational and registered strong gains in both traffic and sales globally. As we look to the second quarter, we're focused on 2 key areas. The first is continuing to protect the health and well-being of our associates and customers. We are committed to reopening our stores and offices quickly but responsibly. From a health and safety perspective, we are trying to follow recommendations issued by the CDC as well as state and local regulators. Many of our home office employees will continue to work remotely, and large meetings like this shareholders' meeting will be held virtually. Our second focus is driving revenue by reopening stores and maintaining strong digital growth. As of today, almost 2/3 of our stores have reopened, approximately 350 in North America and 30 in Europe. By the end of June, we expect to have all stores open. Customer traffic and sales levels in reopened stores have been tepid at first but have improved each week. Digital, however, is quite a different story. We are fortunate our brands had well-developed digital capabilities prior to the pandemic. Online traffic and conversion have exploded in the past 8 weeks. We believe strong double-digit underlying demand could continue throughout the second quarter. Based on a healthy digital business, stores reopening, tight inventory and expense management and our strong cash position with no debt coming into the COVID pandemic, we are confident we have sufficient balance sheet strength and liquidity to not only support URBN through fiscal '21, but also afford us the opportunity to continue funding our strategic growth initiatives the following year. In summary, no fashion retailer is immune to the damaging effects of the reaction to COVID-19. But I believe we have acted quickly and taken the necessary steps to mitigate those effects and ensure that URBN emerges in a strong position when the environment normalizes. We have a solid balance sheet, benefit from a high penetration of digital sales and well-developed digital capabilities, a portfolio of unique brands and have the talent to create compelling products and marketing materials across many categories. Over time, these factors should weigh heavily in favor of our success. That concludes my business updates. I will now open the meeting to your questions.

At this time, there -- it appears there are no questions.

If there are no questions, our 2020 shareholders' meeting now stands adjourned. Thank you for your interest and your participation.