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

Hello, and welcome to the Urban Outfitters' Annual Meeting 2021. It is now my pleasure to turn today's meeting over to Oona McCullough.

Good morning. My name is Oona McCullough, Executive Director of Investor Relations for Urban Outfitters, Inc., and it is my pleasure to welcome you to the URBN Annual Shareholders' Meeting. If you are logged on to the Lumi virtual 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 10 directors to serve the 2020 -- sorry, 2022 shareholders meeting; second, a proposal to ratify the appointment of Deloitte as the company's independent registered public accounting firm; and third, to hold an advisory vote on approval of the company's executive compensation. You can vote your shares now if you have not done so already using the same platform. The link is provided on the left-hand side of your screen. But you must vote quickly because once we finish our introductions, the formal meeting will be called to order, at which time the polls will close, and all voting will stop. Before turning the meeting over to Dick Hayne, Chairman and CEO of Urban Outfitters, Inc., 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 will turn the meeting over to Dick.

Thank you, Oona. It's my pleasure to welcome URBN shareholders, directors, employees, service providers and friends to our virtual annual meeting. Our agenda for today includes brief introductions; formal business management discussion of recent business results; 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, joining me to help conduct today's meeting are Frank Conforti, Co-President and Chief Operating Officer; and Azeez Hayne, Chief Administrative Officer, General Counsel and Company Secretary. For the purpose of today's meeting, Azeez will also function as the judge of elections. Frank, Azeez, I thank both of you for the remarkable job you and your coworkers performed this past year. The entire team worked tirelessly and accomplished so much in conditions none of us had experienced before. So thank you both, and thanks to all 19,000 associates worldwide. Now it's my pleasure to introduce our Board of Directors. Our Board consists of 9 directors besides myself. They are Ed Antoian; Sukhinder Singh Cassidy; Harry Cherken; Meg Hayne; Liz Lambert; Amin Maredia; Wesley McDonald; Todd Morgenfeld; and John Mulliken. These 9 colleagues have provided valuable advice, guidance and oversight to me and the company. I thank them for their counsel and service to the company. Moving on, we have 2 service providers joining us virtually. They are Felix Orihuela. Felix represents our transfer agent and vote compiler of American Stock Transfer Company. And Rob McNeill, partner in charge of URBN's independent auditing firm, Deloitte. Thank you, gentlemen, for being with us today, and thank you for your service this past year. I understand both of you are prepared to answer shareholder questions addressed to you, should any arise. My introductions are now complete, so we'll move to the next item on the agenda and conduct the company's formal business. With that, the polls are now officially closed, and I call the meeting to order. The first item of business is a statement concerning the giving of notice and the presence of a quorum. Azeez, would you report on these 2 matters, please?

Certainly. This meeting is held pursuant to printed notice dated and mailed to each shareholder of record on April 1, 2021. Sufficient votes are present in-person or by proxy to constitute a quorum.

Thanks, 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 the Board of Directors. 10 nominees for directors are listed in the proxy statement provided to the shareholders. They are Ed Antoian; Sukhinder Singh Cassidy; Harry Cherken; Meg Hayne; Richard Hayne; Liz Lambert; Amin Maredia; Wesley McDonald; Todd Morgenfeld; and John Mulliken. If elected, each nominee will serve a term expiring at the Annual Meeting of Shareholders in 2022. The next item of business is the reappointment of Deloitte as the company's auditor for the year ending January 31, 2022. The third and final item of business on our agenda is the nonbinding shareholder advisory vote on executive compensation. Azeez, please announce the voting results for each of these items.

All 10 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 the Form 8-K filing in the next few days. As always, management and the Board will review and carefully consider the voting results. Please note that 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 now closed. Moving on, I'm pleased to give a brief overview of our fiscal year 2021 and first quarter of fiscal year 2022. Last year, at this time, we were in the early stages of the COVID-19 pandemic. Many stores remain closed. Our merchant teams were trying to maintain balanced inventory levels, while our sourcing and production teams were frantically moving orders around the globe to factories that remained open. Most of us were only beginning to learn how to work together remotely. Fortunately, consumer demand in our digital channel exploded when stores were forced to close. And thus, we were able to recover much of the lost store sales. Overall, revenues fared much better than we had anticipated at the onset of the pandemic. And year-over-year total retail segment sales fell by only 11%, despite store sales dropping by more than 45%. I'm incredibly proud of our teams and what they accomplished this past year. They even managed to produce a small profit for the year. Quite an accomplishment given the many hurdles they had to overcome. As we moved into the new year, the mood of the consumer began to improve and became more positive as the quarter progressed. 2 weeks ago, we reported record first quarter results, a much stronger outcome than we had initially forecasted. Total sales at our first quarter record with total retail segment comps advancing by 51% versus the prior year and 10% against our 2-year comparison. A powerful surge in consumer demand across most product categories, plus strong execution by our teams, drove positive retail segment comps at all brands led by the Free People brand where retail comps were stratified. Total North American store sales remained sluggish due to negative traffic, but they showed significant improvement as the quarter progressed. Meanwhile, the already booming digital channel grew even stronger and offset the comp store bogey. The biggest company-wide accomplishment in the first quarter was the strength of full price selling and the corresponding decrease in markdown sales at each brand. The historically low markdown rate generated outstanding merchandise margins. That, combined with tight expense control, led to a record first quarter earnings per share of $0.54. We believe URBN's prospects for Q2 and FY '22 in total shine brightly. Now that vaccines have been widely administered in North America and the United Kingdom, consumers are returning to a more normal way of life. They're feeling optimistic, have money to spend, and they want a new wardrobe and improvements to their living environment. The resulting demand is robust and seems likely to remain so on both sides of the Atlantic for some time. Apparel and home product categories are especially strong. Each brand is currently outpacing its respective first quarter comp performance, and all 3 are currently double-digit comp positive. This could propel URBN to another record result in Q2 and favorably impact the back half of the year as well. While certainly strong, the macro environment is not perfect. Securing sufficient product to meet the demand is especially difficult. Port conditions on both ends of the inbound product journey and a massive shortage of shipping containers across much of Asia are causing serious delays in landing products. In addition, labor shortages and soaring demand are straining our ability to maintain fulfillment service levels in the digital channel. Furthermore, just about everything is getting more expensive, particularly labor. On balance, however, the retail environment positives far outweigh the negatives. And if current trends conditions continue, fiscal year 2022 could be one to remember for many years to come. That concludes my remarks, and I will now open the meeting to your questions.

Dick, our first question from a shareholder asked. When will URBN end the sale of animal-derived material?

Thank you, Oona. Well, as you know, we have stopped using certain animal derived products already. However, we have no plans to stop using animal-derived products entirely. I appreciate your interest in the company and thank you for the question. Oona, do -- are there any other questions?

Yes. We have another question regarding the performance of stores as the economy has reopened. The shareholder would like to know if we believe store sales will improve as the year progresses.

As I just mentioned, store sales progressed very nicely in Q1. Traffic did improve as people became -- a percentage of people became more vaccinated, and we anticipate that that will continue to improve even further. And indeed, it has in Q2 so far. I believe that our sales from stores will also continue to improve, and we see the store sales benefit from the improved traffic but also from better conversion and higher AUR. Are there any other questions?

At this time, Dick, it appears we do not have any more questions.

Thank you, Oona. If there are no further questions, our Annual Shareholder Meeting now stands adjourned. I thank you for your interest and participation.

This concludes the meeting. You may now disconnect.