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

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 Lumi, the 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 4 major components: First, the election of 10 directors to serve until the 2024 Shareholders' Meeting; second, a proposal to ratify the appointment of Deloitte as the company's independent registered public accounting firm; third, to hold an advisory vote on approval of the company's executive compensation; and fourth, to hold an advisory vote on the frequency of future executive compensation advisory votes. If you have an 11-digit voter control number issued by AST and wish to vote during this meeting, you may do so by clicking the proxy voting site link on the left-hand panel of your screen. 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. You may also ask questions during the meeting if you registered with your 11-digit voter control number. Please refer to the messaging icon at the top of the left side of your screen, type your question into the text box and click the send icon at the right of that text box. 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 of the company to our virtual annual meeting. Our agenda for today includes making brief introductions, conducting our formal business, discussing business results and finally, answering your questions. As Oona mentioned, polls will close after my introductions are complete. Joining me to help conduct today's meeting are Francis Conforti, Co-President and Chief Operating Officer of the company; [ Michael Silver ], General Counsel and Company Secretary; and Azeez Haynee, Chief Administrative Officer. For today's meeting, Azeez will also function as the judge of elections. It is now my pleasure to introduce our Board of Directors. Our Board consists of 9 directors besides me. They are Ed Antoian, Kelly Campbell, Harry Cherken, Mary Egan, Meg Hayne, Amin Maredia, Wesley McDonald, Todd Morgenfeld, and John Mulliken. These 9 colleagues have provided me and the company with valuable advice, guidance and oversight during the year, and I thank them for their service. Moving on, we have one service provider joining us virtually. He's [ Felix Orihuela ]. Felix works for American Stock Transfer Company, our transfer agent and vote compiler. Thank you for being with us today, Felix. Felix is prepared to answer shareholder questions concerning the vote tabulation should any arise. With that, my introductions are complete, the polls are officially closed, and I call the meeting to order. We will now conduct the company's formal business. 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 April 3, 2023. 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 next 4 items of formal business that appear in the proxy statement, after which we will hear the vote on each item. The first of these 4 is the election of the Board of Directors. The 10 recommended nominees for directors standing for reelection are listed in the proxy statement provided to the shareholders. They are Ed Antoian, Kelly Campbell, Harry Cherken, Mary Egan, [ May Kane ], Richard Hayne, Amin Maredia, Wesley McDonald, Todd Morgenfeld, and John Mulliken. Each nominee elected will serve as term expiring at the Annual Meeting of Shareholders in 2024. The next item of business is the appointment of Deloitte as the company's auditor for the year ending January 31, 2024. The -- the third item of business is the nonbinding shareholder advisory vote on executive compensation. The fourth and last item of business on our agenda is the advisory vote on the frequency of future executive compensation advisory votes. Azeez, can you 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, approved the company's executive compensation in a nonbinding advisory vote and recommended that the company hold annual nonbinding advisory votes on executive compensation.

Thank you again, Azeez, with that, all items of formal business as outlined in the proxy have 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 shareholder feedback as reflected by 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. I'll move on to a brief business review, including a discussion of recent operating results. Looking back on last year, fiscal 2023, I'm proud of what our team accomplished. URBN delivered record revenues with total company annual sales, topping $4.7 billion. Customer shopping habits were bifurcated by brand. The Anthropologie, Free People, FP Movement and newly customers continued to spend despite the inflationary environment. These customers demanded fashion newness and invested to accommodate their social calendars. On the other hand, the Urban Outfitters customer, who are younger and have less discretionary income were heavily impacted by the elevated inflation around necessities like rent, food and energy. These customers pulled back purchases transacted less and shopped for bargains. Although total URBN sales grew nicely in fiscal 2023, the operating environment remained challenging and weighed on profitability. Continued high inbound freight and transportation costs drove IMU lower while higher markdowns versus the historic low rates we achieved the previous year hurt merchandise margins. The combination of these 2 factors produced a year-over-year decline in gross margins and operating profits. Total earnings declined to $160 million or $1.70 per share. In the first quarter of the current fiscal year, demand at Anthropologie, Free People, FP Movement and newly remains robust with sales accelerating from FY '23 levels. The strength was driven by better fashion execution and stronger marketing, which created more customer traffic. Clearly, these 4 brands are pleasing existing customers and capturing additional market share. Although there has been much talk about recession, for these brands, we see no signs of adverse changes in customer behavior. No indication that customers are shopping less frequently, buying fewer items or trading down. Comp sales in the second quarter to date are similar to first quarter results with our brands delivering strong results, except at the Urban Outfitters brand, which remains disappointing. One notable difference this year versus the last few years is the change in the operating environment. Freight rates have finally normalized. Supply chain speed and reliability have returned. Our IMU improvement initiatives have begun to bear fruit, and total inventories are down to last year and are once again growing at a slower rate than sales. All of this resulted in a 260 basis point improvement in gross margins in Q1. In addition, newly nearly achieved profitability in the quarter, and we remain confident it will reach that milestone later in the year. Due to the strength in sales and the improvement in gross margins, first quarter operating income soared 54% versus the prior year's first quarter to $71.4 million and earnings per share jumped 70% to a record $0.56. We are optimistic for the entirety of fiscal 2024. We have 4 brands that are executing at [ rarefied ] levels and gaining market share. In addition to top line growth, we have significant margin recapture potential this year as demonstrated by our performance in the first quarter. This gives us additional opportunities to deliver improved profitability and earnings per share. That concludes my prepared remarks. As there are no questions from shareholders, our Annual Shareholder meeting now stands adjourned. Thank you for your interest and participation.