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

Good morning, and welcome to another session of the Goldman Sachs Global Retailing Conference. My name is Brooke Roach, and I cover the apparel, accessories and brands sector here at Goldman. And I'm very pleased to introduce our next session with Urban Outfitters. Here with me today are Frank and Mel. Welcome.

Thank you very much. Thank you and Goldman for having us, and thank you all for being here.

Frank, would you like to kick it off with some opening remarks?

Sure. So I think the saying is what a difference a day can make. So it's been 2 weeks since our last public update. And what I can tell you is that we're certainly feeling better about the environment right now. I think we're still feeling pretty consistent with what we're expecting in the quarter from a sales perspective, probably in that mid-single-digit growth range with Nuuly being mid-double digits, driving some nice healthy growth for URBN, Wholesale being low double-digit growth and Retail segment coming in, in that low single, led by Free People and Anthropologie. But the difference is that we don't think right now we're going to need to be as promotional as we were worried about when we talked on the call 2 weeks ago. The environment seems to have improved. The consumer feels like they're in a good place. Certainly, a lot of our peers are doing well. So we're less concerned than we were 2 weeks ago. We did talk about up to 100 basis points of gross profit margin deleverage 2 weeks ago. We think if we have deleverage, we're probably on the low end of that right now. And we're certainly feeling better about the consumer. So 2 weeks does make a difference.

Wow, very interesting. Thanks for kicking it off. Maybe we can dive into the trends that you're seeing by banner across the business, starting with Anthropologie. Apparel, shoes and accessories have been driving momentum in the business. What do you think differentiates that momentum that you're seeing versus your peers in the soft goods space? And what do you have -- what initiatives do you have in place to drive sustainability of that brand?

Well, I think they have a great team in place, and that team is really focused in the last few years on upgrading the product and the creative and really growing the customer base as well as improving the selling environment. And that's really been driving the results. The team is continually focused also on new initiatives. And they're really executing quite well right now. And I think that drives to the sustainability of the results going forward.

On the new categories, that's one of the opportunities that you see in Anthropologie, those new concepts are a growth driver. You've talked about active. You talked about loungewear, sleepwear, intimates. How big could these categories be? And how should we think about the path and cadence of scaling those categories?

We're not sure exactly how big they could be, but we do believe that there's still a significant growth opportunity for the Anthropologie brand and could reach $3 billion versus the $2.2 billion that it delivered last year. We have been testing these products in our store. And we have seen results that are very, very encouraging. They're incremental business that our customer has embraced us offering products that kind of answer all of their needs. And I think activewear and vacation and intimates are all the things that they want to buy from Anthropologie. So we're super excited about those opportunities going forward.

And I think it's really exciting that we're not seeing cannibalization, right? So it's incremental growth in categories where we feel like we were giving away to other brands and that customer certainly buys. So we've seen it be really healthy growth but not cannibalistic growth. And that's why -- I don't know what -- we don't know what the ceiling is. But we think it's one of the things that will certainly drive Anthropologie to reach $3 billion.

Let's speak about one more category before we dive into profitability, home. That's been a core competency of Anthropologie for a long time. But there's been some macro challenges between big ticket versus small ticket. Can you talk a little bit more about what your expectations are for fall and holiday between big ticket versus lower-priced decor?

I think we're definitely seeing more strength in the lower ticket in home. We call them home accessories, but it's things like home fragrances and tabletop items. We've seen some real strength in those areas in the last few quarters and we really -- and may become even more important in the holiday period, where people are entertaining and gifting. So we're really excited. And we do think that's going to be driving the home performance in the back half of the year.

Wrapping up the discussion on Anthropologie, a couple of weeks ago, you had said that you expected the business to be a little bit more promotional. The business has had some really nice margin growth the last few years. As you evaluate what you've seen recently, Frank, what gives you a little bit more confidence or comfort in the near-term backdrop? And then Mel, how should we think about the biggest opportunities for margin for the Anthropologie brand into 2025?

Yes, the confidence in the near-term backdrop has just been about how the consumer has been reacting. I think coming out of the end of July, we saw business start to slow down a little bit and felt like we were going to need more promotions and more markdowns in order to drive that business and in order to drive reg price business and keep inventory where it needs to be in order to stay clean moving forward into holiday and going forward beyond that. And we haven't needed the amount of promotions and markdowns that we thought we would need in order to hit our numbers and to keep inventory flowing the way that we wanted it to. So the strength in reg price selling really crossed, as we talked about, across women's apparel, across accessories, across home accessories is giving us the confidence right now that we feel better about the consumer backdrop.

And Brooke, we're really pleased about the profitability improvements that have come in the past few years in the Anthropologie brand. Those have really been driven by initial margin improvement, lower markdowns and just improved operational efficiencies. We still think there's some IMU opportunity to come, but most of the profitability improvements will really come from just the sales growth and that flow-through.

And Frank, just one quick follow-up on that recent trends comment, was that an Anthropologie-specific comment? Or is that across all of URBN?

It's across Anthropologie, Free People and FP Movement. I think for Urban, they're just in a different place. To be able to read sort of the -- a couple of week window is harder. I think Urban has done an incredible job now building out their team, building out their strategy and it's about them improving their execution right now. So it's hard for us to read a macro when Urban has got some of their own self-inflicted things that they're working through. So we'll rely more on the other businesses to get a better read on the macro.

That's great color. Let's dive deeper into Urban Outfitters. You laid out a strategic update for the brand a couple of weeks ago with five new pillars of recovery. What do you see as the low-hanging fruit for the brand now that the leadership team is in place?

Yes. So nothing is easy. But to use your word of low-hanging fruit, I think first and foremost is getting inventory in line. And I think there's a lot of opportunity for improvement to the bottom line by having a better relationship between sales and inventory. We didn't have that last year, especially in the fourth quarter. The brand has taken their lumps, and they've gotten inventory now in line with sales and where it is, where we want to be from a week-to-supply perspective. And that's really important. And I would say that was the first thing that they were able to get accomplished. And I wouldn't call it easy but low-hanging fruit. And we do think that, that will bear for some opportunity of improvement in URBN gross profit margin in the fourth quarter and with the brand being able to achieve a lower markdown rate with just that relationship of the size of the buy to the sales being very different than it was last year. And that doesn't necessarily require improvement in the product. But we were so dislocated from sales to inventory last year and the product wasn't working, you just have to go that much deeper when you have that much depth of inventory. And we don't have that same level of depth this year. So even if there was not an improvement in product, we still don't think we would need the level of markdowns that we had in the fourth quarter last year.

One of the areas of opportunity that you identified for the Urban Outfitters brand is opening price points. And you mentioned on the call that customers view you as expensive. Can you talk about the magnitude of the mix shift that you see from an opportunity perspective into opening price points to get that price/value equation correct?

Yes, I think it's important to take a step back here and just set the perspective that we're not going where Urban hasn't been before. I think if you think about Urban as being a lower price point than the rest of our campus, Anthropologie and Free People, when you have things like COVID happen and you have the increased freight costs, it's more punitive to Urban Outfitters because of the cost of a container or cost of air freight coming in is more expensive. It's not like just because they have a lower price point, it's different for them than it is our other brands. So they meaningfully distort it into more expensive product and raise their price points. Post COVID, they did not do a good job at rebalancing the depth of what they have in that opening and distorting it in between the high/low. And what they're trying to do is now get back to where they've historically been. I think you're going to see meaningful improvement by the time we hit the fourth quarter, which is what they're hoping for versus last year. I'm hesitant to say exactly what percentages they're going to get to, but meaningful improvement to where they're going to have more depth from an opening price point perspective. But again, this isn't where we haven't been before. We're not changing sort of the pricing architecture versus where we've been and where we've operated before. This is sort of resetting and getting back to what we've done and what we've done well.

On competition for the Urban Outfitters brand, how do you think about the competitive positioning today? Sometimes we get questions about some of the fast-rising cross-border e-comm players and what that means for brands such as Urban. Do you have any thoughts?

I think it's always been a competitive space. And I'm in my 17th year here now at Urban, and I've been through the Forever 21s, the Primarks. There's been a lot of competitive price point players that are out there. I think that's always going to be the case, especially when you're dealing with a younger consumer, who isn't there yet from a discretionary income perspective, is it's always going to be a place that we have to compete with. That being said, I think there's plenty of brands that aren't the least expensive brand out there operating just fine and doing just well. And I think that's what Urban has to do. And it's about being on point from a fashion perspective. It's about recapturing a little bit of cool factor, which I think they've lost. And I think Shea talked a lot about just that we've been behind in connecting with the consumer from a marketing perspective, generating enough UGC content and being cool and creating that brand that is sought after. But it doesn't have to all be about price. And when the consumer says you're expensive, sometimes that's about a ticket and sometimes it's about the perceived value, right? Is that item on-trend? Is the brand a cool brand right now? All of those things come into that perception about being expensive. So while actual price points matter and our distortion in the price points matter, I think the execution and the alignment of the brand and recovering sort of that factor of who it is and having the right product assortment is just as critically important as it is price.

As you think about building the brand, one of the brand opportunities that you spoke to this last quarter was widening the aperture of the brand to additional customers, precollege, college and postcollege. What does this mean in practice? And how are you tailoring that assortment and the marketing of the brand to speak to a much wider audience?

Yes. Again, what I'm going to say here is very similar to -- from a product price point perspective. We've always had an 18- to 28-year-old consumer that we were focused on sort of precollege and postcollege. But I think the brand has gotten a little narrow in the aesthetic and the look of the brand. I think the environment right now is a lot -- sort of more positive and more happy and Urban has been a little different. And I think opening up to being a little more on-fashion from an aesthetic and a look standpoint is critically important for the brand right now. I think the brand feels like it's been a little narrow in the consumer aesthetic as to who they've been talking to. As it relates to that precollege, in-college and postcollege, I think it's really critical when you think about the marketing and you think about store allocation. And Shea and team have done a ton of research on these types of stores tend to lend into this consumer, this type of marketing tends to lend into this consumer. The distortion from a New York market is going to be different to a Texas market. So not just opening up the aperture as it relates to the consumer aesthetic, but also being very specific and very thoughtful as to how you're buying the assortment, how you're allocating the assortment and how you're marketing the assortment, knowing that there are three different segments, and the brand can mean something similar and that cool factor to all of the brands, but the product is probably a little different and just needs to be distorted differently.

On the store positioning point, you have a large number of lease renewals coming up over the course of the next few years for the Urban brand. Can you contextualize the magnitude of potential repositioning that we might see? Should we expect a significant movement between urban, suburban and rural areas?

I think it's going to depend on a case-by-case basis. And I think it's hard for us to forecast. I mean, we literally look at every lease individually and say, "Can we make money," right, so obviously always the first and the most important thing. If we can't, then we're going to leave. If we can get a renewal and we like the market and we like where the customer is, then we'll renew. And if we think that the consumer has moved, right, New York, the consumer has moved a lot here in this city and it's better to do a relocation, then we'll relocate. There's also been a lot of consumers that have moved further south, right, Arizona, Texas, Carolina, Florida, all matter more now than they did 10, 15 years ago. So I think you will see some migration. You will see some leases continue to come off the books. It's also really hard to evaluate what the store productivity should be when a brand is not operating well. We haven't done a good job from a product marketing and from an allocation perspective. We feel much more confident and excited about the team that's in place now and excited about the alignment on the strategy going forward. And for them, it's about going out and executing now and us sort of getting comfortable again as to what's the productivity that we can see from a top line perspective than helping us to determine what we can have from a store perspective. Because if you look at the strength of Free People and Anthropologie, those stores are as, if not more, profitable than they were pre COVID. And we've seen incredible strength in traffic and incredible strength in the growth in not just top line but in profitability of those brands. So stores still matter. There's still an omni relationship that's there. I think stores are still going to be an important part of the brand. But we're going to be slow and deliberate when it comes to renewals in individual locations right now.

As we think about the brand, you also have a large international business. Can you speak to the trends that you're seeing in Europe today for that brand? And any difference in performance between the U.S., the U.K. and the rest of Europe?

Yes. So U.S. to U.K./Europe, the European team has done a better job. There's been more strength there in that business. And kudos to Emma Wisden and the team that's there. She's had a long-standing team that has been with her in that market. And it's not an easy market right now, right? Inflation is really strong. There's a lot going on. I feel like every time I talk to them, there's one strike after another on some different issue that's going on. So I just feel like that brand has done an exceptional job in what has been a difficult market and it's performing differently. I think the fashion, the stores, the makeup of the brand is a little bit different than where we sit here in -- where we sit in North America. But the biggest difference is the longevity of the team that's been there, and they've been there for a long time and they've been there together for a long time. So I just think they've been executing at a different level. And now we're -- as I continue to repeat, we're excited to have Shea and team in with Urban Outfitters and get North America turned around.

Well, let's tie up the conversation on the Urban brand with a little bit of discussion on what it means for URBN in total. Part of the gross margin improvement that you have modeled into the back half of your guidance is a function of better inventory control and promotionality at Urban. What gives you confidence that, that is going to inflect into the fourth quarter and that you have the right product in place to drive that inflection?

Yes, it's less about the right product and it's more about the depth of the buy. So when you're seeing double-digit negative sales trends and inventory is flattish, 10 points, not 10 basis points, 10 points difference, and you're not seeing a strong sales trend to get through and to clear that product, it's tough. And Dick always says, and he's got these sayings that have been in the business for a long time, right, bad produce doesn't get better with age. It's like that with inventory and with fashion, right? It doesn't get better with age. So once you hit it at 30% off, if it's not moving, 50% off typically doesn't make a difference, and you've got to go really deep and you've got to clear through the product. We don't have that same level of depth right now, and we're not going to have that same level of depth for the fourth quarter. So even if product only shows minor improvement or really no improvement at all, it won't take us the same level of markdowns and the same level of clearance because you can't hold on to holiday product coming into the first quarter. So we had to move through it no matter what the cost was. And we just don't have that same level of depth now and it's not gone by. We've got the visibility to what we're doing and the controls and the alignment as to where we're going to be.

Very clear. Thank you. Let's move on to Free People for a moment, significantly stronger momentum overall. And what's working so well at the brand today? How do you think about the sustainability of this growth in a choppier consumer backdrop?

Yes, I think many things are working. They had a terrific quarter at 7% comp growth that was on top of the 27% growth a year before that they were comping. So obviously, the FP Movement is a big part of the growth story. And we're seeing that in many channels. But that's driving the business. And honestly, the apparel itself, I think the product itself is very -- and the marketing is really resonating with our customers and our consumers themselves. And that's -- we believe that we've delivered consistent results, and we do see there being a lot more growth opportunity for that larger brand.

In Wholesale specifically, Free People has been performing quite well despite Wholesale as a channel being somewhat more challenged. What's enabling that market share capture?

So both the Free People brand as well as FP Movement is driving that growth, but I would say it's primarily FP Movement. It's a sought-after product. And so what we're seeing is that we are gaining new distribution for the FP Movement product as well as the fact that it is driving more sales in its existing distribution points. So it's propelling the growth of the Wholesale business, certainly.

Can you elaborate a little bit more on the building blocks of Free People Movement distribution expansion? How does that look between stores, new wholesale distribution and international growth?

We think both stores, international and wholesale, that there's lots of opportunity. And we've just started to scratch the surface there. And we think that FP Movement could be greater than $1 billion brand. But we're focused now on getting to $1 billion. I think the most exciting thing right now, even though there's growth opportunities in all those areas, is really the stores themselves. The sales per square foot has really come in, it's exceeded our expectations. So we're super excited about that growth and opening more stores and making more consumers aware of that brand. So that's what we think is the exciting part of that story.

I'm curious to get your thoughts on the athletic category overall. There's been a lot of debate about whether or not we're seeing how much of a slowdown. Is it cyclical? Or is it secular? What's your view on the athletic category? And how do you think about the growth opportunity over the next 12 months?

I think specific to FP Movement, I think the growth opportunity for us is that it really is a differentiated product that's kind of the intersection between performance and fashion. And there just isn't anything out there like it. So the customers are finding us to be different, and we kind of have a unique perspective that provides growth that others might not be seeing these days.

Excellent. Let's move to Nuuly, which is another area where you're seeing really nice growth in subscriber counts. What's differentiating this brand and rental model relative to fashion rental peers? And has recent success changed your view on the longer-term outlook for this business model, if at all?

Yes, I'll take that one. So I honestly think what differentiates us is how we approached the brand, right? I think there was a minimum technology and experience and frictionless experience that we knew that we had to offer. But we approach it like a retailer, knowing that the fashion assortment had to be on point, knowing that how we fed the business had to have a relative necessary amount of newness in the assortment. Because if you're going to be sticky and you're going to keep that consumer there, yes, they're going to come in and they're going to see, "Wow, this is big," but then they're going to want to look for newness, and they're going to want to look for a strong merchant perspective. And we approached the assortment as a merchant would versus just sort of a technology company. And then certainly, the strength of the sister brands, right, being able to offer Anthropologie, Free People and Urban Outfitters, which makes up roughly 50% of the assortment, brands that have cachet, brands that deliver a ton of newness into their business and then we're able to leverage that into Nuuly in addition to the hundreds of other market brands that they have, I think, really creates for a very compelling experience. And it's just using our retail background and applying that to a new channel, I think, has been critically successful for Nuuly. Yes, it's our second quarter of profit. We're very happy with what we delivered. And we still feel very comfortable with our plan to be -- to record our first profitable year this year. And it's still very early days, right? So I think they were over 5% operating profit. We said when we started this business, and we got probably a lot of crooked faces, in that we felt like Nuuly would not be dilutive to our 10% goal. And we still feel that way. We still feel like this can be a double-digit operating profit business. And it's still in the early days. We're still transitioning and don't have all of our automation even up and running in our new distribution center, which will provide for a nice opportunity and leverage next year. We're still growing the brand at a really healthy rate and leveraging off of other expenses that are there and we're still learning. It's only a few years out, and to reach the level of profitability that they have already and hopefully record their first year of operating profit now and going forward, we think it's the start, not the finish. And there's plenty of room to continue to build on this. And like I said, we don't think it's going to be dilutive to our 10% operating profit goal for URBN.

That's really helpful color. Let's speak a little bit more about some current consumer trends and ask some of the five questions that we ask all companies at our Goldman Sachs Retailing Conference this year. On the health of the consumer, Dick had talked about the consumer being enthusiastic rather than exuberant, wondering if you could parse that a little bit more. And then one of the questions that we're asking all retailers that are presenting is what are your expectations for the environment in the second half of '24 relative to your recent results? Do you expect things to be the same, better or worse?

I'll take the first one. I think what Dick talked about exuberant and enthusiastic is, and we talked a little bit about this, about sort of a return to normal. And post COVID, that there was revenge buying going on. And we certainly wouldn't forecast and plan for Free People to be able to deliver a 27% comp, and they did in the second quarter of last year, and Anthropologie to have multiple quarters of comps in the teens. We still think there's healthy growth and healthy market share opportunity there for those brands and how well they're performing. But probably, it's not a sustainable business, sustainable to be able to plan that level of growth going forward. But we feel comfortable with where the consumer is and the backdrop. And that's what he was talking about, sort of that return to a more normal environment, where brands and execution matter in a bigger way.

Sorry, the promotional environment was what?

Do you expect things to be better, worse or the same in terms of the environment in the second half for the consumer?

Of the year. I mean, we definitely think holiday will be promotional as it always is. And we are expecting, I would say, similar trends to what we're experiencing now. As Frank mentioned, I think there is that return to more normal growth rates. And that's what we're seeing right now.

That's really helpful. On share of wallet in your category outlook, we talked a little bit about categories within the Anthropologie brand. But I'm curious, what's your view on the outlook for apparel, accessories, footwear and home? Are you constructive or -- more constructive or less constructive on any of those individual categories as you look into the back half?

Yes, I can take it. I think all of those categories, there's meaningful opportunity for our brands. I'd say the one area where we're just not seeing that strength in our own execution and probably the macro environment, just like you talked about, the higher price point items, what we would call decor furniture in the home category. But when we think about apparel, accessories, home accessories, we're pretty bullish on each of the categories and not seeing a difference from a market perspective in any of them. I think it would just be a home decor that we'd be less optimistic about right now.

Okay. As we think about the shift to value of the consumer, how are you thinking about this? Do you think it's a cyclical or a secular trend? Is this a function of the macro? Or is this a permanent shift to value?

I guess I struggle a little bit with the shift to value because I do think sometimes the [indiscernible] gets lost in the cost conversation. And what I think customers value is they value the brands and they value being on point from a fashion perspective. And that's why I said, it's not always about the price. There's plenty of brands out there, including Free People and Anthropologie, but plenty of other brands out there that are not the least expensive brand on the shelf. They're doing exceptionally well, and they're connecting from a marketing perspective. They're connecting in what they stand for. And they're connecting with great product. And I think that's always been the winning recipe in our industry and in our space. So I don't see it as that big of a shift. There's always been lower price point players that are out there. But our brands, I think, operate in a slightly different space, where it requires us to be on-fashion. It requires us to deliver newness, compelling product at a good price and product that's known for quality and a brand that connects with the consumer. And I think that's been the case for years. And I think it continues to be more and more important going forward.

Let's move back to you, Mel, and talk a little bit about margins. On your gross margins, can you provide a little bit more context around your second half outlook? How should investors be thinking about the puts and takes and the sizing of each driver? And are there any areas of gross margin expansion where you have more or less confidence?

Okay. So as we think of the back half, I mean, it's a little bit of a tale of two cities. I think Frank had mentioned that fourth quarter, we're lapping some significant markdowns at the Urban Outfitters brand that we think we can bring down even with similar to slightly better product performance just because the inventory is better-controlled this year. And I think in the third quarter, we think there will be some margin headway, given the fact that we had some slower start to the quarter and had bought for a slightly higher trend. So in explaining, we still definitely believe that there's opportunity for the year to grow gross margin. It's just the 2 quarters will look a little bit different, mostly because of what we're lapping less about, I think, the overall macro trends.

One question that we're asking every company with regards to margins is their expectation for promotionality both for themselves and the industry. We've touched about it a little bit. But just to put a bow on it, do you expect your company to be more or less promotional this holiday season relative to last year? And how does that compare to your expectation for the industry?

Yes, I mean, holiday is always a wildcard, right? And I think right now, we've got promotions planned fairly similar with Anthropologie and Free People and down certainly from a depth and the level of markdown that we had at Urban Outfitters for the fourth quarter. I think what happens with the market, we'll react. I think holiday has probably been fairly consistent the last couple of years, last 2 years. And we haven't seen that uptick that we were going through for about like the better part of a decade, every year getting more promotional and earlier. So I'm hoping the environment is similar. If it's not, obviously, we'll react and we'll have to react to where the market is. But I would say, similar to slightly down at Anthropologie and similar at Free People and then down certainly at Urban Outfitters is how we're planning the holiday right now. But we'll have to react accordingly. And I think the fact that we go into the fourth quarter with Anthropologie, Free People, FP Movement all having double-digit growth in their customer base leaves us with a lot of confidence relative to the strength of the brands and how their ability is to go in and to execute. And then you've got Urban Outfitters starting to roll out their execution on a new plan and their improvements in their business, which is also going to be exciting to watch.

That's really helpful. As we think about cost pressures, one of the questions that we're asking all companies is how to think about the cost pressures, such as materials, labor, tariffs or otherwise in your business. Are they expected to be the same, better or worse as we roll into 2025?

I can take this. And if you could tell me who's going to get elected, that will impact my answer. But as it relates to labor and to just materials itself, we're not expecting anything different than what we normally deal with, right? There are markets like a Vietnam, which are getting verily congested from a manufacturing perspective. So there's supply and demand cost pressures there. There's heavy inflation in Turkey. And then there's different markets that are different than that as well. And that's for us to go and to execute. It's not something that we're expecting to have a meaningful impact that we would need to talk about in the business right now or going forward based on what we're able to see. As it relates to tariffs, I really think the company and Barbara Rozsas and the sourcing team have done a great job derisking our countries of origin. As it relates to China, we'll probably be at 10%, if not below, for our own brand production next year and have spread out our sourcing from where we go and from the origins that we work with now. So if there was to be an outsized tariff in that market next year, I think our exposure is much less than it used to be. And I think we've also got much more flexibility that we can flex in and out of markets like an India, like a Turkey, like a Vietnam, like an Indonesia than we've ever had in the past. So I feel good about our ability to read and react with whatever happens from a macro and a geopolitical standpoint.

Very helpful. On SG&A, marketing has been an area of investment for the business. You've spoken about some of the opportunities that you have. How are -- what are you seeing on returns on that marketing spend? How are you thinking about the channel investment there? And how should we think about the puts and takes on marketing and SG&A into 2025?

Absolutely. So we feel very good about our marketing at four of our five brands. I think we've seen terrific, as Frank mentioned, double-digit customer growth in Anthropologie, Free People, FP Movement and Nuuly. And that's really propelled our sales growth in recent quarters. I think when you think about some of the deleverage, it's really come from the Urban Outfitters brand, where we have reduced our expenses. But we believe it's prudent not to reduce the expense as much as the sales decline as we have new management in as of the last quarter or so or 2 quarters, and we want to really give them a chance to start to change the strategy and the go-forward momentum of the business. As we think of the go-forward growth, I just want to highlight one thing is that in the fourth quarter, we are currently planning to leverage SG&A, so grow our expenses at a rate below sales. So we're very encouraged and are focused on that as well.

So putting this all together, is 10% still the right normalized operating margin for the business? And how are you thinking about the timeline to achieving it?

Yes, 10% definitely is the goal that we speak to. You've got Anthropologie and Free People, which are operating well above that. You've got Wholesale, which obviously operates well above that. You've got Nuuly now hitting 5%-plus, and we talked about them continuing to build on that. And we know that our biggest opportunity there is getting Urban fixed. And it's the #1 thing that Dick, Meg, Sheila and team, now the Urban Outfitters have a fully dedicated team, are focused on. And we're confident that the brand itself is not broken and that we can get this thing fixed, and we need to get it turned around. And we've got a strong team in place now, and we're aligned from a strategy perspective. It's about going out and executing. Although it's the namesake brand, out of the Retail segment brands, it's also the smallest as well. So as Anthropologie and Free People continue to grow that customer list at a double-digit rate, it also leverages more from a URBN perspective and has that Urban Outfitters, where they're not performing as well as they can right now, is less impactful. And you've seen that over the last 2 years with us being able to grow our top line on the back of four of our other five brands performing exceptionally well.

Great. Well, with that, I'm afraid we are out of time. Thank you, Frank. Thank you, Mel. And thank you all for joining us today.

Thank you.