The only thing investors in Urban Outfitters anticipate more than the company’s quarterly earnings call discussion is the discussion this community has after the call!! This I had re-confirmed recently during lunch with some friends of mine who work in the financial industry as analysts and such. So community, if you’ve ever wondered if Anthropologie’s leadership is reading, and if the analysts come here looking for customer feedback the answer is a huge YES.
Whether the leadership is doing anything with our feedback or not…well, that’s another question altogether.
I could end the post right here, but that would be no fun, right? So let’s dive into Anthropologie parent company’s Urban Outfitters latest quarterly results, for fiscal Q3 2018.
The results were very good for Anthropologie and its parent company this quarter! From the press release:
“For the quarter, net sales for Urban Outfitters increased to $892.8 million. Net sales by brands gained 1.6% to $353.9 million at Urban Outfitters, 3.3% to $362.4 million at Anthropologie Group and 7.8% to $180.6 million at Free People. For Food and Beverage net sales came in at $6.2 million compared with $5.8 million in the prior-year quarter.
The company’s net sales were up 3% to $808.5 million at the Retail Segment and 8.7% to $84.2 million at the Wholesale Segment.”
And from the call transcript:
“By brand, our Retail segment adjusted comp rate was positive at all three brands with increases of 5% at Free People, 2% at Anthropologie, and 1% at Urban Outfitters. These comps have been adjusted for the two hurricanes experienced in the quarter. The adjustment represents approximately two-thirds of a point at each of our brands.
Additionally, we delivered our first Anthropologie Home wholesale order in the UK. We believe Anthropologie wholesale of the Home category has strong opportunities to grow with key partners in Europe, as well as in North America and we are excited to have completed their launch into this new channel of distribution for the brand.
Gross profit decreased 1% to $298 million versus the prior comparable quarter. Gross profit rate declined by 142 basis points to 33.4%. The decline in gross profit rate was primarily driven by the leverage in delivery and logistics expense due to increased penetration of the direct-to-consumer channel, higher International penetration, and increased furniture penetration.
As we enter the fourth quarter of fiscal year 2018, it may be helpful for you to consider the following. We are planning on opening one net new store during the fourth quarter. This will result in 19 new stores opened for the year, and eight store closures. “
Firstly, congratulations Anthropologie! I must admit that this positive news initially came as quite the shock to me given that the clothing assortment isn’t really appealing to me yet. But the more I thought about things, I realized a few details I might have overlooked.
- During its last few promotions, the NYC Anthropologies have been fairly swamped, even during the workday. That’s a positive change.
- I’ve noticed many more items that I’m interested in are selling out at full price very quickly; mainly small orders of specialty items or designer items, but a few in-house goodies too
- While the clothing is not tempting me much, the jewelry is big-time and I’ve loved the beauty/home gift ideas around the cash wrap in stores recently (more on that below in my full thoughts.)
It’s important to note that Urban’s results were adjusted for the hurricane, as most North American companies have done. UO’s stock is up 45% this year, though it’s still well below previous highs the stock enjoyed two to three years ago.
Still, with the sheer volume of stuff hitting sale and just sitting there, I had a seriously raised eyebrow reading this next bit. Not just a raised eyebrow — a seriously raised eyebrow.
“…good evening everyone. I am pleased to provide you with an update on our progress within the Anthropologie Group. As we mentioned on our last call in August, we were seeing early signs of improvement in North America in our fall product reads.
I am happy to report that during the quarter we did indeed see a change in our business trajectory. The Anthro Group retail segment comp sales improved in the third quarter to a plus 2% comp, a 600 basis point improvement from Q2’s minus 4% comp.
The trend improvement in North America was broadly based across expanded categories and apparel divisions in both selling channels, and importantly, comp sales quality also improved with regular price comps outpacing markdowns.
The direct-to-consumer channel had another strong quarter of double-digit growth.
Momentum in this channel was driven by improved digital marketing effectiveness, a broader assortment that we continue to expand and creative assets that increasingly market the lifestyle experience.
The Anthro Loyalty member path to free shipping significantly increased new signups and overall Digital customer counts. Also lifting average transaction value with more units in Her basket. We continue to invest in our digital shopping brand experience and the data analytics that power best-in-class digital merchants.
Last August, we mentioned seeing traffic in our North American stores stabilizing. Store sales did indeed improve across the quarter, with a majority of our stores delivering a positive comp in the month of October. This was the first full quarter with our new field structure…
As we have spoken of previously, the majority of our revenue decline in recent periods was due to the execution of apparel. In a short period of time, Hillary and the apparel team focused the offer on the separates trend that echoes much of what is happening across the fashion industry. They also concentrated on delivering more color, pattern, and special details with a touch of hand for which Anthro is known.
In addition to the improved sales trajectory, feedback from listening posts in the field, social channel chatter, and online commentary indicate that customers and associates are increasingly enthusiastic about our offer. This revenue momentum has continued into November, and when combined with a shift in fashion, could create conditions for a promising holiday season.”
You guys, Anthropologie offering Free Shipping on orders of $150+ as a standard offering to its loyalty members increased sales! And customers spent more! I know, I’m just as shocked as you are. 😉
In all seriousness, these comments concern me a bit, because apparently the powers that be think they’re righting the apparel ship…and I don’t agree. I do agree that there has been small measures of improvement in the clothing but I’m certainly not drooling over every new release with a 100 item wishlist like I used to on a weekly basis.
I’m glad to hear that the apparel team is squarely focused on delivering special details and a “touch of hand for which Anthro is known,” because yes that is what we want! But there are still major issues. The assortment is still way too big and not cohesive, there are too many specialty clothes and not enough workwear, there’s too much short and boxy and unflattering stuff still.
But…even as I’m writing this, I have to say that in my recent store visits and over the last quarter, I have noticed people in front of me in line making large clothing purchases. So even if I’m not getting it, it’s quite possible that this is more me missing old Anthropologie than anything about the current assortment. It’s kind of like when I visit my favorite J. Crew blogs and most everyone is whining and moaning, while I’m sitting in my chair thinking that I am not getting their whining at all because I like so much J. Crew right now!
Another possibility is that Anthropologie’s growth and positive sales trends are being led by their other categories. I almost don’t want to talk about this because I and many of you have said so often, we don’t really want Anthropologie straying too far from clothing into other categories like beauty. And yet, it’s hard to fight this ever pressing tide.
I have to admit…I’ve really delighted in the new small size beauty and self-care items sprinkled along the line to the cash registers. This idea, piloted by drug stores way back in the 1950s, proliferated into grocery stores (candy! magazines! chapstick!) and then beauty stores, and now Anthropologie. I think it’s lovely. I’ve found so many little treats to delight in and as weird as it may sound it makes me think of the old Anthro, where a lazy meandering path leads me to some wonderful discovery.
In addition to finding the Voluspa Checkmate Votive Candle Set ($48, above), which made a fantastic hostess gift she’s thanked me for in five straight emails, I’ve also find great gift ideas and stocking stuffers like the Demeter Zodiac Perfume ($40), the Pom-Nosed Reindeer Bar Soap ($10), the Mer-Sea & Co. Mini Spa Set ($32) which smells so dang good, the Rendez-Vous Soothing Gift Set ($88), the Relax Gift Set ($69), the Albeit Mini Lipstick Trio ($28) and the Faux Fur Cowl ($58). These tokens have been wonderful for me — especially for Hanukkah, where I exchange eight gifts with one group of friends each year. I need small all the way up to big!
Another area Anthropologie is killing it in right now is Home, especially entertaining essentials. Ok, and entertaining non-essentials that I want anyway. Their cheese boards and mugs in particular are killing it right now — this cheese board is on my must-have Christmas list, and my picky boyfriend absolutely loves these mugs in last year’s gold letter version that I bought as housewarming gifts when we moved into our current apartment.
So I wonder, are other categories besides apparel propping Anthropologie up? And if so, will this only accelerate their trend of moving away from clothing store and into de facto department store? If so, wah. (That’s me pouting.) I don’t want them to become a department store. But maybe the train has left the station.
And now, thoughts from Richard Hayne, Chief Executive Officer:
“…Quite simply, fashion is back and it’s selling. Demand for apparel driven partially by the shift in silhouette that I’ve alluded to in previous commentaries, finally gained traction in North America during the quarter. Regular price sales of women’s apparel was positive at each brand led by Urban Outfitters with the European group’s sales being especially powerful.
As Trish [Donnelly, Global Chief Executive Officer, Urban Outfitters Group] noted in her commentary, our merchants were able to read and react to the demand because of improvements we’ve made in our speed-to-customer capabilities. I believe these competencies, which we are still refining and implementing, will become increasingly important as the customer demands more newness and fashion trends have quicker adoption rates and shorter life cycles because of social media use.
Based on the positive response to our current fashion offerings combined with our improved ability to execute looks more quickly, I’m optimistic that our merchants will be able to deliver compelling fashion through the holiday season and well into next year. We are excited by the top-line potential created by the confluence of these two trends.
To capitalize on this potential, all brands will invest more in digital marketing during the holiday period when online traffic peaks. Our primary goal, of course, is to drive sales, but the spend will also target customer acquisition and retention.”
Social media is an area I’ve been rethinking for my blog. I’ve loved Instagram as a place to discover beautiful photography, and it’s since merged into a powerful platform for style bloggers. No doubt about it. I’ve enjoyed great growth there and gotten lots of new blog readers out of it which I like, but after trying out the buying cycle last Spring I felt…kinda empty actually. I enjoy showing off outfits as much as the next shopping lover, but I’ve grown out of the cycle of needing to buy something new every week. I simply have little desire to keep up with the editorial schedule Instagram’s algorithm demands.
I took the Summer off from Instagram and barely missed it. When I came back to it in the Fall, instead of feeling inspired by my fellow blogettes and their cute outfits and candid photos and such, I just felt tired. I’m sure I’ll go back to Instagram — every so often I still post a photo, but in talking to brands via both blogging and my day job channels, it seems like Instagram has peaked and brands are now looking for new ways to connect with customers, and I’m looking for something that feels a little less business-y and a little more like personal connections. But I also enjoy the business perks of Instagram so I suppose I’m talking out of both sides of my mouth here.
At some point blogging morphed from petition against the homogeneous fashion media to becoming just as homogeneous…all of a sudden we’re all looking for sponsors and such, and while part of me of course wants to be the cream of the crop and enjoy all the trappings of success, I do not possess the killer mentality that most of today’s top bloggers do. I can’t keep up with all the comment pods and posting 3x a day with different posts on each social channel and loop giveaways and I’m not interested in trying any of the paid formats to growth.
Anyway, I bring this all up here because per Mr. Hayne’s comments, one of the pitfalls of the social media cycle is that many bloggers (myself included at times) feel pressure to post new outfits each day, and this does indeed feed into the cycle of disposable clothing. I have so many items in my closet I love right now and I’m not really looking to add much to it. Do I need to replenish and replace once a season or so? Sure and I probably still buy more than the average person. But I don’t really feel the desire at the moment to cycle my closet completely or even 50%. So when I see many of my cohorts who are happily where I used to be, buying a lot and loving it, I wonder how we can possibly keep this going much longer.
Does everyone really need new clothes every quarter? I doubt it. More often than that? Can I want clothing more often? Of course, and there’s no judgement here. I just wonder how much longer this cycle of consumption will last before it breaks down.
Further comments from Mr. Hayne:
“Before I close, I do want to say a few words about the holiday season. We all know this time of year has become highly promotional and somewhat unpredictable. We have no reason to believe this year will be different from a macro perspective.
Having said that, we also know our three brands gained significant momentum as the third quarter progressed and this momentum has continued in November to-date. We believe our brands are better positioned for holiday this, versus last year, with fresher inventory, more giftable items, a plan to spend more on marketing and the benefit of renewed consumer interest in apparel. So, as I write these words, our outlook for URBN in Q4 remains cautiously optimistic.”
Many times on the call, the leadership cautioned that the holiday season is unpredictable. And they also mentioned that their strategy is pressing towards reducing markdowns and promotions. Yet I can’t imagine avoiding markdowns and promotions when nearly every other retailer will do them, increasingly, heading up to Christmas and right afterwards. What do you think?
What is your reaction to Anthro’s positive quarter, and the comments by the leadership team here? Are you shopping at Anthropologie for holiday gifts? What do you think of their clothing, home, beauty and entertaining offerings?
Urban Outfitters’ (URBN) CEO Richard Hayne on Q3 2018 Results – Earnings Call Transcript :: Seeking Alpha
Urban Outfitters (URBN) Stock Falls Despite Q3 Earnings Top :: Marketwatch
Urban Outfitters shares nudged higher by strong earnings beat :: Financial Times