Dive Brief:
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Urban Outfitters, which runs its namesake brand, Anthropologie, Free People and the Nuuly rental site, among other brands, reported that Q2 total company net sales rose 6.3% year over year to a record $1.35 billion.
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Retail net sales rose 3.1%, with comps up 2%, and wholesale net sales rose 15.1%. By banner, retail comps rose 7.1% at Free People and 6.7% at Anthropologie, and declined 9.3% at Urban Outfitters. Nuuly’s average active subscribers base expanded 55%, driving a 62.6% net sales rise.
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Gross margin expanded by 68 basis points to 36.5%, thanks to higher markups across all segments; retail gross margin expanded by 15 basis points to 37.2%, while wholesale gross margin expanded by 903 basis points to 34.7%. Net income rose 12.9% to $117.5 million.
Dive Insight:
Urban Outfitters may have had a record Q2 and posted strong year over year results, but there may not be much momentum given a slowdown that executives said began last month and has continued into August. UBS analysts led by Jay Sole called that out as “the key data point” in the company’s report.
On a call with analysts, CEO Richard Hayne described an increased hesitation to spend, saying that, while transactions are up, price is more of a consideration and customers spend a bit less each time.
“We believe this suggests a return to pre-COVID behavior when our comp sales expectations were typically lower and customers were more selective,” he said. “We expect this will become the new reality and ...will necessitate even stronger inventory and expense control. Our brand and shared service teams understand the new environment and are prepared to meet that challenge.”
Another sticking point is the decline at the company’s lower-priced namesake business. Brand chief Shea Jensen, a longtime Nordstrom merchant who arrived in January from Good American, said that a failure to grasp differences between millennials and Gen Z shoppers led to ineffective product and marketing strategies.
“As these shifts occurred and a new generation began coming of age, we lost focus on our customer, and we lost track of how to win with them in today's dynamic retail environment,” she said.
The brand is now in the midst of a turnaround, with the “ambition is to become the definitive brand for young adults.”
“What we learned is, while there is a great deal of opportunity for improvement, the brand is not fundamentally broken,” Jensen said. “
Meanwhile customers of the company’s Nuuly rental site seem to have shrugged off a monthly subscription fee hike, which was largely responsible for a 813 basis-point gross-margin boost, reaching 28.2%. Gross profit there rose by 129% to $26 million, and sales rose 63% to $91 million, driven by its average active subscriber growth compared to last year, per a company earnings presentation.
The company’s wholesale strength was driven by Free People, where wholesale sales rose 17.5%, thanks to increased sales at both department stores and specialty retailers. Namesake Urban Outfitters wholesale declined in Q2.
