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Sales are slowing at Urban Outfitters Inc.
“Consumer purchases were becoming slightly more considered,” Richard A. Hayne, Urban’s chairman and CEO told investors during a second-quarter earnings conference call on Wednesday. Haynes said conversion dropped slightly, and that price became a bigger factor.
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“Total transactions continue to grow, but the customer on average spent a little less on each purchase,” the CEO said. “We believe this suggests a return to pre-COVID behavior when our comp sales expectations were typically lower and customers were more selective. We expect this will become the new reality.”
That new reality is expected to require greater inventory and expense controls moving forward.
Hayne said traffic in stores remain strong, while online sessions were “double-digit positive” at three of the retailer’s four banners. “Fall products are selling briskly, with customers choosing the newest fashion. Yet all of our retail brands registered a slight sales slowdown in mid-July that continues in August.”
According to Hayne, one bright spot was Nuuly, the retailer’s youngest brand that is now five years old. The banner posted strong year-over-year double-digit gains for average active subscribers and revenue, as well as “record profits and became the number one fashion rental business in the U.S.,” he said.
Urban’s co-president and chief operating officer Francis John Conforti said Nuuly’s gross profit dollars rose 8 percent to $493 million, while the gross profit rate improved by 68 basis points to 36.5 percent. The rental banner’s revenue grew due to a “55 percent increase” in average active subscribers from year-ago levels.
As for the other Urban banners, Conforti said Anthropologie and Free People posted a “high-single-digit positive retail segment comp,” which he noted more than offset the high-single-digit retail segment comp decline at the Urban Outfitters brand. He also noted that the wholesale segment at Free People posted a revenue gain of 15 percent, driven by an increase in regular price sales.
Conforti also touched upon the “slight deceleration” in sales that began end of July and into August, adding that while new product launches resonated well, customers are exercising more discretion in their buying decisions.
“There are likely various macroeconomic factors influencing consumer behavior at this time, making it difficult to pinpoint specific causes,” he said, noting that the duration of the trend remains uncertain. “During this time of uncertainty, we believe it is prudent to keep inventory levels lean and manage expenses appropriately, and that is exactly what we plan to do.”