Urban Outfitters, Inc. Stock

Good morning, and welcome to day 2 of our Global Retail and Consumer Conference at Goldman Sachs. My name is Brooke Roach, and I cover the apparel brands and softlines sector here at GS. And I'm thrilled to introduce our next session with Urban Outfitters. Here with me today is Frank Conforti, Co-President and COO; Melanie Marein-Efron, CFO; and Dave Hayne, CTO and President of Nuuly.

Welcome, Frank, Dave and Mel.

Thank you very much for having us. Brooke, Goldman, thank you all for being here. I missed my morning workout this morning. So I talked normally already, and I'm probably going to be a little set up even more so than normal.

So opening remarks, it was just another incredible second quarter and quarterly performance for us, 10% top line growth to $1.7 billion. All brands, retail segment brands comp positive again, both channels comp positive, 3 people clicking on all cylinders at a 10% Urban Outfitters just continuing their turn and their momentum here in North America. Global, the brand comp was an 8%. And Anthropologie, 3%, which I think is something almost like 5 years of positive comps now for Anthropologie.

Nuuly, another just impressive quarter at 29% of top line growth and doing it driving that type of growth while increasing profitability dollars in rate and wholesale was up 19%. It was our most profitable operating profit quarter ever. We grew quarter year-over-year quarter by 11%. So just a fantastic performance. As proud as we are, honestly, of all of the brands, I think the one thing that I want to continually stress, and I think that maybe can be a little underappreciated for us right now is the strength of the collective. I think we've now had 8 straight quarters of record sales and record operating profits. And I sit here and I start to reflect now being here 20 years. I'm not quite the tenure Danny's got in the front row, but there's the bulk spot growing for sure.

But I think about 20 years ago, we really had 2 significant brands with Urban Outfitters and Anthropologie. And when folks were clicking at the same time, it was great. And then when one would sub its slow a little bit, it definitely caused some inconsistency in our performance. Now we've got 3 meaningful brands with the size of free people between Urban and Anthropologie and Free People. I think we've got to the best growth stories in the industry with Nuuly and FP Movement. And the power of the collective is just incredible. If you think about a few years ago, you had Urban Outfitters that we were going through a leadership transition and the business wasn't performing up to expectations. We had a start-up that was just starting to find its way in operating profit, but we were still delivering top line growth and bottom line growth on the backs of Free People and Anthropologie.

Right now, there's a lot of conversation about Anthropologie being a little bit off of the bull's eye. But you've got 3 people clicking on all cylinders. You've got Nuuly delivering robust growth and got the Urban Outfitters turnaround. I think the strength of the collective is honestly, the thing that we're the most proud of right now, the quarterly results and the individual pieces, we're certainly very proud of the brands and our leaders. But I think the strength of the collective is really something meaningful right now that is a strong differentiator for us and something that we're very excited about going forward just that diversification in the model. If you think about the age demographic from Urban to Free People to Anthropologie, think about the channels from stores to digital to wholesale to subscription rental. There's just a lot of ways and a lot of levers that we can win sort of quarter after quarter.

Great to hear. Thanks for those thoughts, Frank. Maybe we can dig in to Anthropologie, given that it is one of the most discussed topic by casters. What gives you confidence that the encouraging fall rates and positive regular price trends that you saw in July can translate into stronger performance for the balance of the year? How are you thinking about the cadence and time line to return the brand to mid-single-digit comp?

Great. So we choreographed a little bit. So I'm going to hand this one to Melanie. So she's not just sitting down there.

Melanie, do you want to talk to Anthropologie, please?

Absolutely. Thank you, Frank, and thanks again for having us. We are very optimistic that, as Frank said, they're slightly up the buy that they will return to a mid-single-digit comp growth at some point. And it's really -- the confidence we have is really based on the leadership and team that they have.

Tricia Smith joined the group over 5 years ago, and they've had 22 quarters of positive comp growth. And I think it's almost 4 years of double-digit operating profit rate. So we have -- they've had strong results, and it's really driven by the team that she's brought around here and the strategy they've put in place, modernizing the product, bringing in new consumers into the brand without like losing any of the diehard Anthropologie fans and modernizing the selling environment. The team's agile and kind of following the reads that they got this summer and they're confident that the business will improve.

I think for Anthro right now, we're in still such a strong fashion that go in such a strong bottom cycle remains. But they've gotten really strong reads with the early personal events that they ran, I think it was in the end of July. And then we're just so excited about where the fashion is going and excited about the reads that they felt like some of the things that we're winning they just needed to transition out of faster and core into the new, which is the model. So they're not -- sort of -- we always talk about the bull's eye. They're not sort of just throwing darts right now, they've got a strong amount of conviction as to where they're going and where the business and what the assortment should look like.

You're able to see it on digital first because it takes a little bit of time to transition and transition the penetration in stores. So you're able to see it on digital because we can merchandise digital a lot easier than you can the store. And they're seeing that strength in digital and then they're starting to see it in stores as that new product assortment comes through. That being said, we talk about Anthropologie and just transitioning to what they're excited about. It was still a 3% comp with a low teens operating profit. So as a business is transitioning to being slightly off the bull's eye. It's still very stable and a pretty good place to be.

You mentioned margins there. Let's talk a little bit more about Anthropologie margins, which I think are on track to be low teens this year versus mid-teens last year. Is mid-teens still the right long-term range for the business? And how should we be thinking about the building blocks get back there? And can that be achieved if you continue to comp in the low to mid rather than the mid-single-digit range?

Yes, absolutely. The mid-teens is how we think about Anthropologie and Free People running on a normalized basis. We think about those brands and how we like to plan those brands as sort of a mid-single-digit comp and a mid-teens operating profit. And when brands like Free People are clicking on all cylinders right now, they're going to deliver better than that from a top and bottom line perspective. And when they're going through a little bit of a transition, they're going to deliver a little bit lower than that, but like I said low teens isn't so bad.

They don't need a Anthropologie that is they don't need a mid-single-digit comp to get back to mid-teens. There -- most of their degradation right now is largely about -- is about markdown. So once they're lapping and anniversarying, it's an opportunity actually for next year, some of the higher markdowns that it's taking to transition out of the product that's not forming as well. They're able to recover those margins. In addition, when you think about the macro events, we're now starting to and maybe hopefully, it will stay is starting to transition into a more favorable tariff environment for us on a year-over-year basis. That will be the case for the back half of the year and into the first half of next year. Of course, there's always something, right? So we'll see what happens with fuel and what those surcharges look like as those prices continue to rise. But at least from a tariff perspective, it is a favorable environment, and that should be able to help them in their margins as well.

Dave, let's bring you into the conversation and talk a little bit about Nuuly. You just grew over 30% year-on-year, which is impressive given the scale of this business, where you briefly surpassed over 500,000 subscribers, a real achievement. What do you see as the U.S. subscriber TAM today? Where are you most penetrated and where do you see the biggest opportunity?

Yes. So talking a little bit about Nuuly where we are now versus where we started a little bit back over 500,000 subscribers now. We started -- when we started this in 2019, we did a fair amount of research upfront and really wanted to understand the market potential of this idea before we got into it. So one of the benefits we have is we can survey our existing customers across the brand. So we did a lot of that survey work. And there's around 23 million or so women in the U.S. between the ages of 20 and 44. And we surveyed a population of that group and found that roughly 70% of them responded favorably to the idea of rental as a business model before we had even gotten live.

So we have a good sense that there's a population somewhere in the range of 15 or so million or so just based on that survey response that we think is an addressable audience for this business model. And I understand why this question gets asked the Nuuly because it's a very new business model. It's not -- a business model is very common here in the U.S. So it's -- everyone in the room probably is curious about what the potential is here. The interesting thing though, so we think that, that market out there exists. And as you were saying earlier, right, you were wearing your Nuuly hat and a lot of women had known about the brand, but they did they haven't tried it yet, right? So the amazing thing that we see is that there's still so much awareness that is not -- people might be slightly aware or might not be aware at all. And our job is to get that out to get them to be aware, right?

So building awareness, growing the audience, growing the subscriber base is really what we think we have the potential to do, but we are so untapped in terms of awareness across the country. And we just think there's a ton of potential. So yes, we think the market is quite big, and we think we still have a long way to go to really continue to capture it.

I certainly remember a few years ago, sitting in front of investors and we said that we thought it could be a $1 billion business and 10% operating profit. And I think sort of like hope you guys watching heads spin around a little bit. And knock on wood, Dave and team just crushed it and should be north of $700 million this year. With so much opportunity in front of you, I think we couldn't be more confident that this is north of $1 billion business as well as the profitability that the business is able to throw off.

I think the one thing for me that excites me equally as sort of the TAM and the size of the top line opportunity is how sticky it's been. I think it's been stickier from a retention perspective than we ever really anticipated. Typically, when customers try a new a new business channel or a new concept. They can be in and out. And we've seen from cohort to cohort, the retention is very, very similar. And it's a concept that they really -- they do enjoy and they use in their lives. And I think Dave was very smart about allowing the program to be flexible. And you can pause anytime you want. So if you're you want to buy an extra box for rush week and you're in a sorority and then maybe pause over the summer or if you're traveling and you want to buy -- you're not going to be home and you want to pause, and that's okay. But just the stickiness of our active subscriber group has been -- has honestly has been really impressive. And then when you think about the size of the opportunity, there's so many that just haven't tried it or unaware of it as well.

Dave, as President of Nuuly and CTO, can you talk a little bit about where you're seeing the biggest opportunities for technology, personalization and AI to improve the customer experience and drive engagement?

Yes. Look, we do a lot of listening to the customer and listening to our subscribers in Nuuly. And I'll answer this kind of for Nuuly and the Urban more broadly, but specifically for Nuuly, they want to know that they can order what they want to order, they can find and discover the items that they want for that event that they have or for dinner that they're going to. So discovery is incredibly important. The ability to get the items when they want them and make sure that they get them on time.

So we look at the entire customer journey and try and think of, all right, what are the pain points in that journey and where can we focus technology and kind of innovation to make that pain point an easier experience. So from a personalization standpoint, we're very focused on surfacing more intelligent products that are based on her previous history. So what has you rented in the past, what has she viewed in the past, what has she viewed in the past that she skipped over and not decided to rent taking in all of those data points and then serving up the next best item. Our rental assortment right now is over 34,000 choices online. So we do know that, that can be a fairly broad and somewhat overwhelming experience if you don't have an easy way to discover merchandise.

So personalization becomes a very important thing to surface the right item at the right time to the right subscriber. We spent a lot of time on improving the search capability. So we're not just now having our search solution kind of return results based on just kind of keywords. We're having them return results based on the semantic intent of what they're typing into the site. So those types of technology improvements are things that we're focused on. The other kind of big pain point is that she orders 6 items from her newly subscription a month if 3 of those things don't fit the right way, that's a disappointing experience. So we spend a lot of time making sure that fit can be something that is more intelligently conveyed to her when she's deciding what she wants to rent.

That's a lot of data that we're getting back from subscribers as they're browsing around, as they're giving us feedback based on what they have rented in the past, they're saying, did it fit right, did it not. We use all of that data to then say, okay, you look like this person here based on all of the 500,000 subscribers that we have that have rented that thing or rented things like that, we can give you now a very strong fit recommendation but make sure that we're giving you or you will have the highest likelihood of being satisfied with what you're renting. So those kinds of experiences where we try and use the data that we're getting from the platform to make the most intelligent experience and most convenient experience for the customer. Those are just 2 examples of the ways that we're trying to apply technology and data to the experience, but it's those -- it's based on listening to the customer and understanding what her pain points are and then trying to apply fixes.

I'm going to sort of just harp on the benefit of the collective here. The amount of engagement that Nuuly has with their subscriber is incredible and the -- how rich the data is -- honestly, it's stronger than any of our other brands, which obviously, there's a connection with the brand. But if you think about the retail experience, it's fairly transactional. The amount of engagement with subscription is very different. Dave and team share that information back, right? So 45% to 50% of the assortment are Nuuly sister brands at Urban Outfitters, Anthropologie and Free People. So as the Nuuly platform receives feedback on fit and maybe this runs a little smaller, it's literally large or I like this or I like this fabric. All that information gets fed back to the sister brands and benefits the overall ecosystem of the entirety of URBN. So it's just great to have that level of engagement and to be able to have that amount of data that we're able to share across the board within our business.

Great. Let's shift to the URL brand. You've had some incredible momentum there, but you're coming up against some tougher comps, there's a lot of investors that are nervous about Europe and what is happening there given what we're hearing from other companies. What are you seeing? What gives you confidence? And then Frank, can you talk a little bit more about the profitability of the brand that -- what is on track to achieve this year?

Sure. So let me start with Europe. I don't think the market there is in the strongest position as we are here in the United States. That being said, the Urban Outfitters brand is just operating on all cylinders is really performing exceptionally well. There is a strong fashion cycle. And typically, those start in Europe, and it continues to be there. There's no question in our mind, whether it be in the U.K. that exist today or in the European market. The EU that we think we're gaining market share.

You've got a really strong team there. You've got a really strong product creative and marketing team there that has great connection with their customers, and have really hit it out of the park with the bottom cycle and continue to feed newness and new silhouettes into the assortment. So we think we're gaining market share. Honestly, we've planned that business a little more conservative in -- for the European market and in the mid-single digits, and they've made liers out of us the last few quarters. They're up against a multiyear comparison right now. and honestly have not shown signs of slowing down. So we're really excited about the continued growth. You're seeing it in stores as well as in digital, but really impressed with how the stores have performed.

For North America, you're right, it's about comping the comp now. And we turned the business comp positive last year, and now they're up against those results. And we're confident that they can continue to deliver. I think the execution of the brand is absolutely on point, and it always starts with product. Reg price sales is what's driving the business. now, but it's not just about the product. I think the whole engine has to work together. The marketing creative is critically on point as well. And when you say what gives us confidence that we can continue to deliver, reg price sales starting with product is driving the business. And then you just look at sort of the connection with their consumer and Urban Outfitters isn't a brand that's going to win on the lowest price on the street. And it's always been a very competitive space. It's always been a consumer that can be fairly transient versus some of our other brands where the consumer can be very loyal.

So it's really important that they show up where and how to what is relevant for their customer. They're driving double-digit customer growth on digital right now. And if you look at some of the collaborations that they've done, the launches, the university events, the artists that they're partnering with they've gotten that it factor back. That cool factor, something I didn't really experience as much as a kid. But they do, and they're relevant again. And there was a point in time there where we weren't executing well, where I think they have lost a little bit of their relevancy and they have lost a little bit of that cool factor. And they've gotten that back now. So product is always the most important, delivering the right assortment at the right price, at the right value. But I think the marketing and connection of that brand is really critical as well and being the right -- being that cool brand that has that relevancy. And we're seeing it right now.

And I would tell you, Shea and team are not scared of having to comp the comp. They know that they owe some business back. They know the size of the opportunity that's there, and they're very excited about it. As it relates to profitability, we're still on path to hit low single-digit profit rate this year, and that's really with improvement in North America. I think we think North America would likely still be at a bit of a loss and improve profit dollars and rates at the Urban Outfitters Europe business. And within North America, they're making really nice progress. I would tell you things like fuel surcharges, it hurts urban more than our other bands. You just think about they have a lower AUR than Anthropologie and Free People. So if there's whatever, a dollar surcharge on an outbound delivery truck, it hurts them as a rate more than it does the other brands.

So if you think about things like inbound freight, which is more expensive right now, it's hurting them in an IMU perspective. So I think they could have -- they could have captured it even more if it wasn't for a bit of the macro, but they're doing a great job in showing favorable markdowns on a quarter-over-quarter perspective, leveraging off on cost like store occupancy. You heard about us leverage store occupancy in the second quarter at the URBN level, that's driven from Urban Outfitters and from their comp and then leveraging store occupancy. That's the biggest driver there and leveraging off on their fixed expenses. Even though they're connecting from a marketing and creative perspective and putting more out there, they're also seeing leverage and opportunities there. So we still feel comfortable with how we plan the year heading into the year that they could hit low single-digit operating profit rate.

As you look forward into the following years, obviously, you've got the macro from a tariff and eventually, hopefully, fuel will -- the surcharges will subside, which is opportunity for them. But it's about continuing to comp to comp. They've shown really nice improvement in markdown rates. I wouldn't say that their historical best, but most of that need is off the bone and based on how they're operating they definitely have an opportunity in. Some of that is macro driven, some of that's execution-driven as well. And then it's about delivering top line comp. And when we look at the customer growth and the strength of the customer growth and the connection of the brand, when we look at the strength of reg price sales within key categories like women's apparel and home and accessories and men's coming along as well now, it leaves us confident that we can not only finish the year, but drive it into next year and really start to continue to see improvement in their overall global brands operating profit rate.

There's a lot of margin drivers that we should start to dig into. But one last question before we shift there. Let's talk a little bit about Free People Movement. We're seeing some incredible results there, but the active category has really been an area of debate the last few quarters. What's driving and enabling the outperformance? And do you have that similar cautious view on active as a category in aggregate?

I'll take that. So we are super excited by the growth of FP Group in general, but Movement has really had incredible growth. And we still think it will go farther. I think they are uniquely positioned between technical performance and style, and that really has differentiated them in the market. They're relatively small. They're about 30% of FP Group sales, and we think there's lots of runway. There's approximately 100 stores in the United States. We know there's opportunity for at least 2 to 3x that just domestically. And then that doesn't even touch international. We've just started to begin to distribute through direct-to-consumer channels for FP Movement and also have some very strategic wholesale partnerships to start to drive that global or international awareness. And we think stores will follow for that one. So I hear you on the industry in general, but FP Movement is really running well.

Okay. I'll tell you, and I totally understand where the -- where that space comes from, and it's not -- it's exciting and maybe the rising tide isn't rising all boats, fashion differentiation of FP Movement is so different than others that are out there. The breadth of their assortment is so different. Yes, they have technical performance. They've spent a lot of time as examples, working on technical bras from a performance perspective, and they're honestly just doing incredibly well. That being said, when you go to the store, like there's a baggy bottoms trend right now. FP Movement is doing it, right? It's not just about tight leggings. They're to and from their outerwear, just the fashion elements, the look, the embellishments, the fabric, everything that they've got going on.

This is a very differentiated brand. As Melanie said, 30% of the total FP group, they should eclipse over $500 million this year. This is a brand that we don't know where the -- it's well into the billions. It's our one brand that serves the broadest age and income demographic versus all of our brands. So their sort of addressable market is much broader than any of our other brands. Their price point is much broader than any of our brands, and I think end use as well. So we're just -- I understand some of the challenges that are going on with some of the other players that are out there in the industry. It does not put caution to us based on our performance at all. We're not seeing it in our business, and we're seeing just a really great customer growth and great customer connection and you can see that in the top line.

And you're also talking about a business that is close to Free People's profitability as well. Their store, 4-walls, are exceptional. And you're talking about a business that's running low double digits sort of in that low teens to mid-teens operating profit already as it's in a growth stage.

Let's talk about some topical things. First off, we're asking every company at our conference today, the view on the health of the consumer. What is your expectations for the environment in the second half of '26 relative to your recent results? Do you expect this to be the same, better or worse? And as a follow-up, do you expect the health of the consumer to be better, the same or worse in '27 versus '26?

Yes. I think my answer for both is similar. And that's just based on what we see. I'm certainly not a consumer expert and economics major to predict kind of the future on a broader perspective. But what we see right now is there's a really strong fashion. We -- employment is still in a good place. Wages are up. And we're seeing a ton of engagement, and we're seeing 0 price resistance. Free People, Anthropologie, Urban Outfitters, we're seeing 0 price resistance in the business, and we're seeing the same level of engagement activity, traffic conversion, as we have been seeing for quite some time right now.

So we haven't seen any change in the consumer behavior nor have we seen sort of a slowdown for that appetite for fashion right now in our business. And until we do so, we're going to continue to support that consumer. Of course, we run a nimble model. And if we have to adjust, we will at some point in time if that comes to fruition. But we're not seeing that in our business right now. We're seeing the consumer really healthy and engaging and engaging at healthy price points driving reg price sales.

Great to hear. On pricing reg price sales, another question we're asking all companies is do you expect your prices and AUR to be higher, lower or the same in the back half of the year versus the rate that you delivered in the first half?

Yes. I would say higher, but I'm going to caveat that. It's not about taking price on year-over-year items. It's purely about mix. We're in a very, very strong bottom cycle as an example. And your bottoms to tops ratio is different than it used to be, whereas bottoms are driving more of the volume and typically a knit top or a soft woven top is less expensive than a bottom. So because of that cycle, we're seeing that mix benefit and benefit our AUR as well as we're seeing new items that we're putting into the assortment where we're putting some extra value, some quality and some better fabric into the product, and we're seeing no at all from the consumer.

But it's not about sort of macro pressures, whether it be historical tariffs or fuel surcharges and us looking to raise the price on consistent items on a year-over-year basis. It's much more about mix than about where the fashion is right now. So I think we've had our AURs as the total company has been up for the last several quarters. And I think that will continue for a period of time just based on where the fashion is it is right now.

Brought up fuel returned several times. It is very much on investors' minds, especially with some of the fuel volatility that we've seen recently with oil. Can you talk a little bit more about the drivers of gross margin expansion in the back half while you navigate these fuel surcharges? What supports that outlook? Where do you have the highest level of confidence? And to what degree can you pull levers to offset oil at a higher rate?

So our guidance for Q3 is 25 to 50 basis points of gross margin improvement. And that's really being driven by an improvement in the tariff environment versus last year. If you think about last year, we started to see the highest tariffs in the third and the fourth quarter and lapping a more favorable tariff environment would lead you to improved gross margin. Now that's being slightly offset by the fuel surcharges that we're experiencing now. I think we've talked about 70 basis points per quarter between inbound freight rate expense and delivery. Those are the 2 drivers. And then the last driver of our gross margin improvement we had in the beginning of the year, too, which is occupancy leverage, which Frank mentioned.

And you're right, the teams are constantly working to do things like less expense bringing in things in less expensive mode, but that's really how we're guiding the street and our forecast for the rest of the year. And we still are maintaining our forecast of improving gross margin by 25 basis points versus for the year despite the fact that the fuel store charges have come into the world in the past 6 or so months.

And as it relates to next year, who knows, right, what happens with fuel, but the reality is we'll lap it. So let's just say that the environment stays consistent, we'll start to lap it in the second quarter. You've got a favorable tariff environment, at least for the first half of the year next year if things remain the same and a little bit into the third quarter.

As you mentioned earlier, Anthropologie still low teens, but not how we would normally plan them to operate. And so they're going to have markdown opportunity as it relates to next year. You've got the Urban Outfitters turnaround continuing to grow their operating profit rate. And you've got Nuuly continuing to grow and to grow their profit rate as well. So there's a lot of opportunities that we have over the long-term horizon to continue to add profit to the business. I would tell you, and I think the networks have to be favorable personally just from a -- we probably won't plan Free People as high as they are from an operating profit perspective right now. I just think it's the prudent thing to do. But when you've got all the other opportunities like the favorable tariffs, fuel once it does eventually subside, you've got Urban Outfitters improvement, you've got Anthropologie improvement, you've got Nuuly improvement. Again, I'm going to come back to the power of their collective and the power of their portfolio, you've got enough levers that are there that can drive long-term operating profit dollars and rate growth.

Clear. One question that we're asking all companies at the conference. As whether or not they think that there's more margin headwinds or more margin tailwinds into 2027 versus 2026? You sound very optimistic in that last answer. Should we assume that, that means that you see more tailwinds ahead?

I think I'm more optimistic about what's specific to us and to our company. I think from the macro environment, it certainly feels like oil and gas are going to be a thing for a period of time. So I think that's going to be a headwind. Like I said, the tariffs are a tailwind. I think we're still excited about where the fashion is as well. And that's always a healthy spot for our business to be. So that still feels very comfortable for us.

But I think it's much more specific to our internal opportunities. The Urban Outfitters turnaround, Nuuly's continued growth, FP Movements, continued growth in connection with the customer. Anthropologie getting closer into the bull's eye. So when we think about the internal things that we can control, we're very excited. And certainly, I would say we're in the early stages of technology, but we're excited about what technology can do and the amount of information that we can collect and that we can use to drive the business and some of the projects that we have going on. We're working on a product life cycle project where we can speed up our calendars. Last time we did that was 2016, it was really impactful to our business. We're now running several hundred basis points lower as an overall company's effective markdown rate 10 years later after doing it, and you think about things like marketing and personalization that Dave mentioned earlier. And the strength of what technology can do there as well. I think that's also going to be a driver. I think it's going to be a driver for the next several years.

That's great to hear. It sounds like a lot of tailwinds ahead. Thanks, Frank. Thanks, Mel. Thank you, Dave.

Thank you, Brooke, and thank you, everyone.

Great. So good morning, everybody, and thank you for joining us. I'm Adrienne Yih, Barclays Specialty Retail Apparel and Footwear analyst at Barclays. And it's my pleasure to welcome Frank Conforti, Co-President and Chief Operating Officer of URBN; Tricia Smith, Global Chief Executive Officer of Anthropologie Group; and Melanie Marein-Efron, CFO.

So I always like to give a tiny little bio for those who are new to the story. Frank, you joined URBN in March of 2007 as Director of Finance and you just moved your way up through the career ranks throughout your career there. You were CFO before Melanie and in 2020 was appointed Chief Operating Officer.

Tricia, you joined in Anthropologie or URBN in April of 2021 as the Global Chief Executive Officer of Anthropologie Group. And prior to that, you had been at Tillys. And before that, merchandising and many different functions at 25 years at Nordstrom. And then Mel, you had joined in 2013 and were promoted at the simultaneously to CFO in 2020 when Frank was promoted to COO.

So the past 5 years, 6 years since you both had changed jobs and since you came on board have been tremendous successes in terms of the overall business. The business is so different today -- and I think I've covered the stock there, I say 20-some-odd years. I know you...

Well, I was looking at Tricia's face when you said 25 years. You could have just said nice 10 years.

I know. But the company, I remember when we had started covering it was 2 brands. And it was those 2 brands, and we were constantly wondering which of them was up trending and overall, it was a very apparel-centric -- and I think today, really what the company has transformed into is the very unique business model of a platform and a portfolio of brands. It is not easy to manage a portfolio of brands, all of which are growing.

And I think that -- and I think that, that has been sort of the secret sauce here. I was looking at stocks kind of like the performance, and you're one of the few that's up year-to-date. So that's A+ there. But also those who are trading within 10% of the 52-week high. And that is an even smaller cohort. And I think that speaks to the fact that you kind of moved outside of maybe a shorter-term uninvestable philosophy and you're now on the radar screen of a long-only investable compounder.

So long introduction, but I guess let me start, Frank, we always start -- we're starting the conference this morning with everybody talking about the macro and the consumer. Oil is back over $100 [ or Gardner ] -- or close to it, gas is back over $4, doesn't seem like things are moving necessarily in the right direction for the back half. So talk about the health of the U.S. and the European markets sort of beginning of the year to your second quarter? And then how are -- as you've seen all the earnings unfold around you, are you seeing any differences in any of those markets?

Yes. Well, thank you for having us, and thank you all for being here on behalf of URBN. As it relates to the macro consumer, obviously, we can only speak to our customer, which if you believe there's a K-shape, we're sort of on the top side of the inflection of the vertical of the K.

But from a macro perspective, right, employment remains strong, wages are going up. Yes, there's inflationary pressures. They've been there for some time now. What we see is an incredibly resilient and very healthy consumer. We're seeing no price resistance. We are certainly and have been in a strong fashion trend, the bottoms trend and silhouettes and fabrication, those types of things have changed, but the bottoms trend has remained strong. And our business has remained strong.

And I don't think it's very different in Q1 to Q2 than it has been for even a longer period of time for us and that our consumer has remained incredibly resilient and very healthy. And like I said, our best gauge of that is being able to look across the strength, as you talked about the portfolio, look across multiple brands, multiple geographies and multiple platforms, whether it be stores or digital.

We see strength across all of our modes of sales and across all of the brands, and it's a regular price that's driving it, right? It's not a promotional cadence or marketing -- creative marketing that's driving it. I mean, obviously, marketing is critically important, but I meant marketing from a promotional standpoint. So the consumer, for us, remains in a very healthy position, and we think that's going to continue. We're excited.

Great. Mel, I'm going to ask you about the 5 brands in different stages of growth. So we've got the more mature Anthropologie. We've got a turnaround happening in Urban Outfitters. We've got Nuuly, which is kind of next-generational kind of platform. And then we've got Free People brands, both of those in proven growth mode. So are Free People brands, both of those in proven growth modes. So either both of you or one of you talk about kind of like the -- from a financial perspective, kind of where we are in the journey and what those margins could look like? And then maybe at a higher level, just how they contribute and work all together.

Yes. Well, why don't we let Tricia lead off with Anthropologie -- we'll go in Anthropologie -- where Anthropologie in their journey.

Yes. It's going to be a curveball, Frank. Yes, we are really pleased. Thank you for mentioning that, Adrienne. I think with the progress that the brand has made over the last 5 years. And that's really, I think, come from our strategic priorities that we put into place. And -- we have an incredibly strong team.

Our entire senior executive team has been together for about 4.5 years and has been working on those strategic priorities. So I think we've seen tremendous growth. Our first kind of pillar of our strategy was around introducing our brand to a new generation of customers, and we've seen 40% growth of our customer base. And I think the thing I'm most proud about that with Anthropologie is it was very important for us to make sure that we weren't alienating our existing very, very loyal customer. So we watch very closely every quarter as we're growing new customers that we're still growing our retained and our reactivated customer base, and that's been happening really consistently.

I think that's probably the thing that our team has been the most focused on and then made tremendous progress in product. So we've really built up our design, our buying, our production teams. Our own brands are now growing to north of 70% of our apparel business. We've launched 3 new brands. And so I think kind of the combination of really focusing on growing our customer base, introducing to a new customer and then the evolution that we've been able to invest in, in terms of how we're designing and producing product has contributed to that growth over time. So proud of what our teams have accomplished.

I can speak to -- I'll speak to Urban Outfitters and I'll let Melanie speak to the FP Group now as we're referring to it. So Urban Outfitters really feels like they've turned the corner and there's stability in the turn right now. Obviously, that's more so in North America than Europe because Europe really wasn't -- didn't go through the same challenges that North America did.

Just speaking to the Urban Outfitters brand in Europe, we continue to honestly exceed our expectations. They're now going up against a multiyear stack of really healthy high single and double-digit comps on a multiyear stack. I don't think the macro there is necessarily as strong as what we're seeing here in the U.S. I think it's much more about their execution. I think they're executing extremely well from a fashion perspective, very well from a creative and from a marketing perspective and connecting with their customer.

I would say from a store perspective, for Urban Outfitters in Europe, we're largely penetrated in the U.K. market, still plenty of room for digital growth. But the European market is a large opportunity for the Urban Outfitters brand. They've seen some real success now in Germany, in France, in Spain. And it's a meaningful market. It can double their business for them, and it's really around stores and around digital. And we're excited to see that business grow and grow profitably.

For North America, it certainly feels like knock on wood, there's really healthy stability in the turn there. I think Sheila, Shea and team have done a great job. You've seen consistent high single-digit comps from them. We're sort of in the second leg of the profitability recovery. If you remember, for those of you that heard me speak before, we talked about the first being margin recovery and specifically markdowns. When the brand was struggling, they had to be too reliant on promotions and markdowns. We've largely recaptured that markdown rate.

There's still a little bit more room to go, but largely, they're doing a much better job there. Inventory is much, much more disciplined and the fashion is appropriate. So they've recovered from that markdown perspective. The second leg is really about driving comp growth. And now they've now driven consistent high single-digit comps for a few quarters now. And we see them being able to sustain that momentum.

What gives us the confidence there and the sustained momentum is really around customer acquisition. The brand had lost -- they lost a little bit of their cool factor, right? It's not a brand that wins on low price. They win on having the right fashion at the right price value and really connecting from an experiential standpoint, whether it be digitally, mobile, through events in stores. And they had lost a little bit of that cool factor, a little bit of that relevancy with that younger demographic.

Now we're growing double-digit customer growth on our digital platforms. I think their marketing campaigns, their collaborations, what they're doing in universities, what they're doing on things like Reddit and connected TV. You've seen them kind of get that 'it' back and get their mojo back. And that's what gives us confidence. There's always ebbs and flows as it relates to fashion cycle, but I think they're connecting with that customer again in the right places in relevant ways.

And again, it's a regular price that's driving the comp, which always leaves us more confident about sustainability of our momentum. As it relates to Nuuly, we couldn't be more excited. I think certainly, there were a lot of heads and kind of side eye when we launched the concept a few years ago, and we said it could get to $1 billion. We think knock on wood, that they can eclipse $700 million this year with high single-digit operating profit.

So I think there was an equal amount of questions as it related to Nuuly of what could the size of the business be from a top line perspective, but could you do it profitably? And we've certainly have proven that we can do so, and we think that there's growth in room for an opportunity there. As it relates to kind of where they're going and where they are in their growth trajectory, it's probably one of the brands we know the least about as far as where they can go.

I think we remain more confident than ever that they can exceed $1 billion. We think they can continue to drive 100,000 or if not more, of active new subscribers growth year-over-year. Every time we look at the total addressable market, it grows bigger and we look at awareness, it's still relatively low. Retention rates remain really -- honestly, really high and very consistent from cohort to cohort. And there's a lot of new opportunities that relate to what we call ARPU, right, the average revenue per subscriber or per user that is untapped opportunity for us.

So we're very confident that this business has a long headway in front of it from a top line perspective. We don't know what the ceiling is, but we're confident we'll exceed -- be able to exceed $1 billion. And we remain more confident than ever that it could be a 10% plus operating profit business. Like I said, we believe it will hit high single digits this year, growing off of what we delivered last year.

And there's really a few things that drive that profitability improvements, not just the core profitability, if the improvements come from scale. And with the confidence in the top line, we're confident that, that scale will add to leverage on fixed costs and your kind of core base that you don't have to market to in the same way.

And then the second biggest opportunity is really around logistics. We spend a lot of manual labor in order to get that box out timely, clean, the product looking good to the customer. There's -- it's -- there's a lot of fruit on the tree from an automation perspective and from sort of just engineering and perfecting how we execute from a logistics perspective. So we feel good that there's a healthy amount of opportunity there to drive not just profit dollars but profit rate improvement as well for the Nuuly business.

And then for FP Group, which consists of Free People and FP Movement, they had another great quarter, growing 15%. We believe that there's still a lot of growth to be had within FP Group. So FP Group consists of Free People, which has had a long history of sustained growth being driven by We The Free, now Free-est and just continuing creativity from that brand. There's still distribution opportunities, both in North America as well as Europe.

And then people often ask about FP Movement. We still think that's in the early innings of the growth and will provide a tremendous amount of growth for URBN going forward. Just to put it in a little perspective, it represents about 1/3 of the FP Group sales. And when you look at it domestically, there's just about 100 stores in the United States. And we think the opportunity is 2 to 3x that to be as big as 200 to 300 stores just in the U.S.

And then Europe -- when you think about Europe and international, they're really just beginning to grow global brand awareness, both through direct-to-consumer channels as well as very strategic like high-profile wholesale partnerships. And that really will trail the way for expansion of new stores internationally. So we're super excited. We brought in a new President this past -- earlier this year. Her name is Andrea Perez, and we are really excited for her to lead them through the next chapter and we believe that it can be a $1 billion brand by 2030.

Great. And just -- to follow up on the FP Group, that's where the majority of wholesale revenue is from.

Yes. That's correct.

So what are you seeing in the wholesale channel? I mean yours is very different because you're mostly in specialty. But the health of the wholesale channel, we've heard some things about and retailers not wanting to place a lot of inventory, being more conservative. But with the heat that we see from FP Movement and FP, that's not the case here.

That's correct. We have had -- continued to have very strong quarters in wholesale, largely being driven by FP Movement, both new distribution as well as comp growth of our existing partners. So that's super exciting. I think the strength of the product has really helped stabilize that business where others may be seeing some hesitation.

Great. So then that brings me to the total notion of retail compounder. And every once in a while, people find that to be somewhat of an oxymoron. But the fact of the matter is, Trish, from the time that you've been there, it's been 5 consecutive years of Anthro growth, maintaining now low-teen margins. These are healthy businesses. FP from its inception has just been a consistent compounder. Urban seems like it's going to get its mojo back. And so we see retailers have high watermark moments and then they kind of overstate their welcome. How do you control that? And maybe I'll start with Trish because yours is sort of the biggest entity right -- continue to compound over great numbers.

Yes. I mean, I think it starts with the team, right? I think it starts with empowering teams to think of new ideas to find white space opportunities to lean into our strength. We've spent a tremendous amount of time really looking at our speed-to-market model, right? So as you see changes and shifts in the business and you see seasonality happen, we've had a couple of quarters where we've seen some changes in our business, too.

But I think the thing that allows us to continue to maintain that profit and that growth is our ability to really pivot and for our teams to be able to move quickly. And I think that's a capability that probably wasn't ingrained as deeply in the Anthropologie brand a few years ago. I'm incredibly proud as we evolve and as we grow and as the stacks get harder and the comps get tougher of their ability to be able to think about new ways to grow the business.

We're testing new categories. We're testing some different price points. We're looking at opportunities to look at kind of quality of fabrications that we use. And we're in kind of the early stages, I think, of some of the newer brands that we launched to be able to continue to gain market share in categories that we haven't been in before.

So I think it's about continuing to make sure that we stay connected to our customer, that we show up where they are, that we're thinking about new ways to engage with them. The speed of change in marketing is tremendous these days. And so I think ensuring that you're nimble, that we've got some flexibility and that we've got some speed in our model to allow to adapt and evolve with customer preferences is really what our team talks a lot about and is really focused on.

Great. I'm going to stay with you for a second because on the call -- so we've been, as Dick would say, 7 years into a silhouette shift. And the prior one was like 17 years, right? It's started when you joined that kind of like big over the little. So one of the things that I think Dick and -- Dick and Meg Hayne really instill across the organization is calculated risk-taking, right?

So you're never sort of so long into something that you have to retrench from it. And sometimes, we've seen the company take risks forward maybe a little bit early, but always on the front foot. So as we think about sort of what's coming next, we went from performance run and then to the wide leg with the low profile bottoms or shoes to more brown shoe. What comes next? And how do you calculate kind of moving forward without overstepping, getting ahead of yourself?

Yes. I mean, that is the art of retail, right? I think we -- and you're absolutely right, every week, every other week, I meet with Dick and Meg, they're constantly pushing the teams outside of their comfort zone sometimes. And I think -- the ability to be able to really use the digital channel to test and get product very intentionally in front of customers to gauge reaction is incredibly important. It's a super exciting time, in my opinion, in fashion right now because there's so much range of newness, particularly in the bottoms category.

So it used to be there was one silhouette, and then that declined and then another silhouette took over. That still happens to a large degree, and we're kind of squarely in this kind of larger wide bottom cycle still, but there's so much newness in terms of as those shapes evolve and the fabrics then that you can put it in that feel really new to the customer. So I was just in our Newbury Street store yesterday and the range of bottoms that we have in our stores, it's so evolved from where it had been, right?

So we've got different shapes and denim. There's so much newness in pants, not only in fabrications, but an end use and a very, very casual nature as well as kind of a polished dress-up nature of bottoms the Anthropologie customer has been able to serve. So I think really thinking about the growth of newness and then taking some big risks and some big swings and they don't always work. But when they do, it allows you to get to gain that momentum quickly and to be able to be on the forefront of that growth. So that's always the opportunity, the challenge and I think what's fun about fashion retail in general.

Great. The other question that I often get is, how is the URBN able to differentiate the 3 brands that they have not have a lot of overlap. So maybe -- I mean, we kind of know what target market you go after. But at the end of the day, people trade up, they trade down. They see things in different things that they want. So how do you keep them separate from an operational standpoint?

I think it's something that we have remained focused on and committed to since the day we launched a second brand and certainly through my 20-plus years there now. It's one of the first things that they ingrain in you is from a shared services perspective, I think that's some of the strength is that we're able to leverage things like sourcing, technology, finance, logistics in those big facilities.

But -- and -- but as it relates to the brands and the customer, those walls remain tall and thick. And that leadership team is unique to that brand from a product perspective, from a creative perspective, from a marketing perspective because it's their customer. It's their handwriting, it's their execution, and we do not run from building to building and say, "Oh, this fabrication is working. You should try this." That's an absolute no-no.

And like I was told that even as a finance guy when I first came, I remember Glen Senk telling me literally like you're going to be a part of this meeting and you don't run over to the next meeting and share, "Oh, Free People said, the crop top minis," and he's, like, you don't even know what that is, and I didn't at the time. He's like if you don't share that type of information, they own their customer, and they own their experience. And we bring in as a company, as you see here, just incredibly talented leaders to run and own their business. And we, as a portfolio of companies provide what I hope oftentimes, Tricia, is great shared service support, but the brand leadership owns their customer, and they own the customer experience. And we think it's critically important that we don't look the same across all of our banners.

And we think it's the benefit, right? The benefit to the portfolio and the diversification of the portfolio is that allows one brand to at certain times, even outperform and you have the strength of when one brand then is going through a bit of a transition, you've got the others that are sort of continuing to move the total URBN portfolio forward. So it's something we talk about frequently, allowing brand autonomy, and it's critical.

And there are times you could even say that there are sort of small little leverage points that you could see from a shared services perspective, that seems obvious. But we won't do because the customer experience is important. And let me just give you a quick little granular example, right? So we've got this big facility in Kansas, this 1 million square foot fulfillment center, and we've got things that are called auto baggers, right?

So when the digital bags go out, it would be much easier if I had auto baggers that could have the same bag for all 3 brands go through and I could gain more efficiencies because versus having each bag be separate and branded differently for the end use and the customer because now you've got to run different waves, it's less efficient.

And my logistics team is like, "Oh, they're costing us another $0.03 per order, no way. There's no way that our brand leaders want to see the whole portfolio or URBN or all the other brands because that's their customer and their customer experience and their product. So we remain really disciplined on keeping the brand and the brand execution and their customer base is unique. And it's something that's important to us, and it has been, I think, since the inception.

Great. Mel, we kind of back to you about the change over the past 5 years out of the pandemic. I think everybody learned a lot and some companies got really efficient. So since 2022, top line has consistently grown, margins have consistently expanded at that -- right there at that 10% kind of margin level. In the past 6 quarters, you've been doing double-digit top line growth. Your guidance has been high single each of those quarters. That's pretty remarkable.

All things considered, tariffs, wars, oil, right, all those different things. And I think I attribute that going back to sort of this foundational portfolio. So can you talk about how -- since you're over your tenure, how different the business model is from the CFO seat today? And I'm going to say how much easier, but I'm putting that in air quotes. But I guess how much more consistent the business model can be so for a longer-term investor?

Yes, I agree. Maybe it makes my job a little easier. I would say my teams and the brands are doing a really good job. I think whether it's managing margins and making sure that we are very nimble when there's -- the world is constantly changing with tariff changes and changes in transportation costs or any other challenges they have.

So I really do think the teams have done a great job like quickly trying to react while at the same time, not creating a risk to the top line. And they're constantly looking for new ideas. We do get some leverage as we have had strong top line, but there has been a great focus on finding efficiencies in delivery expense and packages for things that actually create -- have less cost, but at the same time, have a better customer experience.

I mean that's Nirvana, right, where you can find efficiencies where the customer either doesn't notice it or even better, it's a better experience. So I think the team has been very focused on that. While at the same time, we have continued to invest in SG&A and driving customer acquisition, driving technology investments and other investments in new businesses like Nuuly and things like that. So I do think we've created this portfolio while at the same time, we have -- there's a lot of financial discipline behind it that's driven the profit improvement.

If I can, just to expand because it's a topic that I think we're really proud of. And we think has been tantamount to the consistency of our success and I think tantamount to the consistency of what we believe we can drive going forward. You mentioned the multiple quarters and the 5 big brands now and the diversity of the portfolio. And for myself, having been here 20 years, when I started, and I remember John Kyees and getting sort of it was either Urban or Anthro and then if you get them both of you right, he's like, it's a really exciting time at that point in time.

And I think that was very much the investment thesis on what we now call URBN. We have moved well beyond that, and it's been 100% intentional, right? Free People is at scale now where they're a large business. You've got Urban Outfitters where the recovery is well on the way and you've got Anthropologie, which is a very large, powerful successful brand with growth ahead of it. And you've got 2 younger brands, that we don't know necessarily what the ceiling is, but they're now meaningful, right?

So Nuuly, knock on wood, should eclipse $700 million this year. FP Movement should be over $500 million this year. FP Movement's profitability is close to Free People's profitability from a rate perspective. So they're already double digits. Nuuly's hitting high single digits. So I think oftentimes, the parts are very important. But I think it's the consolidated portfolio now that really enables us to invest and to learn and to continue to drive consistent results from a top line and a bottom line perspective.

And you see it -- you saw it when Urban Outfitters was challenged, and we were transitioning from a leadership perspective, Anthropologie and Free People were able to carry the weight. And Nuuly at that time was a business we were investing in that wasn't profitable. Now you're seeing Anthropologie, which gets a lot of focus, and we sort of chuckle back home and say, "Geez, if this is bad at a 3% comp and low teens operating profit, we're pretty darn happy." But we know the high standards that Tricia and her team have set for themselves to be at mid-singles and to be mid-teens, and they'll get back there.

But -- so they're slightly off the bull's eye. Free People is crushing it. Nuuly is growing and you've got the Urban turnaround story. So the strength of their portfolio, I think, really allows us to deliver consistent results in a way that Urban Outfitters, Inc. wasn't known for years ago. But I think we're resetting the expectations certainly for ourselves, and it's been intentional as well as, I think, I hope, for the external market.

And by having this big portfolio as well, you are able to, as Melanie said, to be able to invest and learn. And I mentioned earlier how fashion, we don't share across the board, but we do from a shared services perspective. There are certain areas like marketing, we'll try different platforms. We'll try different campaigns and things of that nature because you're always testing and learning from marketing.

That'd be like, oh -- and if we see success, whether it be one or the other, some of those things will be shared, right? Not the creative execution, not the look and not the feel, but I saw this personalization or this thing tied to the infrastructure or how the website is set up and to be able to have multiple businesses at scale across geographies, across categories and learn from each other, we honestly think it's just something that's going to propel us for many years to come.

Great. In our last few minutes...

I know I'm watching the clock.

And our last few minutes and I'll wrap up with the tech stack. And what -- one of the things that kind of we're focused or my team is focused on are which companies have made the compounding investment over multiple years to get to the point where AI can be really a big driver.

Because of Nuuly, I feel like you were sort of catapulted into this -- your new DCs, the efficiency of the supply chain and I'm using a lot of digital data. So in the world of life beyond 10% margins, which it just seems like you articulated so many drivers of those. How important is kind of having the right tech stack? And where are you in the maturity of that to be able to really capitalize on AI and all the great things that are happening?

One, I think it's going -- it's really exciting. And I think it's going to be critically important. And I don't know -- I can certainly tell you we're in the early innings. I don't know when the -- whether it's 2 years, 2 months, but certainly not 2 months or 10 years, we'll be able to say we're in the middle innings because the technology and the strength of it is just moving at such a fast rate.

It feels like everyone's job and function will be favorably impacted in some way from finance, the analysis and reporting enabled information from a merchandising perspective, being able to see and read and react from an analysis that we're able to get, speeding up the product life cycle calendar, right? So one of the things that's driven our markdown rate down over the last 10 years was in 2016, we adjusted our calendars, and we weren't slow by any means versus industry comparisons, but we knew that the faster you are, the more successful that we'll be.

We think technology is going to be another unlock to be able to speed up our calendars and allow our creative teams, the merchants, the designers to, one, make decisions closer into demand, which is going to make them more accurate. And it gives them just new tools and capabilities to expand their creativity, being able to build an asset digitally versus having to hand sketch it and make changes. They're able to sort of enhance what they're able to build and see and understand and move fabrics in and understand drapes and things of that nature.

It's just -- it's so exciting if you think about marketing and how you'll be able to be smarter about personalization, be smarter about segmentation on your outbound campaigns, it's going to touch every end of the business. There's no question about it. I think we've got a lot of things that we're testing and learning from. But I would say it's still early innings, but it's something that we don't go a day, maybe not an hour, honestly, as an organization without talking about.

Great. And that is right on time. So I hope just from this that people take away how truly differentiated URBN is. I've covered the stock for, as I said, for a couple of decades, and this is about as good as I've ever seen the team executing.

Great. Thank you very much.

Frank, Melanie, Trish, thank you very much.

Thank you for coming.

Thank you.

Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. Second Quarter Fiscal 2027 Earnings Call. [Operator Instructions] As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Oona McCullough, Executive Director of Investor Relations. Ms. McCullough, you may begin.

Good afternoon, and welcome to the URBN Second Quarter Fiscal 2027 Conference Call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the 3- and 6-month period ending July 31, 2026. 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. For more detailed commentary on our quarterly performance and the text of today's conference call, please refer to our Investor Relations website at www.urbn.com.

Please note, on today's call, management will be speaking to our financial results on an adjusted basis, which does exclude one-time benefits related to refunds for IEEPA tariffs previously paid, associated interest income, and a tax benefit related to the release of a valuation allowance against certain foreign net deferred tax assets. Each of these items is detailed in our press release as well as the investor presentation that is posted to our URBN Investor Relations website. I will now turn the call over to Dick.

Thank you, Oona. In the second quarter, our teams once again produced record quarterly sales and earnings per share. Net sales grew 10% to $1.7 billion, operating income increased by 11%, and EPS grew 9% to $1.72. This marks the eighth consecutive quarter of record sales and profits. I salute our leaders and their teams for their talent, hard work, and remarkable consistency. Additionally, all retail segment brands delivered positive comps and the wholesale and subscription segments registered record second quarter results as well.

Now to provide more details on our Q2 performance, I'll pass the call over to Frank Conforti, our Co-President and Chief Operating Officer. After Frank, Dave Hayne, President of the Nuuly brand, will update you on our subscription rental business. Following Dave, our CFO, Melanie Marein-Efron, will walk you through our outlook for Q3 and the second half of the year. I will then wrap things up with a few closing thoughts before we open the call for your questions. Frank, it's all yours.

Thank you, Dick, and good afternoon, everyone. Today, I'm excited to share our company's second quarter record results. Then I will dive into some detailed notes by brand, followed by a tariff and fuel cost update.

Overall, our teams delivered another outstanding quarter, exceeding our plans and setting new sales and operating profit records. Total URBN sales grew by over 10%, reaching a Q2 record of $1.7 billion. All our Retail segment brands delivered positive Retail segment comps, while 4 of our 5 brands boasted record second quarter sales. Nuuly continued its impressive double-digit revenue growth, and our Wholesale segment also delivered exceptional double-digit revenue growth.

Our total URBN sales growth was partly driven by a 6% increase in the Retail segment comp with digital comps slightly exceeding store comps. Nuuly delivered strong 29% revenue growth, driven primarily by an increase of almost 113,000 average active subscribers compared to Q2 last year. Additionally, the Wholesale segment delivered a 19% increase in revenue, driven by growth across both specialty and department store accounts.

Next, I will turn your attention to gross profit. URBN saw an 11% increase in gross profit dollars, while the gross profit rate increased by 4 basis points to 37.7%. Due to strong sales, we nicely leveraged store occupancy expense and through several impactful initiatives, which improved our customer service and lowered our expense per package, we were able to leverage delivery expense despite the negative fuel surcharges related to the war. These benefits were partially offset by higher initial merchandise costs due to higher year-over-year tariff costs, inbound freight fuel surcharges, and slightly higher markdowns at the Anthropologie brand.

The good news is through the team's exceptional execution, we were able to offset all of these headwinds and deliver an improved gross profit margin rate. Additionally, as you will hear from Melanie in a few minutes, we believe there is an incremental margin opportunity coming in the second half of the year.

In the quarter, SG&A increased by 10%, in line with sales growth. We are happy to report that we were able to continue to invest in the business without deleveraging SG&A. The increase in SG&A dollars was driven by marketing investments at several of our brands, store payroll expenses, and investments in technology. The marketing efforts drove increases in traffic, both in stores and online for the total URBN Retail segment, while Nuuly's marketing campaigns resulted in healthy double-digit growth in average active subscribers. The increase in store payroll expenses was to support the growth in our store sales. The technology investments relate to several exciting AI-related projects that we anticipate will benefit the company for years to come.

Overall, total URBN operating income grew by 11% compared to last year, reaching an all-time record operating income for URBN of $193 million. Net income increased to $149 million, while earnings per share increased by 9% to $1.72 per diluted share.

Moving on to brand performance, starting with Anthropologie. The Anthropologie brand reported total revenue growth of 5%, driven by a 3% Retail segment comp and new store growth. The brand generated another positive Retail segment comp in the second quarter, extending its multi-year streak. Results were driven by positive comps in Apparel and Accessories, while Home was flat for the quarter. Customer growth increased by over 4% in the quarter across new, active, and reactivated customers, primarily driven by the early fall influencer campaign in July that supported the transition to early fall products. This well-received event enabled the team to get strong fall and holiday season product reads, which the brand continues to distort into for the second half of the year.

During the quarter, the brand experienced elevated markdowns as the team continued to work through slower turning inventory. Early reads on fall transition products have been very encouraging as fashion newness flows into the assortment. In fact, as this product hit the assortment in July, regular price comps turned nicely positive. Looking at some more details on Anthropologie's product performance. Apparel growth was driven by positive comps in dresses and bottoms. The Accessory category growth was driven in part by strong comp performance in shoes. The Home category was flat as a positive furniture comp was offset by a slight decline in home accessories.

Anthropologie's results this quarter reflect a well-managed business operating with discipline and flexibility. The brand continues to foster strong customer connections, sustain positive overall top line growth, and deliver a healthy low teens operating margin rate. Overall, we are pleased with the brand's execution. And based on our current plans, we believe the brand has the ability to deliver low- to mid-single-digit positive comps in the third quarter.

Now turning to the Urban Outfitters brand. Total Urban Outfitters sales grew by 8% and the global Retail segment comp was 8%, with strength across both North America and Europe. Digital comps outpaced store comps in North America, while in Europe, store comps outperformed digital. In North America, the team delivered positive comps across Women's Apparel, Accessories, and Home, led by strength in our key focus categories, denim, pants, lounge, novelties, and shoes.

Within women's apparel, the business is being driven by a strong bottoms trend, an emphasis on key item execution and robust performance from our own brands such as BDG and Out From Under. The positive Retail segment comps were driven by regular price sales outpacing total comp. The brand's marketing initiatives fueled positive traffic in both stores and digital this quarter, resulting in double-digit digital growth and new customer acquisition while maintaining high retention rates across their existing base. This success is rooted in the brand's strategic commitment to platform diversification, meeting its audience wherever they engage.

This quarter, the brand continued to strengthen its community engagement, leveraging user-generated content and amplifying video across social channels, expanding its reach on platforms like TikTok, [ Search ], Reddit, and ChatGPT. Additionally, for the back-to-school season, Urban Outfitters launched its first-ever connected TV commercial themed, All Together Now, featuring more than 75 real UO student customers from over 10 universities across the United States. This campaign strongly reinforced the brand platform of supporting students through the milestone and tradition of their college journey. By leaning into this authentic community-oriented approach, the brand continues to foster deeper connections with its core audience.

In Europe, the business continues to exceed expectations. The European team produced a 9% retail segment comp despite being up against difficult multi-year comp comparisons. European stores outperformed the digital channel, leading to a healthy increase in profitability for the quarter. Their consistent execution in product and marketing is allowing the brand to continue capturing meaningful market share. We are proud of the continued progress of the Global Urban Outfitters brand. Looking ahead to the third quarter, we believe the Global Retail segment comp could be in the mid-single-digit range. This will primarily be driven by the North American business, which we believe could deliver high-single-digit positive comps, while the European business could moderate to a mid-single-digit positive comp range due to very difficult multiyear comparisons.

Next, let's turn to the FP Group. The FP group delivered another impressive performance this quarter. The team achieved a total revenue increase of 15%. This growth was driven by positive Retail segment comps, new store growth, and strong gains in the wholesale segment. The Retail segment comp of 10% was broad-based across both the store and digital channels, with store performance outpacing digital during the quarter. Customer traffic and AUR was nicely positive for both channels. Positive comps in both channels were driven by strong regular price sales, reflecting the high quality of the brand's offerings and strong customer demand. Furthermore, customer acquisition and overall customer growth were positive across both channels, fueled by compelling content and product execution delivered by the brand's creative, marketing and product teams.

The FP group's Wholesale segment delivered a 19% increase in revenue during the quarter, led by the continued strength of FP Movement, Intimates, and Women's apparel across our wholesale partners. This execution, combined with well-controlled inventory, allowed the FP group to deliver record operating profit for the second quarter. Overall, the FP group executed a nearly flawless quarter.

Within the FP Group, the Free People brand had a strong second quarter with total sales growth of 11% and a retail segment comp of 9%. These positive comps were driven by continued strength in key categories, led by Bottoms and Intimates. The FP Movement brand remains a standout, delivering exceptional results with total revenue growth of 26% and a 13% Retail segment comp. This performance was fueled by the brand's ability to consistently deliver technical innovation and fresh fashion in the activewear space. The expansion strategy for FP Movement remains on track as they successfully opened 4 new stores during the quarter. This brings the total number of stand-alone stores to 97. FP Movement's exceptional performance highlights the incredible opportunity for future growth and increased market share for the brand.

As we move into the third quarter, the consumer continues to respond positively to the Free People and FP Movement brands fall assortment. Given this ongoing momentum, we believe the FP group Retail segment has the ability to deliver high single-digit positive comps in Q3. Additionally, we believe the FP group Wholesale segment can deliver healthy mid-teens revenue growth in the third quarter.

The last topic I want to address is the overall tariff and freight environment and its impact on our business. First, let's discuss fuel costs. We are currently navigating higher inbound freight costs, domestic transportation costs and higher delivery expenses, driven by fuel surcharges associated with the ongoing war in the Middle East. These additional costs had a negative impact of approximately 50 basis points in IMU and 20 basis points in outbound delivery and freight expense. We are assuming these costs and their negative impact will remain consistent for the remainder of the year.

As we noted earlier, through the team's disciplined execution, we were able to more than offset these macro headwinds and deliver increased gross profit margin dollars and rate in the quarter. If the price of oil declines and holds at any point in time in the future, we would expect to see a corresponding reduction in these expenses.

Next, let's discuss tariffs. During the second quarter, we received substantially all of our refund relating to the incremental IEEPA tariffs imposed beginning in the spring of FY '26. The remaining refund amounts and impact to our profitability are anticipated to be de minimis. Looking ahead to the second half of the year, we begin to anniversary higher tariffs in the prior year. And despite the recently enacted Section 301 tariffs, our overall effective tariff rate will be favorable for the remainder of the year, assuming no other changes are enacted.

In summary, the record-breaking second quarter of fiscal year '27 reflects the underlying strength of our diversified portfolio. Total revenue grew by 10%. The FP group delivered standout performances across both retail and wholesale segments. Urban Outfitters continued its strong top line comp alongside meaningful operating results improvement. Nuuly robustly grew its average active subscriber base while delivering a double-digit operating profit rate. Anthropologie sustained its positive comp trend and strong operating margins while remaining focused on optimizing the assortment.

We entered the back half of the year proud of all team's performances, confident in our growth plans, and well-positioned to execute on our strategic priorities. Now I will turn the call over to Dave Hayne, President of Nuuly and Chief Technology Officer of URBN.

Thank you, Frank, and good afternoon, everyone. I'm pleased to share another standout quarter for Nuuly, where robust subscriber momentum drove record revenue and profitability. In the second quarter, average active subscribers reached 484,000, up 30% versus last year, and we actually crested over 500,000 active subscribers in early June before easing back into our typical summer seasonality.

This strong growth translated directly into robust financial results on both our top and bottom lines, with Q2 revenue rising 29% to $179 million and, for the first time in brand history, quarterly operating income landing at 10%, equating to $18 million. Q2 is seasonally our strongest margin quarter, and we do anticipate back half operating rates will ease back into the high-single-digits, but the ongoing bottom line progress is very positive, and our results are a major milestone for the business.

Looking ahead, for full year FY '27, we believe Nuuly can deliver over $700 million in revenue with a high-single-digit operating profit rate. So what has been driving this strong momentum? From day 1, scale was a prerequisite for success in this business model and scale could only be achieved if subscribers found joy in our program. We have been driving this joy with a relentless focus on 3 core pillars: our assortment, the customer experience, and operational execution.

First, our assortment, the heart of the business and the primary reason subscribers choose Nuuly. Our choice count is up 35% from last year to nearly 33,000 choices. We remain thrilled to have our URBN sister brands at the heart of our assortment while continuing to broaden the selection of brands around them. Brand participation on Nuuly is truly a 2-way street. Larger partners see meaningful follow-on sales across their own direct channels, while emerging brands appreciate the visibility, brand awareness, and new customer acquisition they derive from the platform.

Our team is constantly on the lookout for new brand partners, and we receive regular inbound interest from potential partners as well. This past quarter, we launched REVOLVE's private label brands, including Lovers + Friends and Tularosa, which have performed well, especially with our West Coast occasion wear customer. We also added Collina Strada, Faithfull, and Addicted along with capsule collaborations with SIMONMILLER and Tyler McGillivary 2 strong marketing moments in the quarter. Looking ahead, 2 exciting household names are joining the platform later this year. Nike is rolling out this month and J.Crew will debut in October.

Second, the customer experience. Having 33,000 choices ensures we have something for everyone, but we recognize that large catalogs can sometimes be overwhelming. To address this, we've looked beyond fashion and retail for models to emulate and streaming platforms like Netflix and Disney+ serve vast catalogs of content to large subscriber bases, yet their experiences feel tailored to the user. Over the past year, we've improved our personalization engine to serve smarter recommendations based on style and brand affinities, resulting in big increases in satisfaction metrics. Similarly, we've also introduced a custom fit guidance engine that learns from post-rental survey data, solving a subscriber friction point by helping to identify the best size before ordering.

Both of these enhancements leverage compounding data feedback loops. The more the community grows and the more a subscriber uses Nuuly, the smarter the platform becomes for both that subscriber and the community as a whole. And more recently, we have focused on improving the checkout and delivery experience for subscribers. We've brought more certainty to the ordering process by integrating estimated delivery date to checkout, along with options to expedite both your delivery service and fulfillment processing. We've also introduced 7-day carrier coverage for weekend deliveries, all of which give subscribers more confidence when planning their rentals around their calendar. By listening closely to customer feedback, we directed our team's energy towards these targeted enhancements to bring even more joy to the program.

Our third pillar of focus is scaling operational execution. Shipping, receiving, laundering, and inspecting wardrobes for 0.5 million subscribers requires significant investment, deep focus, and continuous optimization. In Kansas City, we've meaningfully expanded our footprint from 600,000 to 1 million square feet, and this building is now capable of supporting up to 600,000 subscribers. Our focus has been on automating as much of the operation as possible. Additional garment storage automation goes live this month, an automated order sortation system will go live in Q4, and an automated picking solution is planned to launch mid next year. Together, once live and fully functional, we believe these automated innovations will save us meaningfully on logistics expenses.

Additionally, we recently announced a significant new investment outside Philadelphia, just a 10-minute drive from our current facility. We are planning for the new building to open in late calendar year 2028, and it will expand our East Coast operation from 300,000 to 1 million square feet, increasing our regional subscriber capacity from 200,000 to 600,000 subscribers as well as leveraging the automation suite that we have developed in Kansas City. Once this project is complete, the full Nuuly network will support roughly 1.2 million subscribers with a significantly more efficient operation.

With much of our recent focus on operational improvements and with our fulfillment investments underway, we believe it is time to revisit the customer experience and consider how we can make the Nuuly program even more valuable for subscribers. We are underway with an extension of the program to be launched in the first half of next year that we believe will increase average revenue per user or ARPU by offering new ways for subscribers to discover, access, and source their personal style through Nuuly. We will share more details as the launch approaches, but we're excited about this opportunity and how it can improve the customer experience and our business metrics.

Taking a step back, I hope you can understand why we are so excited about this business. Nuuly is a genuine growth engine and a true differentiator for URBN. The progress we're seeing is the direct result of the support from our leadership and the incredible efforts of our extraordinary team. I want to thank our thousands of associates across our fulfillment centers and home office for their tireless work over the past several quarters. Your dedication to our subscribers is an inspiration. Thank you. I'll now turn the call over to Melanie.

Thank you, Dave, and good afternoon, everyone. On today's call, I will discuss our thoughts on the third quarter and full year fiscal '27. We're off to a solid start this quarter. And based on what we're seeing so far, we're planning for Q3 total company sales to grow in the high-single-digit range. Our Retail segment comp sales could grow mid-single digits, driven by high-single-digit positive retail segment comps at the FP group, mid-single-digit positive Retail segment comps at the Urban Outfitters brand and low- to mid-single-digit positive comps at the Anthropologie brand. At Nuuly, the brand could deliver high 20s revenue growth driven by continued subscriber momentum. Finally, our Wholesale segment could produce low teens growth.

We continue to believe we can deliver high single-digit total company sales growth for the full year fiscal '27. This growth could be driven by mid-single-digit Retail segment comps, high 20s revenue growth at Nuuly, and low teens growth for the Wholesale segment. Based on the current sales performance and plans, we believe our third quarter gross profit margins could improve by 25 to 50 basis points versus last year. The increase in Q3 gross profit rate could be primarily due to higher IMU due to lower tariffs versus last year and occupancy leverage, partially offset by higher fuel surcharges versus last year. We are assuming that current oil surcharges related to the ongoing Middle East war remain in effect for the remainder of FY '27.

These surcharges, which began in March 2026, impact inbound freight and outbound delivery and freight expenses. Based on the current surcharges, they represent approximately 70 basis points unfavorable impact on each of the third and fourth quarters. Based on our current plans, we believe our full year fiscal year '27 gross profit margins could improve by approximately 25 basis points versus last year with the second half showing benefit to IMU.

Based on our current sales performance and financial plan, we believe Q3 total growth in SG&A could grow at a rate below sales. The increase in SG&A dollars are based on planned marketing investments at all brands to support new customer acquisition, along with increased artificial intelligence and other technology investments.

Now for the full year, we believe that SG&A growth could grow at a rate in line with or below sales growth. As always, if sales performance fluctuates, we maintain a certain level of variable SG&A spending that we can fluctuate up and down depending on how our business is performing. We're planning for an effective adjusted tax rate of approximately 24.75% for Q3 and for the full year. Our plan for Q3 and full year adjusted tax rate reflects the exclusion of the benefit related to the Q2 release of a valuation allowance against certain net deferred net tax assets, which was included in the Q2 reported results.

Now moving on to inventory. We continue to be focused on increasing our inventory productivity and product turns. We believe that our inventory levels could grow at a rate at or below sales growth in Q3. For FY '27, capital expenditures are planned at approximately $475 million. The FY '27 capital project spend is broken down as follows: approximately 35% for retail store expansion and support, approximately 50% for logistics investments, and the remaining 15% for technology investments and home office expansion to support our growing business.

The logistics investments are to expand our capacity and automation in both the subscription and retail segment businesses. We will be opening approximately 54 new stores and closing approximately 18 stores during fiscal year '27. Our net new store growth is primarily being driven by growth in FP Movement stores. During fiscal year '27, we plan on opening 21 FP Movement brand stores, 12 Free People brand stores, 12 Anthropologie stores, and 8 Urban Outfitters stores.

As a reminder, the foregoing does not constitute a forecast, but is simply a reflection of our current views. The company disclaims any obligation to update forward-looking statements. Now it is my pleasure to turn the call back to Dick Hayne, Chief Executive Officer of URBN.

Thank you, Mel. Dave, big congratulations to you and the entire Nuuly team for achieving such impressive milestones this quarter. Reaching over 0.5 million subscribers and delivering a 10% operating margin are testaments to the validity of the subscription rental concept and the great execution you and your teams have accomplished in a short amount of time. Nuuly is definitely proving to be a powerful and profitable growth engine for our company. So thank you.

Nuuly was not the only brand to deliver a standout performance in Q2. As you heard, the Free People and FP Movement brands achieved double-digit sales and profit growth. And the Free People Wholesale segment crushed last year's strong performance by growing sales in the high teens and operating profits by 40%. The Anthropologie brand added to its impressive 21-quarter streak by posting nicely positive comps. The brand also delivered very healthy low teens operating margins.

The Urban Outfitters brand generated high-single-digit comp sales on both sides of the Atlantic. This marks continued progress for North America and reaffirms the excellent execution in Europe. Overall, Q2 brand performance across our entire portfolio ranged from very good to outstanding. This gives me considerable confidence as we enter the second half of the fiscal year and reinforces my belief in our multi-brand strategy. The foundation of our business has always been our talented teams with their outsized creativity, work ethic, and dedication. But as I've noted in previous commentaries, the strength of URBN, besides its people, lies in the structural diversification. diversity by brand, by demography, by product category, by distribution channel, and by geography. These are all factors that allow us to deliver consistent market-leading results across ever-changing fashion and economic cycles.

And as our brands grow, especially our emerging brands, that diversification increases. By 2030, I believe URBN's portfolio could consist of $5 billion-plus brands, each concentrated on a unique customer with unique products. Our structural advantage is further supported by the ability of our target customers. Much has been written in the media questioning the health and resilience of the consumer. However, based on what we see across our businesses every day, the economy and the customers remain in very solid shape. Job stability is real, take-home incomes are rising, and our customers continue to spend on fashion.

Despite the ever-present noise, their shopping behavior has remained remarkably consistent. They are financially secure, highly engaged, and respond enthusiastically to new fashion. They continue to prioritize creativity and style over price, and our brands are delivering what they are looking for. We entered the second half of the fiscal year with strong operational momentum, supported by exceptional teams, a vibrant economy, resilient consumers, and clear strategic priorities across our portfolio.

In closing, I want to express my sincere gratitude to the entire URBN family, including our Co-Presidents, Meg and Frank and their teams, our brand leaders and their teams, and our 31,000 associates around the world. Collectively, you have produced another exceptional quarter, and I thank you. I also thank our global partners and our shareholders for their ongoing support and commitment. That concludes our prepared statements. We will now open the call for your questions.

[Operator Instructions] Our first question comes from the line of Lorraine Hutchinson from Bank of America.

I wanted to focus my question on Anthropologie. Your early reads on fall give you confidence that you're out of the woods on the recent assortment challenges? And are you sort of the slower turning inventory at this point? Or do you expect any Anthro margin pressure in the third quarter?

Yes. Lorraine, I'll speak a little bit to that. But I first want to share that I think we feel good about the progress that was made throughout Q2. We ended July with nice full price comp increases as we transition to where now fall product earlier than last year, as Frank mentioned. This also represents our 22nd quarter of positive sales comps and an improvement from our 2% comp Q1 to a 3% comp in Q2. However, we're not satisfied with that, and we're working on ways to accelerate our growth.

This is also our 15th consecutive quarter of double-digit operating income rate, which I'm especially proud of this quarter given the IMU challenges our team faced with tariff and transportation cost headwinds. But to answer your question more directly, I think we're rebalancing our assortment to work through some of our known historical styles to make room for newness. And as we took this approach in July and our learnings from the July event drove full price comps, and it gave us a high degree of confidence around the styles that we've chased into.

Our newness will build as the quarter progresses. And as Frank mentioned in his opening remarks, I think we believe that our group can deliver low- to mid-single digits in the third quarter.

And Lorraine, this is Frank. Relative to Q3 margins, as you heard from Melanie, right now, our plan is to deliver 25 to 50 basis points of gross profit margin improvement in the third quarter. And that does contemplate giving Anthropologie the room to accelerate into the strong read that they're getting on fall and clear through some of that remaining product that they need to get out of.

And our next question comes from the line of Brooke Roach from Goldman Sachs.

I had a follow-up question on Anthropologie. And I was wondering if I can get your perspective on how you feel about the current competitive environment and your ability to gain share as you move beyond some of these fashion execution challenges? And then maybe a follow-up on market. Given the elevated level of promotions and the more moderate comp pace, is the Anthropologie brand still on track to deliver a mid-teen operating rate this year?

Okay. I'll -- I think our brand has definitely been gaining share. I think when you look at the 22 consecutive positive comps that outpaced the market, we have gained share, and I'm confident that we'll continue to do so. I think we'll continue to work through some of the assortment opportunities that I expressed, and that will require us to continue to have slightly higher markdowns, as Frank mentioned. And I think our ability to be able to do that is going to come from our team's ability to leverage some of our speed to market initiatives as well as understanding kind of as our customers' preferences evolve, how we can keep pace with that.

So I feel confident that we can continue to gain market share, and I -- we're squarely focused on getting back to that mid-single-digit comp range. And our teams are really focused on it, and I feel like we'll make progress on that.

And our next question comes from the line of Adrienne Yih from Barclays.

And well done on all fronts. My question is -- URBN Inc. is in a very unique position from just kind of overseeing or seeing kind of all the different fashion trends that might be happening in apparel, footwear, athleisure, et cetera. So I don't know who exactly I'm directing this to, but whoever wants to chime in. We're hearing kind of -- that we're long into the denim cycle, long into that kind of silhouette shift. There's talk of lifestyle footwear having an ebbing moment. And I know I see a lot of that, a lot of newness happening on Anthropologie, Tricia. So can you guys talk about sort of what you're seeing, particularly Nuuly, because that's on the bleeding edge, right, of fashion turnover. Dave, can you jump in there. But any comments on what you're seeing, the evolution and why you should be more resilient than kind of some of the more vertically-oriented or some of the brands for that matter?

Okay, Adrienne, I'm going to start out, and I will sort of pass it around the entire table because it is a wide-ranging question. First of all, on the athletic shoe front, I understand where your comment is coming from. But I just want you to know that all 3 of our brands are seeing very strong increases in athletic shoe sales. So we are not participating in any of the downturns that have been discussed recently. Yes, we have insight, and I think we -- I brought up in my commentary that the diversification that we have as a company gives us a lot more room for delivering the kinds of consistent higher comps than many of our competitors. So yes, we're seeing that.

Now as to the denim being long in the tooth, we don't see that. Denim is doing quite well. But I do believe -- we have been talking about the bottom trend for almost 7 years now. And my experience would tell me that most silhouettes and the trends they're in rarely exceed a decade in length. So we're due for a change in the next, let's say, 3 years or so. But right now, and I want to emphasize, the whole fuller bottom trend remains extremely strong, and we expect that to continue into FY '28.

I can't really tell you what's going to come next. And I guess I should say even if I knew, I wouldn't broadcast it today. But I don't think that we will be seeing it for at least another year. Does anybody want to add to it? Okay. I guess not...

I will add. This is Meg Hayne. One of the things that we're really relying on is AI. We've been doing a lot of work in AI with seeing trends coming and taking it to a personal place for each brand. So with that tool, I think we have a lot of opportunity to continue to grow.

And our next question comes from the line of Matthew Boss from JPMorgan.

Great. Thanks. So at core Urban, could you elaborate on the consistent comp strength the past 4 quarters and opportunity you see remaining? At Anthropologie, and it's kind of to touch on the answer a few back, but what do you see as a sustainable multi-year comp profile for the brand? And then Dick, could you just touch on comp trends that you've seen in August at both of those concepts?

I'll start. We've given you our comp plans from the Retail segment, the Anthropologie low- to mid-singles, Free People and Free People Movement, high-singles; and the Urban brand high-singles, broken down by high-singles at North America and mid-singles at Europe. So we're really thinking it's going to be mid to high. So we're sort of right in the middle of it. And what we're seeing August to-date really is in line with our plans. So I can't give you much more in terms of comps beyond that. Sheila, you want to talk about Urban?

Yes. Matthew, I would say -- and I would, first of all, credit the team with the success of the strength of comp and the consistency. But largely, we're focused on our strategy, the consistency at which we continue to apply. From a product perspective, our growth categories continue to resonate with the customer, the strength of the denim and bottom business, the strength of our lounge business, and our accessory business. From a marketing perspective, the team just continues to gain momentum and really, really see double-digit new customer acquisition and now the ability to retain and see those customers come back.

Really, that's about meeting the customers where they are, diversifying the platforms at which we engage with our customers and having a lot of fun while they're doing it. From a channel perspective, really building some momentum in our digital channel, enhancing the experience, running a considerable amount of A/B tests to remove friction in that channel.

In the retail channel, we have a new leader in place who's really been focused on engagement and improving the level of service and then just continuing to operate with more discipline, which is helping us close that gap to profitability. So I just couldn't be more proud of the team remaining disciplined, and consistent, and applying the same principles of our strategy.

Tricia, do you want to talk about Anthropologie in this one question?

Yes. I think we've talked about it. We are -- feel confident that we can deliver low- to mid-singles in Q3. We're very focused on getting back to mid-singles, and that's where I think we believe we can operate when we are operating in a place probably more consistently to where we had been the previous, probably, 20 quarters. So I think we believe long term, we can be a mid-single-digit comp. And I'm confident that with what the teams are learning, what they're applying, the nimbleness in which they're recognizing opportunities and the July results, give me a lot of confidence in the fact that when we can turn the season earlier, when we can flow more new products, both onto our site and in our stores, we see nice full price sales comp. So I'm confident that we can get there. I can't say when, but I do feel very confident in our teams to deliver -- ability to deliver what we said in that low- to mid-single digit in the short term.

And our next question comes from the line of Paul Lejuez from Citi.

A question on Nuuly. You talked about [ these ] any changes. It seems it has been [Technical Difficulty].

Paul, you're going in and out. It's hard for us to hear it.

Sorry. Is this any better?

Yes.

So on Nuuly, I'm curious about the retention rates and any changes you've seen on that front? And also curious how the business is evolving as it grows in terms of brands on the platform, in terms of how much is from [ Free ] People and Anthro versus third-party brands? And where do you think that goes over time in terms of your own brands as a percentage of total that's available versus third party?

Yes. Thanks, Paul. I appreciate the question. Retention rates -- well, first of all, starting back with just Nuuly in general, it's amazing how stable some of the metrics are across the Nuuly business from month-to-month, from year-to-year. We've been very happy with the retention rates that we've seen. The retention rates have remained relatively stable. I think we do see those subscribers that have started with us very early tend to be those subscribers that are the most engaged and most excited about the program and most loyal. And as you continue to add more subscribers, the new subscribers that you add do have a slightly different retention profile, but still very stable with what we've been seeing. And so we're very happy about that.

In terms of the brand profile across the platform, we -- as I've said in my commentary, incredibly happy and thrilled to always have the URBN brands at the core of our platform. I think it's what makes the platform so attractive. I think the amazing work that our design teams do across our brands is what really drives the strong value to the heart of the platform for Nuuly, but adding those brands around the URBN brands is really what continues to add additional value and benefit to the subscribers.

So we see that there's going to be a continued interest to continue to add more brands in the future. That's our goal. That's our team's goal. But we do see that the URBN brands will continue to be at the heart of that assortment. Now will that percentage change year-to-year? It may. It may as we grow. But right now, we're -- that also has been pretty stable.

And our next question comes from the line of Alex Straton from Morgan Stanley.

Maybe for Frank, I know you trimmed the SG&A guidance a little bit versus last quarter. Can you just talk about where you're finding incremental savings? And then for Frank or Dave, just on Nuuly, can you talk about how that business got to the 10% margin so fast, especially compared to last year? I think you landed at mid-single digit. And just how you think about the path beyond high-single-digit or so this year that I think you guided to?

Alex, thanks for the question. I'll take the Nuuly profitability one and then hand over SG&A to Mel. First, just honestly, we couldn't be more excited by the progress Nuuly continues to make. A huge congratulations to Dave and the entire Nuuly team. As we've stated previously, and honestly, I think our belief remains stronger than ever, that we believe the brand can run at a 10% operating profit rate, if not better, on an annual basis. As you know, there is a seasonality to their business from one quarter to the next and how the subscribers ebb and flow. But literally, they continue to show year-over-year improvement quarter after quarter, marching to the 10% annual rate.

We haven't set a time line yet on when we think the brand can hit 10% or exceed it. But as you can see, they're getting closer each quarter to getting there on an annual rate, and they're not that far off. I think relative to this quarter, they continue to see improvement in the rate in the areas that I think are going to be consistently improving year-to-year. So you see improvement in logistics and you see improvement in other fixed costs as they just continue to scale the business. As you heard from Dave's prepared remarks, I think he use the word -- it was a prerequisite, Dave, for this business' success was its ability to scale and eclipsing hopefully, will be close to $700 million this year. They've definitely achieved that.

With respect to your question on SG&A, Alex -- excuse me. We were able to keep SG&A growth in line with sales growth really because we were able to leverage our direct store controllable expenses in our stores and some other expenses that at the same time allowed us to distort investments in marketing to drive sales and new customers and invest in technology initiatives such as artificial intelligence. So that's kind of the...

And our next question comes from the line of Dana Telsey from Telsey Advisory Group.

Congratulations. As you think about the Nuuly business and expanding other brands, obviously, you mentioned Revolve, I think, and J.Crew. What are the types of brands or categories are you looking to expand into? And then when I think about -- I think, the beauty category, whether it was Urban and Free People, what's your thoughts on the beauty category and the opportunity there, given I think that was one of the slower categories? And just lastly, with AUR, how are you thinking of pricing going forward and the price of newness versus core?

Yes. Dana, thanks for the question. So brands on Nuuly, I would say that we take a perspective that it starts with -- there is a certain price profile that we need to kind of work within just given where the brand sits. Notoriety of the brand is very important, something that our subscribers are asking for, something that we think our subscribers will like and know, is something of interest that we tend to filter on. We do like to bring new brands that they may never heard of to the platform. I think that adds value and interest. So I think it's a combination of lots of different things. I wouldn't say there's any one specific kind of filter that we use, but that's really what our merchant teams are here for and what they do a great job of, is trying to decide what the right brand profile and brand mix is on the platform to really maximize the subscriber interest and subscriber value.

So Tricia, do you want to take the beauty question?

Yes. Thank you. We've been really encouraged and excited about beauty at Anthropologie. It's not really been a category we've talked a lot about, but it's grown very consistently, delivered high-single-digit comps in Q2. And we continue to expand the beauty assortment and our store footprint really thoughtfully. It's now in 23 stores, our more expanded space, and we're really doubling that store count come this fall.

We're very selective about which categories and brands we introduce with quality and curation mattering the most to our customers along with assortment breadth. And we really believe Beauty and Wellness represent a new opportunity given how naturally they complement our customers' existing relationship with brands. So I couldn't be more pleased with the consistent performance of Beauty and the growth opportunity for us in Anthropologie.

And Dana, I'm going to ask Frank and Oona and Mel to talk about AUR tonight with you because we have to move along so there are a couple of other people can get a question.

Certainly. And our next question comes from the line of Marni Shapiro, The Retailer Tracker.

Congratulations to everyone. Sheila, I'm obsessed with Out From Under. It looks so amazing. But can we talk a little bit about Free People and Free People Movement. They are on fire. That viral Babydoll romper is all over my feet. The brands are flooding my feed. Your tourist stores in New York, it's all international people. So can you talk a little bit about the growth opportunity for both the brands, Free People and Movement here and internationally?

Yes. Marni, thank you. Free People continues to see strong momentum internationally. We started the growth with DTC over a decade ago and our first store, just shy of 9 years ago. And what we're seeing is strong double-digit comp growth in Q2, outpacing our North America growth in Free People. We're managing 14 stores currently across the U.K. and Europe. And watching the growth that Urban and Emma's team has led, we know we have a lot of growth in front of us for Free People since the customer seems to be responding to the brand extremely well.

And then we've had separately some early strong read for FP Movement internationally. And Andrea and the team are building plans for European growth, starting with wholesale and DTC, but stores to follow. Our partnership with Barry's and Selfridges, which we touched on in our Q1 earnings call, continues to deliver strong growth and only reinforces the conviction that we had to push forward there.

Thanks, Sheila. Marni, I would never forget you.

And our next question comes from the line of Mark Altschwager from Baird.

Hopefully, the pricing question is still fair game on the call. But Dick, you spoke about consumers prioritizing creativity over style and price, but there has been a lot of focus out there on pricing tailwinds for the sector beginning to moderate. And would love to just hear your view there for your segment of the market, are you seeing competitors reset price as they move through the tariff inventory? And does your plan for the back half of the year, fourth quarter, assume or incorporate any flexibility should you see the promotional environment begin to pick up?

Yes. We don't really see the promotional activity picking up, as you put it. I think there may have been a brief point in time, in June right around the Amazon -- their Prime Day. Thank you. Where it seemed to have picked up, but very recently, I don't think there has been much, if at all. The promotions that we see right now are all related to back-to-school and the promotions always play a big role in back-to-school, just like they do for Black Friday.

So Urban is no exception. We have some promotional activity for the Urban brand this back-to-school season, but it's been very similar to last year. And much of the high-single-digit comp gains that the Urban brand is enjoying this August is being driven by full price sales. So the only difference between this year and last year, as far as we can see, is timing. And that's week-over-week builds are happening slightly later this year due to the Labor Day calendar shift. We don't really anticipate promotions getting any more severe until we hit, as I said, Black Friday and then all bets are off.

And I think as it just relates to core AUR, Mark, for us, obviously, price comparisons are a little more complicated than some other companies. We don't have a lot of carryover product from last year and mix plays a huge role in our overall AUR by brand and for the company. As Dick and everyone has mentioned, we remain in a strong bottom cycle, which tends to be favorable from a price perspective. Not only bottoms have a higher price point, it's such a strong bottom cycle. We're seeing the ratio of tops to bottoms sort of exceed historical averages and outpace on the bottoms, which overall drives price.

And then additionally, I think you've seen some elevation, higher product -- excuse me, higher quality put into the product within the Anthropologie and Free People brands, and that just continues to perform well. Accessories, you've seen really strong handbag performance at Free People with -- at higher price points as well as outerwear. So for us, I think our AUR is more about just a mix issue of where we are from a fashion cycle. And I don't think we anticipate that changing this year. So our AURs are planned up a bit for the remainder of the year. But again, that's driven by mix and driven by where the fashion is. It's not a like-for-like comparison conversation.

Okay. I think that -- one more question.

And our final question for today comes from the line of Simeon Siegel from Guggenheim.

This is [ Dan ] on for Simeon. You touched on briefly a couple of times tonight, but I wanted to see where you stand in your AI implementation with regards to product life cycles. Is one brand further along the journey than another and maybe when it starts to show through in a meaningful way?

Sure. Simeon, Dave, do you want to take that?

Yes, sure. So in the second quarter, we've really continued to deploy AI across the company. We've been very excited about that deployment. We've been making great progress putting AI tools in the hands of our associates and really enabling them to optimize their workflows. And this has really kind of enabled an explosion of creativity across our teams and is building interesting things that help them get their jobs done faster and get more work done. So we're really seeing some exciting new use cases really almost every day.

At the same time, our tech team has been accelerating their software delivery cycles, and we've been really building out some capabilities, strong capabilities there. We're focused on enabling and hardening some of these more impactful AI use cases across supply chain, creative, design, marketing, inventory teams, and even other areas, and we're really excited about the potential in these areas as well. We do think that driving measurable efficiencies across these very complex areas and complex systems will take time to fully materialize and figure out, but we're very confident in the trajectory of what we're doing with AI deployment across the company and very excited about what the possibilities are.

And the speed to market and the production and design areas is really one big area of focus for us. We're seeing a lot of exciting capabilities emerge there and really excited to get that in front of the teams, and we've been excited as they've gotten the tools, that they're really making some strong headway. So very excited about AI across the company.

I believe that ends our call. Simeon, thank you. And thank you all very much for joining us, and we'll talk to you in -- what is it? Three months now.

Goodbye.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Welcome to the 2026 Annual Meeting of Shareholders for Urban Outfitters, Inc.

Good morning. My name is Oona McCullough, Executive Director of Investor Relations for Urban Outfitters, Inc. And it's 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 3 major components. First, the election of 10 directors to serve until the 2027 Shareholders' Meeting.

Second, a proposal to ratify the appointment of Deloitte as the company's independent registered public accounting firm.

And third, to hold an advisory vote on approval of the company's executive compensation.

If you have an 11-digit photo 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 are 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, then 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.

Please note, today, we will be speaking to our fiscal 2026 financial results on an adjusted basis, which does not include certain non-recurring adjustments. The effect of those items was detailed in our fourth quarter fiscal 2026 press release.

Now I will turn the call over to Dick.

Thank you, Oona. It is my pleasure to welcome URBN shareholders, directors, employees, service providers and friends of the company to our virtual annual meeting. Our agenda today includes making brief introductions, conducting a formal business that Oona just outlined, discussing business results and finally, answering your questions. As mentioned, the polls will close after my introductions are complete.

Now on to those introductions. Joining me to help conduct today's meeting and assist in answering your questions are Frank Conforti, Co-President and Chief Operating Officer of the company; Michael Silbert, General Counsel and Company Secretary; and Azeez Hayne, Chief Administrative Officer. And for today's meeting, Azeez will also function as the judge of elections.

It is now my pleasure to introduce our Board of Directors. Besides myself, our Board consists of 9 directors. 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 very much for their service.

We also have one service provider, Felix Orihuela, joining us virtually. Felix works for Equiniti, our transfer agent and vote compiler. Felix is prepared to answer shareholder questions concerning the vote tabulation, should any arise. Thanks for joining us today, Felix.

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 stated and mailed to each shareholder of record on April 1, 2026. 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 3 items of formal business that appear in the proxy statement, after which we will hear the vote on each item.

The first of these 3 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 shareholders. They are Ed Antoian, Kelly Campbell, Harry Cherken, Mary Egan, Meg Hayne, Richard Hayne, Amin Maredia, Wesley McDonald, Todd Morgenfeld, and John Mulliken. Each nominee elected will serve a term expiring at the Annual Meeting of Shareholders in 2027.

The next item of business is the appointment of Deloitte as the company's auditor for the year ending January 31, 2027.

And finally, the third item of business is the nonbinding shareholder advisory vote on executive compensation. Azeez, can you please announce the voting results on 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 and the shareholders have approved the company's executive compensation in a nonbinding advisory vote.

Thanks, 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. And so I'll move on to a brief business review, including a discussion on recent operating results.

So looking back on our last fiscal year, which ended January 31, I couldn't be prouder of our teams and what they are able to accomplish. For the year, we delivered impressive 11% revenue growth adding over $600 million to reach record sales of $6.2 billion. At the same time, our gross profit margin grew by 126 basis points despite incremental tariff headwinds. This drove a 28% increase in operating profit and lifted earnings by 35% to $5.44 per share. Record sales and profits made FY '26 a truly historic year for URBN.

Fortunately, fiscal '27 has started out equally strong. We recently reported record first quarter results with revenue again growing by 11% and EPS increasing by 12%. We maintained our strong execution by delivering a 9.4% operating profit despite ongoing issues around tariffs, freight costs and gas prices.

Fortunately, our customers continued to show resilience. We saw no signs of a demand slowdown. In fact, customers were eager for fresh spring fashion and our teams delivered. From compelling assortments to standout store experiences, inspiring marketing and new innovations in our subscription business, we exceeded their expectations. The results, positive comps across every brand and every segment. This performance speaks volumes about the strength of our strategies, the quality of our execution and the appeal of our brands. Most of all, it affirms the talent of our leaders and their teams.

We're attracting new customers, keeping our loyal ones and growing our market share across the board. Each brand plays a valuable role in the URBN portfolio. Anthropologie continues to grow revenue and deliver healthy double-digit operating margins.

Free People is delivering exceptional results with Retail segment comps near double-digits and outstanding margin performance. FP Movement is an even stronger growth vehicle with double-digit sales growth and superior margins. FP Movement now operates over 90 stores across North America and expects to open more than 20 new stores in FY '27.

Nuuly, our women's apparel rental business is our youngest and fastest-growing brand. It recently reached a milestone by surpassing 500,000 active subscribers, is nicely profitable, gaining brand awareness and showing the potential to scale meaningfully. Nuuly is one of the most exciting high-growth apparel concepts in the market today.

Urban Outfitters in North America continues its important turnaround journey, while the brand in Europe continues to deliver double-digit comp sales. Together, they returned the brand to profitability for fiscal 2026 and are showing continued momentum in the first quarter.

All-in-all, I'm delighted with how our brands are performing. Yes, we're managing a more complex tariff and freight environment than a year ago, but our teams have demonstrated remarkable discipline in their mitigation efforts, and we expect headwinds to ease as we move through the year.

Based on what we know today, we believe we can continue to grow revenue and expand margins for the full year and beyond. We're confident URBN is well positioned for continued success.

That concludes my prepared remarks. I will now pause and ask Oona if there are any questions from our shareholders.

Dick, at this time, we have no questions.

All right. Thank you, Oona. Since there are none, the URBN 2026 Annual Shareholder meeting now stands adjourned. Thank you for your interest and your participation.

Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. First Quarter Fiscal '27 Earnings Call. [Operator Instructions]

I would now like to hand the conference over to Oona McCullough, Mr. Executive Director of Investor Relations. Ms. McCullough, you may begin.

Good afternoon, and welcome to the URBN First Quarter Fiscal 2027 Earnings Conference Call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the 3-month period and April 30, 2026. 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.

For more detailed commentary on our quarterly performance and the text of today's conference call, please refer to our Investor Relations website at www.urbn.com.

I will now turn the call over to Dick.

Thank you, Oona. In the first quarter, our teams once again produced record quarterly sales and earnings per share. Net sales grew 11% to $1.5 billion, and EPS grew 12% and to $1.30. This marks the seventh consecutive quarter of record sales and profits for URBN. I salute our extraordinary teams for their talent and remarkable consistency.

All retail segment brands delivered positive comps with standout performance from Free People and FP Movement. You will hear more on both of these brands from their CEO, Sheila Harrington, in a few minutes. Our other segments, wholesale and subscription also produced outstanding results and were instrumental in driving these record results. Frank Conforti, our Co-President and Chief Operating Officer; will now provide the details of our Q1 performance. After Frank, Sheila will talk about the Free People Group. Following her Melanie Marein-Efron, our CFO, will walk you through our outlook for Q2 and the second half of the year. I will then wrap things up with a few closing thoughts before we open the call to your questions.

Frank, the floor is yours. .

Thank you, Dick, and good afternoon, everyone. Today, I'm excited to share our company's first quarter record results compared to last year. Then I will dive into some detailed notes by brand followed by a tariff and fuel cost update. Overall, our teams delivered another outstanding quarter, exceeding our plans and setting new sales and operating profit records.

Total URBN sales grew by over 11%, reaching a Q1 record of $1.5 billion. All our retail segment brands delivered positive Retail segment comps while 4 of our 5 brands posted record first quarter sales. Newly continued its impressive double-digit revenue growth, and our Wholesale segment also delivered exceptional double-digit revenue growth.

Our total URBN sales growth was partly driven by a 6% increase in the Retail segment comp with digital comps slightly exceeding store comps. Newly delivered strong 35% revenue growth, driven primarily by an increase of over 110,000 average active subscribers compared to Q1 last year. Additionally, the Wholesale segment delivered a 25% increase in revenue, driven by growth across both specialty and department store accounts.

Next, I will turn your attention to gross profit. URBN saw an 11% increase in gross profit dollars, while the gross profit rate decreased by 16 basis points to 36.6%. The decrease in gross profit rate versus the prior year is due to a $5 million or 36 basis point onetime benefit received in the prior year. This deleverage was partially offset by an improvement in total company markdown rate, driven by lower markdown rates at the Free People and Urban Outfitters brands.

In the quarter, SG&A increased by 12%, deleveraging by 5 basis points. I want to note that SG&A in the quarter included a $7 million or 47 basis points benefit from a favorable resolution of a legal matter. The increase in SG&A dollars was driven by increased store payroll expenses to support the growth in store net sales marketing investments at several of our brands and investments in technology.

The marketing efforts drove increases in traffic, both in stores and online for the total URBN Retail segment. while new lease marketing campaigns resulted in healthy double-digit growth in average active subscribers. The technology in relates to several exciting AI-related projects that we anticipate to benefit the company for years to come.

Overall, total URBN operating income grew by 9% compared to last year. reaching a Q1 record of $140 million. During the quarter, we repurchased 4.6 million shares for approximately $300 million. These recent share repurchases reduced our outstanding shares by 5%. Net income increased to $116 million while earnings per share increased by 12% to $1.30 per diluted share.

Moving on to brand performance, starting with Anthropologie. As noted on the last call, the Anthropologie team had a slow start to the quarter as the brand cleared through some slower moving winter products. As fresh spring receipts began to impact the assortment in March, the brand saw the business respond nicely with positive comps in March and April.

For the full quarter, Anthropologie delivered a positive 2% retail segment comp. This marks over 5 years of positive comps produced by the Anthropologie brand. The positive Retail segment comp was driven by positive comps in women's apparel, shoes and home partially offset by a negative comp in accessories. Apparel growth was fueled by a continuation of the strong bottom cycle and a nicely positive dress comp, which is great to see for the brand.

Turning to the home category. Performance was primarily driven by recent improvements in furniture, which we believe presents an opportunity for growth in the coming year as we continue to lean into the brand's unique home aesthetic. Through strong execution in product, marketing and creative content, the Anthropologie team successfully fostered broad-based customer growth and engagement this quarter.

This integrated approach not only drove positive traffic trends across their store and digital channels, but was also key to expanding the customer base. Overall, we are pleased with the brand's execution and based on our current plans, we believe the brand has the ability to deliver low to mid-single-digit positive comps in the second quarter.

Now turning to the Urban Outfitters brand. which continued to build meaningful momentum in the first quarter on top of last year's positive performance. Total Urban Outfitters sales grew by over 11% and the global Retail segment comp was 9% with strength across both North America and Europe. Digital comps outpaced store comps in North America, while in Europe, the store business led the digital channel. In North America, the team delivered positive comps across women's apparel, accessories and home.

Within women's apparel, the strong bottoms trend continues to fuel growth complemented by incredible performance in their key items. The positive Retail segment comp was driven by reg price sales, which outpaced total comp. The brand's marketing initiatives fueled positive traffic in both stores and digital this quarter, resulting in double-digit growth in new customer acquisition while maintaining high retention rates across their existing base.

This success is rooted in the brand's strategic commitment to platform diversification, meeting their audience wherever they engage. The brand was excited to launch DoorDash in April, which successfully expanded through May, and they are incredibly encouraged by the early conversion and reach of this partnership. Furthermore, the brand has evolved their influencer model to lean heavily into user-generated content. The brand's recent spring campaign served as a powerful proof point for this shift, as it was uniquely shaped by the brand's creators and customers. By transitioning to a more community-oriented campaign structure, the brand is fostering a deeper, more authentic connection with their audience.

In Europe, the business continues to be a standout performer. The European team produced a remarkable 12% retail segment comp despite being up against healthy comparisons versus the prior year. European stores outperformed the digital channel, leading to a nice increase in profitability for the quarter. Their consistent execution in product and marketing is allowing them to continue capturing meaningful market share.

We are pleased by the progress of the global Urban Outfitters brand. We believe the brand is well positioned to deliver high single-digit positive Retail segment comps for the second quarter while continuing to make meaningful progress in growing their profitability.

Now moving to the Nuuly brand, which delivered another strong performance this quarter. continuing to scale both its subscriber base and its financial results. Total revenue grew by 35%, driven by a 33% increase in average active subscribers. This was an increase of 110,000 average active subscribers compared to the prior year Q1. And as of today, the brand is currently sitting on the doorstep of 0.5 million active subscribers. This subscriber growth reflects continued strong demand for the service, supported by effective marketing campaigns and healthy subscriber retention.

Nuuly generated operating profit of $10 million in the first quarter, representing a 6% operating profit rate. This improvement was driven by operating leverage as the business scales, partially offset by continued marketing investments to sustained subscriber growth. The brand's ability to grow its subscriber base while simultaneously improving its economics is a meaningful indicator of the health and scalability of this business. We remain committed to scaling Nuuly toward its significant long-term potential while continuing to improve its profitability.

The last topic I want to address is the overall tariff and freight environment and its impact on our business. First, let's discuss fuel costs. We are currently navigating higher inbound freight costs and higher delivery expenses driven by fuel surcharges associated with the ongoing conflict in the Middle East. We are assuming these costs will remain consistent for the remainder of the year. These additional costs could have a negative impact of approximately 45 basis points in IMU relating to higher inbound costs and 25 basis points in outbound delivery and freight expense due to increased fuel surcharges. If the price of oil declines and holds at any point in time in the future, we would expect to see a corresponding reduction in these increased expenses.

Next, let's discuss tariffs. Navigating the current tariff landscape is difficult and seemingly ever changing. Let me try to organize it as best I can. I will start in chronological order. The IEEPA tariffs imposed last spring were declared illegal this spring. In some countries, such as India, where we source a meaningful amount of product, the tariff rates reached as high as 50% from August last year through the start of fiscal year '27.

In the meantime, these IEEPA tariffs were used to negotiate bilateral tariff agreements with most of the countries from which we source our products. The agreed-upon bilateral tariff rates varied from 10% to 22%. We have filed for refunds from the IEEPA tariffs imposed in the spring of last year and expect to receive approximately $100 million in refunds in the second quarter. We are planning to record these refunds as a onetime benefit in the second quarter.

After the IEEPA tariffs were ruled illegal, the administration quickly imposed a new 10% Section 122 tariff on almost all imports. These tariffs took effect in mid-March and run through the end of July. These have now also been ruled illegal, but we are required to continue to pay them. It is possible we will receive refunds on the Section 122 tariffs sometime in the future. There is much uncertainty regarding what will happen once the Section 122 tariffs expire.

But since a number of bilateral agreements were reached under the IEEPA tariffs, we assume that some form of tariffs, similar to those agreements will be imposed. So in order to plan conservatively, we are planning for a 15% across-the-board tariff for our imports in the second half of the year. If it turns out receipts from any country face a different charge than 15%, we will have an additional cost or benefit versus our plan. The good news is, if our 15% estimated rate is reasonably accurate to what actually occurs we will have a net favorable benefit to IMU in the second half of the current year. That benefit does take into consideration the additional fuel costs we expect to pay during that period.

In summary, the record-breaking first quarter of fiscal year 2017 reflects the underlying strength of our diversified brand portfolio. Total revenue grew over 11%. Free People delivered a standout performance across both retail and wholesale. Urban Outfitters continued its strong top line comp alongside meaningful operating results improvement. Nuuly robustly grew its average subscriber base while continuing to improve their profits and our Wholesale segment delivered exceptional results. Anthropologie quickly responded to a slow start to the quarter and as fresh new spring and summer products arrived, their comp sales performance improved nicely. We entered the second quarter proud of all of our team's performance and confident in our growth plans.

Now I will turn the call over to Sheila Harrington, Global CEO of Free People Group and the Urban Outfitters brand. Thank you.

Thank you, Frank. For the purposes of this discussion, FP Group refers to the entire end footprint, spanning both Free People and FP Movement across all retail segments and wholesale channels. Both Free People and FP Movement delivered an exceptional strong quarter. Total FP Group revenue increased 17% year-over-year, driven by sustained momentum across both of our wholesale and retail segments. Wholesale revenue surged 26%, while the Retail segment grew 14%. This includes a 10% Retail segment comp, marking our 24th consecutive quarter or 6 full years of positive Retail segment comps, for the FP Group.

The Free People brand delivered total revenue growth of 12% with wholesale up 16% and the Retail segment up 11%, driven by a 9% retail segment comp. FP Movement continued its impressive trajectory, delivering total brand revenue growth of 32%. This was driven by a 15% Retail segment comp, strong noncomp performance, 6 new store openings in the quarter and 48% wholesale growth. This success was directly supported by well-executed product distortion and impactful creative marketing in both brands. In addition to the strong top line performance, total FP Group delivered record first quarter profitability. Both Free People and FP Movement achieved record low markdown rates, fueled by exceptional reg price selling to outpace total sales growth.

Total brand profitability also benefited from strong store performance, which outpaced digital alongside meaningful leverage within the wholesale channel. For the Free People brand, there was broad-based strength across the entire assortment, including tops, bottoms, intimates and accessories. Furthermore, store performance nicely outpaced digital across North America and Europe. This was driven by positive traffic and conversion trends as well as higher transaction values. This metric reflects the power of our regular price selling, a favorable product mix and our continued investment in elevating product quality.

On the marketing front, the brand executed a highly successful creative digital campaign, The Art of the Pant. This initiative showcased the originality and elevated positioning of our pant assortment while celebrating creativity within the broader art community. The campaign exceeded our expectations, driving robust new customer acquisition. Turning to FP Movement, notably, a strategic emphasis on our bottoms and broad categories drove outpaced performance and did double-digit new customer acquisition. Similar to Free People, these results were supported by strong full price selling despite IMU headwinds related to tariffs during the quarter, disciplined execution allowed the brand to deliver year-over-year merchandise margin improvements.

FP Movement continues to gain significant cultural relevance reinforcing its position as a distinct and unique growth vehicle within the URBN portfolio. During the first quarter, the brand successfully activated key partnerships, including a collaboration with Barry, the leading high-intensity training studio chain, which expanded into Selfridges in London. This activation successfully elevated the brand's visibility globally.

Now I want to take a moment to discuss the longer-term strategic outlook for both Free People and FP Movement. We have reached a critical inflection point where we no longer view these as parent and sub-brand. Instead, we are managing them as 2 independent ecosystems, each serving genuinely different market opportunities. I want to be clear, this evolution is not a sudden shift but a deliberate and strategic transition. We are moving thoughtfully to ensure we maximize what is best for both brands, not just from a top line perspective but through the lens of disciplined expense management and intellectual leverage.

By sharing our collective expertise and proven brand-building playbooks, we ensure that each ecosystem grows. It does so with the operational wisdom and efficiency of the entire FP Group. These 2 ecosystems coexist perfectly Free People continues to anchor our portfolio with its decade-long legacy of creative storage telling and creative original products. While FP Movement is strategically architected to leave the activewear market through a unique fusion of technical performance and elevated style.

By decoupling their growth strategies, we can pursue each opportunity with singular focus anchored always by the unwavering commitment to creativity and the value of our original ideas. By anchoring Free People and FP Movement in their own singular authentic voices we are feeding digital platforms that remember brand identity. This maximizes our discoverability today and deepens our competitive moat for years to come. We believe this dual ecosystem approach positions us uniquely for an AI-driven world.

Turning to the Free People brand. We continue to build a formidable momentum across our strategic pillars. First, our international expansion remains a high conviction opportunity. We currently operate 13 European locations, and our wholesale business remains underpenetrated, leaving us a massive runway for growth. Our recent strong entry into Scotland with the Edinburgh opening is a perfect example of the international opportunity ahead of us. This success, combined with double-digit retail segment comp growth and strong 4-wall profitability in the European market reinforces our commitment to keep global expansion at the forefront of our long-term strategy.

Second, we are aggressively modernizing our domestic footprint across both retail and wholesale. In our Retail segment, we are strategically evolving our store base. investing in larger format locations and high-impact remodels that are already yielding meaningful sales lift and deepening our consumer engagement. Simultaneously, we are scaling our wholesale business through thoughtful category expansion. By aligning with correctly positioned partners across our portfolio of labels, including We the Free, Freest and Intimately FP, we are capturing new demographics and broadening our market reach without compromising our brand integrity.

Third, brand elevation remains our North Star. We believe that when we lead with distinctive and uniquely designed product, uncompromising quality and clear value. We solidify our emotional connection with our customer. This is powered by our agile sourcing strategy, which gives us the speed to react to emerging trends and maximize market opportunities in real time.

Finally, we are focused on the evolution of our digital platform, then during consistency of the Free People brand provides the perfect foundation to leverage AI-driven tools. We have begun to use these technologies to optimize customer acquisition and build a scalable digital environment that speaks with a singular authentic voice.

Now turning to FP Movement. As we accelerate this brand's growth, I would like to call out our new President, Andrea Perez, now leading the brand. With this dedicated leadership in place, we are positioned to be a major disruptor in the active risk space. We are not simply participating in the category. We are redefining it.

Our strategy is focused on 4 key areas of growth. First, we are aggressively expanding our consumer ecosystem. We know that FP Movement's appeal extends far beyond the core Free People base and the results bear this out. In Q1, we saw FP Movement only consumers continue to grow significantly and continue to build momentum year-over-year. We are building a distinct identity through elevated storytelling while ensuring our content is AI ready to drive compounded returns on discoverability as digital platforms evolve.

Second, we continue to scale through domestic optimization. Store expansion remains a proven high-return lever for us. After ending last year with 25 new store openings to reach 88 stand-alone locations, we have more than 20 new store openings planned for this current fiscal year. Our shop-in-shop model remains a highly successful incubator for these stand-alone stores. In fact, in several markets, we are seeing productivity and profitability that exceeds our legacy benchmarks. Additionally, to support the growth in the wholesale channel, we are being incredibly intentional targeting premium specialty partners, including boutique studios and outdoor retailers that reinforce our brand authority.

Third, we are turning our focus to international expansion. The global opportunity for FP Movement is compelling and untapped. We will lead our international growth through a strategic mix of wholesale partnerships and direct-to-consumer channels, allowing us to scale brand awareness rapidly while remaining a deep authentic connection with our global community.

Finally, our fourth pillar, remain obsessed with product innovation and technical performance. We understand that today's active consumer refuses to choose between function and fashion, and FP Movement is engineered exactly at this intersection. We will continue to lean into this white space, where elevated style meets authentic, athletic functionality. This is our competitive advantage, and we intend to widen it.

In closing, we have 2 distinct brands with real momentum, long-term strategic opportunities, focused teams and strong new leadership executing against them. We are confident and excited about our long-term success. I want to thank Meg and the creative teams in both brands. Andrea along with entire Free People and FP Movement teams for your shared passion, creativity and unwavering focus on our consumer.

I now turn the call over to Melanie.

Thank you, Sheila, and good afternoon, everyone. On today's call, I will discuss our thoughts on the second quarter and full year fiscal '27. We're off to a solid start this quarter and based on what we're seeing so far, we are planning for Q2 total company sales to grow in the high single digits. In our Retail segment, comp sales could grow mid-single digit driven by high single-digit positive Retail segment comps at Urban Outfitters and FP Group, while Anthropologie brand could be low to mid-single-digit positive comp. At Nuuly, the brand could deliver mid- to high 20s revenue growth driven by continued subscriber momentum. Finally, our Wholesale segment could produce mid-teens growth.

We continue to believe we could deliver positive high single-digit total company sales growth for the full year fiscal '27. This growth could be driven by mid-single-digit Retail segment comp mid-20s revenue growth at Nuuly and high single-digit growth for the wholesale segment. Based on our current plans, we believe our full fiscal year '27 gross profit margin could be up approximately 25 basis points versus last year, with the second half showing a benefit to IMU. This guidance reflects the current Section 122 tariffs at 10% and until the end of July and an estimated 15% blended tariff for the second half of the year.

In addition, we are assuming that current oil surcharges related to the Middle East conflict remain in effect for the remainder of fiscal year '27. These surcharges, which began in March impact inbound freight and delivery in outbound freight expenses. Based on current surcharges, they represent approximately 70 basis points unfavorable impact per quarter. Based on the current sales performance and plans, we believe our second quarter gross profit margin could be flat to down by approximately 25 basis points versus last year. The reduction in Q2 gross profit rate could be primarily due to lower IMU due to the increased tariffs versus last year, along with the fuel surcharges.

Based on current sales performance and financial plan, we believe Q2 total growth in SG&A could grow at or slightly ahead of sales growth due to marketing investments at all brands to support new customer acquisition, along with increased technology investments. These technology investments relate to several AI-related projects. We believe that these technological investments will provide significant benefits for year to come. Now for the full year, we believe SG&A growth could grow at a rate in line with sales growth. As always, if sales performance fluctuates, we maintain a certain level of variable SG&A spending that we can fluctuate up and down depending on how our business is performing. We're planning for an effective tax rate of approximately 22.5% for Q2 and the full year.

Now moving on to inventory. We continue to be focused on increasing our product turns. We believe that inventory levels could grow at a rate at or below sales growth. For fiscal year '27 capital expenditures are planned at approximately $475 million. The fiscal year '27 capital project spend is broken down as follows: approximately 35% for retail store expansion and support, approximately 50% for logistics investments and the remaining 15% for technology investments and home office expansion to support our growing businesses.

The logistics investments are to expand our capacity and automation in both the subscription and retail segment businesses. We will be opening approximately 54 new stores and closing approximately 19 stores during fiscal year '27. Our net new store growth is primarily being driven by growth in FP Movement, Free People and Anthropologie stores. During fiscal year '27, we plan on opening 21 FP Movement stores, 12 Free People stores, 13 Anthropologie stores and 8 Urban Outfitters stores. As a reminder, the foregoing does not constitute a forecast, but is simply a reflection of our current fees. The company disclaims any obligation to update forward-looking statements.

Now it is my pleasure to turn the call back to Dick Hayne, Chief Executive Officer of URBN.

Thank you, Mel. Sheila, once again, congratulations to you and both the Free People and FP Movement teams on the exceptional quarter you produced. The results speak for themselves. It is a credit to the talent and creativity you have built within both teams. So thank you.

In addition to the FP Group, I am proud of what all teams delivered in the first quarter. Every one of our retail segment brands posted positive comps. This is no coincidence. It is the result of years of disciplined investment in our brands, our people and the experiences we create for our customers. Beyond Retail, the wholesale and subscription segments also posted strong double-digit revenue growth and solid profitability.

What gives me confidence as we look ahead to the rest of the year is not just the numbers, but the underlying health of the business. Free People and FP Movement are performing with genuine distinction. Urban Outfitters is on a clear and meaningful path forward in North America and is already excelling in Europe. Anthropologie showed real resilience, turning a slow Q1 into a positive comp as well-received products hit the shelves in March and April. Nuuly continues to scale with impressive speed, well on its way to the magic $1 billion goal. And our Wholesale business is delivering outstanding top and bottom line results. Taken together, this portfolio gives us confidence that our brands have the opportunity to deliver positive comps for the full year with margin expansion and record profitability.

The strength of our business is built on the talent, creativity and dedication of our teams. However, even the most talented team can and will have an occasional off-season. The consistency of URBN, which has allowed for 7 consecutive quarters of record sales and profits, stem from our diversification. From our first store near the University of Pennsylvania campus, which offered multiple product categories in a lifestyle setting to geographic diversification beyond Philadelphia and later outside the U.S. to the introduction of additional retail brands, and distribution channels, and most recently, the launch of a subscription rental brand, the history of our company is one of progressive diversification. It is a genuine competitive advantage that our talented teams bring to life every day.

No matter how talented our teams are, we remain dependent on the health of our customers. Much has been written about the consumer in a K-shaped economy. My observations today focus on our specific customer set, most of whom reside in the top half of that K. Despite the daily noise and turmoil in the macro environment, our customer shopping behavior has remained remarkably consistent over the past few years, including the current year-to-date. They remain positive and continue to engage enthusiastically with our brands, responding to fashion newness and seeking the quality and creativity to define what we do.

In short, our customers are in excellent shape. They are financially secure and are more interested in fashion than price. With a strong customer base, a diversified portfolio of distinguished brands and outstanding teams, we believe our future shines very bright.

In closing, I offer our sincere thanks to the entire URBN family, especially to our co-presidents, Megan Frank, and all of our brand leaders. I also want to thank our global partners and our shareholders for their continued support.

That concludes our prepared remarks. We now invite your questions.

[Operator Instructions] Our first question comes from the line of Lorraine Hutchison with Bank of America.

Just want to dig into Anthro a little deeper. What did you fix? What was the impact on margins? And how comfortable are you with the brand's ability to continue to profitably comp positive?

Lorraine, this is Tricia. I'll speak to that. We were really pleased with the progress that our team's made throughout our Q1 performance. As we shared on the February earnings call, we had a soft start as Dick and Frank mentioned to the quarter in February. But as the quarter progressed and new spring receipts were received in mid-March, we saw a return to our prior trend on the higher end of our low single-digit comps in March and April. The results were really driven by the strength in core women's categories like pants, denim, dresses and shoes as well as Mother's Day gifting categories like beauty.

In addition, we continued momentum in addition to the continued momentum we're seeing in full price furniture sales really drove our home comps nicely positive. We ended the quarter with the 2 comps driven by a full price comp increase as well as increases in traffic and AUR in both channels. We also see May month-to-date performance more so relate to how we exited Q1 than how we began. And we're planning low to mid-single-digit comps in the quarter.

So I think to Dick's point around the resilience, our teams have built the ability to be able to react to newness, be able to fuel that newness and the continued strength that the teams have delivered over the last consecutive quarters of comps and the strength of our own brands, we really feel like we'll see progress and feel like we can deliver on that plan.

Our next question comes from the line of Paul Lejuez with Citi. .

I'd love to hear how the other brands are running on to the comp guidance that you gave on the prepared remarks. And then also just would love to hear a little bit more about the Europe market generally. Just maybe any difficulty by country that you could talk about and what sort of traffic patterns you might have seen if anything, changed over the last several weeks.

Okay. Paul, this is Dick. I'll take both questions. First, the May sales to date. I think you knew and you heard in our prerecorded that we're planning on high single-digit total revenue growth in the second quarter. And with Retail segment comp growth by brand planned between low and mid-single-digit for Anthropologie and high single digits for the Free People, FP Movement and Urban brands. Sales month-to-date in May, are essentially in line with those plans.

Now as for Europe, the European market, as you know, is reasonably soft. The economies are struggling among other reasons, largely around high energy prices. And of course, this is especially true in Germany. However, when we look at the -- the European demand for our Urban and Free People brands is actually quite brisk with comp store sales posting double-digit gains. This isn't normal on the high street. So the only explanation I can come up with is we have a very good product, and we're taking market share.

Our next question comes from the line of Matthew Boss with JPMorgan.

Great. So Dick, I think you made a great point on consistency. So your portfolio kicking off your portfolio is kicking off a seventh year of at least mid-single-digit minimum comps. So as we think about how your portfolio is positioned regardless of the macro, what do you think the difference is? Like how would you think about differentiation across the brands to be able to produce that level of consistency on a year-in and year-out basis?

Thanks, Matt. Well, I don't want to say that the brands are always consistent. As I mentioned, there's ups and downs in each of the brands. What allows for the consistency across URBN is the fact that when some brands are way up, some other brands might be less up. And so we get that consistency, it's very much like the way you folks manage your portfolios. And so we're very pleased with that concept, we think it's working and we feel that it is a real plus. And that's -- next question.

Our next question comes from the line of Simeon Siegel with Guggenheim Securities.

Good evening, everyone. Nice job. SP653313950 How much did improving UO profitability add to total URBN EBIT margin? How should we think about that opportunity there? And then just what's the right way to think about how you're thinking about repurchases now just given that meaningful 1Q buyback?

Okay. I'm going to ask [ Aiken ] to take that.

Yes, I can to take that. I can touch on urban. So obviously, the brand hit profitability last year. And in the first quarter, they continue to build upon that and drove improved profitability. We're still on track, targeting low single-digit operating profit rate for the global brand for the full year this year and still believe that we should be able to get to a high single-digit operating profit rate as we continue to build top line sales comp.

Our next question comes from the line of Jay Sole with UBS.

I want to talk about the discussion about AI in the prepared remarks. Maybe Dick, can you just talk about the potential you see for AI? And maybe give us some specific examples, anecdotes, if you will, how you're applying AI into the business and how it's driving improvement? And what gets you excited for more opportunities going forward?

Jay, I would love to do that, but I'm going to hand it over to my son, Dave, who does this day in and day out and is quite familiar with all the things that we're doing.

Yes. Jay, obviously, a lot going on in the world right now, lots of people talking about AI. We are doing the same. I feel like I'm meeting about it all day every day at this point. Look, there's an incredible amount of opportunity for AI to impact the company all across URBN. We are hard at work deploying AI and machine learning across the company.

Much of our online experience right now has been and is even more so now driven by AI is driving our personalization and recommendation algorithms, a lot of our search and discovery across our websites. AI is enhancing our product listings on our website. It's translating our websites. It's helping with order fraud screening and optimizing our legions. We have recently launched an AI customer service agent that's helping to respond to customer service inquiries faster and more efficiently. That's been a nice win.

The tech teams that I oversee are using AI constantly throughout the day, helping to improve their code, helping to improve every function that they do, basically, helping them do it faster and more efficiently. All of our teams across the entire company now are -- have [ GenAI ], and they are deployed across the entire company. We are rolling out Claude and other AI tools to help our teams be more efficient. That's a big initiative now. We're also focused heavily on AI being deployed across our creative and merchant teams. We think there's a big opportunity to help accelerate our product development life cycle, which is a big focus of the company.

So there are dozens of other ways. Those are just some, but there are dozens of other ways that AI is going to affect the company. We're very excited about it. It's going to be touching everything, and we are moving aggressively to deploy and make ourselves more efficient.

Thanks, Steve. Jay, I would just add that we are very, very committed to increasing the usage of AI in just about everything that we do. And we are in the first inning of actualizing that and we are going to be going as fast as we possibly can.

[Operator Instructions] Our next question comes from the line of Janet Kloppenburg with JJK Research.

Hi, everybody. Congratulations. It's really impressive quarter, very impressive. I wanted to talk to Tricia about the turnaround to, I think, mid-single-digit comps in March and April. And that suggests to me that the lead times of the plan are much more efficient than they've been in the past. And I wondered if you could talk about that and where you are in that cycle.

Yes. Thanks, Janet. I think the team, towards the end of third quarter, started to read some opportunities for some growth and they really deployed some of our shorter lead opportunities to develop products through Q4 that we really started to see in March, as I had mentioned, that improved our business. I think we have built a varied model that allows us to read and react and allows us to chase into it. So I wouldn't say that the entire model has changed, Janet, but it's given us opportunities to react to some of those opportunities as they present themselves.

I'm incredibly proud of the teams for their ability to be able to turn that. And as March and April, performed so significantly better than February. And as we see the opportunity in May, I really see kind of that continued long-term strategic opportunity to grow our own brands. and to have that deliver the type of profitability and exclusivity that they do continue. So thanks for the question. I think there's lots of opportunity for us to continue to react to the business.

And Janet, this is Frank. I just want to add, as Dave mentioned, I think one of the most impactful initiatives that we're working on is our ability to utilize technology to speed up our product life cycle. As you know, the closer in to consumer demand, we can choose product, the more accurate we're going to be, the better our sales are going to be, the lower markdown rates are going to be. And we think the technology is going to be a big unlock there. And it's something that we're really excited about, and we're in the early innings of working through what that can look like.

And our last question comes from the line of [ Mark Friedman ] of [ The Retail Tracker ].

For Shea, Marnie and I wanted to know with the momentum building at Urban and so many partnerships, colabs, we continue to invest in marketing and specifically in-store events that create a third space for your shoppers? And then also for Trish, the accessories assortment has looked good, riding the wave of many key trends. Is there an opportunity to push the limit, especially in handbags, for your own branded product with your own branded product to bring authority to the brand?

Mark, it's Shea. I'll start. First, our team and our marketing strategy is really focused on meeting our customer in the places and moments that matter. And increasingly, that means across a variety of social platforms, whether that's ChatGPT or Reddit or Pinterest. But you're right, the store is also a really important platform for us. It's not just a place that we sell stuff. It's a place where we build community.

And so it's in that spirit that we absolutely have a number of events lined up. The World Cup is coming up, as an example. We've got a lot of great events planned around that. We have locally right here in Philadelphia, the MLB All-star game that we're activating around. And then something that we're really excited about in the brand every year is the back-to-campus season where we get out to college, celebrate kids on campus and welcoming them back into our stores. So absolutely, we're excited to activate in our stores and hope our customers are, too.

Mark, I'll take -- thank you for recognizing the work that the team has done and you and Marnie on the accessories category. I think recently, we're starting to see some green shoots in the categories our summer product has been received and is performing really well. we'll continue to create -- curate our market assortments, but we think the real unlock is through further development of our elevated materials in our own brand assortment, so particularly in leather and suede as we position the handbag category for the back half of the year.

At the same time, we're learning about further opportunities with elevated market brands. with higher price points performing very well and our may stand with stores, both in jewelry and handbags. I'd say what we know is our customer responds very well to newness and fashion and generally doesn't see price as a barrier. So it's a great question. I think we'll continue to explore additional opportunities in the accessory area.

Okay. Thank you very much. That concludes the call. Thank you for joining us. .

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. Fourth Quarter Fiscal '26 Earnings Call. [Operator Instructions]

I would now like to introduce Onex McCullough, Executive Director of Investor Relations. Ms. McCullough, you may begin.

Good afternoon, and welcome to the URBN Fourth Quarter Fiscal 2026 Conference Call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the 3- and 12-month period ending January 31, 2026. 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.

For more detailed commentary on quarterly performance and the text of today's conference call, please refer to our Investor Relations website at www.urbn.com. Please note, on today's call, management will be speaking to our financial results on an adjusted basis, which do not include noncore adjustments for charitable donations to a donor advice fund in the current year and release of income tax reserves from the prior year. Each of these items is detailed in our press release as well as the investor presentation that is posted to our URBN Investor Relations website.

I will now turn the call over to Dick.

Thank you, Oona, and good afternoon, everyone. The URBN team delivered exceptional fourth quarter results to close out a record-breaking year. Total revenue grew by 10% in the quarter, hitting a record $1.8 billion. Adjusted earnings per share jumped an impressive 38% for the quarter and 35% for the full year. We achieved this even though tariffs negatively impacted our product margins beginning in the second quarter. I'm also pleased to report that the positive momentum we've seen all year continued through the holiday season. .

All retail segment brands delivered positive comps with standout performances from FP Movement and Urban Outfitters. Newly meanwhile, maintained its core pace of subscriber growth. The Urban brand also reached a huge milestone by returning to profitability for the full year. Frank Conforti, our Co-President and COO, will now provide a deep dive into our fourth quarter and full year results. After Frank, Melanie Marein-Efron, our CFO, will walk you through our outlook for fiscal 2027. I will then wrap things up with a few closing thoughts before we open the call for your questions. Frank? The floor is yours.

Thank you, Dick, and good afternoon, everyone. Today, I'm excited to share our company's fourth quarter record results compared to last year, and then I will dive into some detailed notes by brand. Overall, our teams delivered another outstanding quarter. exceeding our plans and setting new sales and operating profit records. Total URBN sales grew by over 10%, reaching a Q4 record of $1.8 billion. All our retail segment brands delivered positive Retail segment comps, while 4 of our 5 brands posted record fourth quarter sales. Newly continued its impressive double-digit revenue growth, and our Wholesale segment delivered 9% overall revenue growth.

Our total URBN sales growth was partly driven by a greater than 5% increase in the Retail segment comp with digital comps slightly exceeding store comps. Newly delivered strong 43% revenue growth driven primarily by an increase of over 120,000 average active subscribers compared to Q4 last year. Additionally, the Wholesale segment delivered a 9% increase in revenue driven by growth in the specialty store accounts, which was largely fueled by healthy increases in FP Movement.

Next, I will turn your attention to gross profit. URBN saw a 14% increase in gross profit dollars, reaching a record of nearly $600 million. The gross profit rate improved nicely by 101 basis points rising to 33.3%. The improvement in gross profit margin was primarily driven by lower markdowns at the Urban Outfitters and Free People brands in addition to occupancy leverage, driven by strong sales growth across all our brands and leverage in delivery expense due to a reduction in packages per order. These gains more than offset lower initial product margins at all brands due to increased tariffs versus the prior year. In the quarter, SG&A increased by 9% and leveraging the 14 basis points. The growth in SG&A dollars was primarily driven by increased store payroll expenses to support the Retail segment stores net sales growth and increased marketing spend which fueled sales and customer growth for all brands.

The marketing efforts drove increases in traffic, both in stores and online for total URBN Retail segment while new lease campaigns resulted in healthy double-digit growth in average active subscribers. Overall, total URBN operating income rose by 27% compared to last year, reaching a Q4 record of $159 million, while the operating profit rate grew by 115 basis points. During the quarter, we made a $46 million contribution to a donor-advised fund, which is included in other expense and income line item on our income statement.

We intend to use this fund to support our charitable initiatives in the coming years. Net income increased 33% to $131 million or $1.43 per diluted share. Moving on to brand performance, starting with Anthropologie. The Anthropologie team had another solid quarter, achieving a 4% increase in the retail segment comp, which marks 5 years of consecutive quarterly positive comps. This growth was fueled by strength in the digital channel while store comps were flat. The positive Retail segment comp was driven by positive comps in all major product categories. Apparel growth was fueled by a continuation of a strong bottom cycle, which remains a key driver of the assortment. Additionally, the brand saw significant strength in its own brands such as Nave, Hilco, Calende and Lierberd, all of which are resonating deeply with the customer and reinforcing our unique product positioning.

Turning to the home category. Performance was primarily driven by strength in home accessories, where fresh product introductions are successfully capturing the customers' desire to refresh their living spaces with new fashion. We are also encouraged by the recent improvements we see in furniture, which we believe presents an opportunity for growth in the coming year as we continue to lean into our unique home aesthetic. The Anthropologie team continues to drive customer acquisition by parent compelling product assortments with strategic marketing investments and exceptional creative content. These efforts were instrumental in driving growth across new, retained and reactivated customers during the quarter. This broad-based engagement led to the traffic increases we observed across both our digital and store channels.

Overall, we are pleased with the brand's execution and based on our current plans we believe the brand has the ability to deliver positive comps at a mid-teen operating profit rate in fiscal year 2027. Next, let's turn to free people. which delivered another impressive performance this quarter. The team achieved a total revenue increase of 10%. This growth was driven by positive Retail segment comps non-comp store growth and strong gains in the Wholesale segment. The Retail segment comp of over 5% was broad-based across both our store and digital channels while store performance outpaced digital during the quarter.

Customer traffic was nicely positive across both channels, supported by a healthy increase in AUR in stores. Furthermore, customer acquisition and overall customer growth were positive across both channels, fueled by compelling content and execution delivered by the brand's creative, marketing and product teams. The Wholesale segment delivered a 10% increase in revenue during the quarter, led by the continued strength of FP Movement across our wholesale partners. Importantly, across the Free People Group, regular price sales improved nicely versus the prior year, reflecting the high quality of the brand's offerings and strong customer demand. This execution, combined with well-controlled inventory allowed the Free People Group to deliver record operating profit for the fourth quarter. The Free People brand had a solid fourth quarter with total sales growth of 3% and and a retail segment comp of 1%. These positive comps were driven by successes in both gifting and self purchasing across several key categories, including accessories, intimates, bottoms and sweaters. The FP Movement brand remains a standout, delivering exceptional results with total revenue growth of 29% and an impressive retail segment comp of 21%.

This performance was fueled by the brand's ability to consistently deliver technical innovation and fresh fashion in the active wear space. The expansion strategy for FP Movement remains on track, which successfully opened 12 new stores during the quarter, bringing the total to 88 retail locations to date. We continue to see strong performance from these new sites which play a vital role in driving brand awareness and accelerating customer acquisition. Based on these strong results, the brand plans on opening at least 21 additional stores in fiscal year 2027. To lead this high-growth business into the next chapter, URBN is happy to welcome Andrea Perez as FP Movement's First Global President. Andrea will report directly to Sheila Harrington, Global CEO of the Free People and Urban Outfitters groups. Andrea is uniquely positioned to steer FP Movement as a premier performance lifestyle brand. Her expertise in disruptive marketing and a deep-seated passion for women's sports make her the ideal leader for the stage of our expansion. Looking ahead to fiscal year 2027, we remain confident in the underlying strength of the Free People Group.

Given the consistent execution within the core collection assortment and the ongoing growth of FP Movement, we believe the retail segment is well positioned to deliver positive comps with mid-teens operating profit rate for fiscal year 2027. Additionally, we believe the wholesale segment can deliver healthy growth with a consistently strong profit rate for fiscal year 2027. Now let's move on to the Urban Outfitters brand, which continued its positive momentum with a global Retail segment comp of 10%. This performance was driven by a healthy 8% sales comp in North America and a strong 12% sales comp in Europe. The Europe comp was particularly impressive given the difficult comparisons from the prior year. Most importantly, this growth was anchored by a significant improvement in markdown rates as the brand drove positive comps through strength in regular price selling. A significant milestone for the year was the global Urban Outfitters brand return to profitability.

We finished the year modestly above breakeven and driven by a substantial reduction in our North American operating loss and a robust increase in profitability in Europe. In North America, the team delivered positive comps across all major categories. Within women's apparel, the strong bottoms trend continues to fuel growth, complemented by an incredible performance in our key items and proprietary collections. In North America, the marketing and creative teams remain committed to meeting our customers where they are. The brand has seen great success in diversifying their social platforms and optimizing their creative across Reddit, interest and TikTok. The brand's recent partnership with [indiscernible] was a highlight, generating significant engagement through thousands of holiday wish lists. Moving forward, the team is leaning further into user-generated content and exploring emerging platforms to amplify the brand voice. In Europe, the business continues to be a standout performer, the European team achieved a significant increase in profitability for both the quarter and the full year, driven by the strength of their store business, which led to healthy operating profit growth. Their consistent execution in product and marketing is allowing them to continue capturing meaningful market share.

Looking ahead to fiscal year 2027, we are excited by the trajectory of the global Urban Outfitters brand. We believe the brand is well positioned to deliver positive Retail segment comps for the year while continuing to make meaningful progress in growing their profitability. Now moving to the Newly brand. which delivered another exceptional performance this quarter. Total revenue grew by 43%, driven by a 40% increase in average active subscribers compared to the prior year Q4.

This scale allowed the brand to deliver approximately 130 basis points of operating margin improvement during the quarter, fueled by efficiencies in logistics and the natural leverage of our operating expenses against strong revenue growth. Looking at the full year, Newly achieved several significant milestones. The brand surpassed its goal of $500 million in annual revenue and increased its total profitability by over $21 million. This resulted in full year operating profit margin growth of over 260 basis points. These results are a testament to the team's ability to scale the business profitably while maintaining high levels of customer demand.

Nuuly continued strong performance reinforces our confidence in the large and growing opportunity for apparel rental in the U.S. We believe the total addressable market for this category remains significant. And as the clear leader in this space, Nuuly is uniquely positioned to capture that demand. As we move into fiscal year 2027, we remain committed to scaling this business and driving long-term value for the URBN portfolio. We believe Newly could continue to deliver mid-double-digit growth rates as the brand grows in scale and marches towards $1 billion or more, while improving their profit margins. Now I want to briefly touch on tariffs. We estimate that tariffs negatively impacted our fourth quarter gross and operating profit rate by approximately 75 basis points, while negatively impacting the year by approximately 35 basis points. Note that these impacts are net of our mitigation efforts.

Now on to the current year. The recently announced Supreme Court ruling and subsequent Section 122 announcement certainly change things. These recent events were not contemplated in our original plans for fiscal year 2027, which Melanie is going to talk about in a few minutes. If the Section 122 tariffs stay in place for the year or expire in July, we do believe there could be an incremental IMU benefit to our current plans. There are certainly a lot of external discussions about what will or won't happen over the coming months. So we are cautious about planning for change until there is more clarity. In the meantime, our teams continue to work diligently on all our tariff mitigation efforts. And I think given the overall results in fiscal year 2026, they have done an outstanding job. We cannot thank the brand and sourcing teams enough for their efforts. In summary, fiscal year 2026 was a year of exceptional execution and record-breaking results across the URBN portfolio.

For the full year, we delivered total sales growth of 11%, supported by positive Retail segment comps at all our brands. Strong revenue gains in our wholesale segment and robust revenue growth in our subscription business. Our focus on regular price selling, inventory discipline and tariff mitigation efforts resulted in 126 basis points of gross margin expansion, driving a 15% increase in gross profit dollars. This discipline, combined with our strong top line performance enabled us to deliver 28% operating profit growth and an impressive 35% increase in earnings per share for the year. We finished the year delivering 128 basis points of operating profit rate growth just shy of a 10% operating profit rate despite the significant tariff headwinds that negatively impacted profit margins for the year. As we look ahead to fiscal year 2027, our brands are well positioned with fresh assortments, healthy inventory levels and a clear strategic focus. We remain confident in our ability to drive continued growth and deliver long-term value for our shareholders. I want to thank our teams for their incredible dedication and hard work in making this a historic year for URBN.

Now I will turn the call over to Melanie Marein-Efron, our Chief Financial Officer.

Thank you, Frank, and good afternoon, everyone. On today's call, I will discuss our thoughts on the first quarter and full year fiscal '27. As we begin fiscal year '27, we believe we could deliver positive high single-digit total company sales growth for the full year. This growth could be driven by mid-single-digit Retail segment comp, mid-double-digit revenue growth at newly and mid-single-digit growth for the wholesale segment. For the first quarter of FY '27, we believe we could deliver positive high single-digit total company sales growth as well. This growth could be driven by a mid-single-digit Retail segment comp driven by high single-digit positive comps at Urban Outfitters, mid-single-digit positive Retail segment comp at Free People and low single-digit positive Retail segment comp at Anthropologie. Newly could deliver mid-double-digit revenue growth.

Finally, our wholesale segment is going to achieve mid-teen revenue growth for the first quarter. Based on our current plans, we believe our full year FY '27 gross profit margins could be up approximately 25 basis points versus last year, with the second half showing a benefit to IMU. This guidance reflects the tariffs in place prior to discipline court ruling overturning the IIFA tariffs this past Friday. Based on the current sales performance and plan, we believe our first quarter gross profit margins could be down approximately 25 to 50 basis points versus last year. Excluding the impact of last year's nonrecurring gain in Q1 FY '26 and which contributed positively to gross profit margins by approximately $5 million or 36 basis points last year. The reduction in gross profit rate could be primarily due to lower IMU due to the increased tariffs. Based on our current sales performance and financial plan, we believe total growth in SG&A could outpace sales growth for both the first quarter and full year.

The annual growth in SG&A dialers primarily relates to strategic technology investments to support the sustained growth of Newly and the speed up of our internal product litigal process through genetic. We believe that these technological investments will provide significant benefits for years to come. The investments in agent AI tools allow our teams to elevate their creativity, execution and accuracy. As the product life cycle gets faster and desire rate closer to customer demand, we anticipate long-term financial benefits in the form of higher sales and lower markdowns. We believe the delta between SG&A and sales growth rates will be larger in the first half of the year than the second half of the year. In Q1, SG&A could grow several points ahead of sales growth due to the timing of marketing investments at the newly and Anthropologie brands, along with increased technology investments. As always, if sales performance fluctuates, we maintain a certain level of variable SG&A spending that we can fluctuate up and down depending on how our business is performing.

Our annual effective tax rate is planned to be approximately 22% for the year and the first quarter. Now moving on to inventory. In the coming year, we will continue to be focused on increasing our product terms, we believe that our inventory levels could grow at a rate at or below sales growth. For FY '27, capital expenditures are planned at approximately $385 million. The FY '27 capital project spend is broken down as follows: approximately 40% for retail store expansion and support approximately 40% for logistics investments, and the remaining 20% from technology investments and home of profit expansion to support our growing businesses. The logistics investments are to expand our capacity and automation in both Subscription and Retail segment businesses.

We will be opening approximately 57 new stores and closing approximately 14 stores during fiscal year 2. Our net new store growth is primarily being driven by the growth in FP Movement, Free People and Anthropologie stores. During FY '27, we plan on opening 21 FP Movement brand stores Free People brand stores, 14 Anthropologie stores and 8 urban at center stores. Based on our current plans, we plan to repurchase shares to at least offset any dilution that may occur in FY '27. Of course, share repurchase activity will be contingent on market conditions and Board of Director authorization. As a reminder, the foregoing does not constitute a forecast but is simply a reflection of our current fees. The company disclaims any obligation to update forward-looking statements.

Now it is my pleasure to turn the call back to Dick Hayne, Chief Executive Officer of URBN.

Thank you, Melanie and Frank. That's a great summary. As you've heard today, FY '26 was a landmark year for URBN. Our record results are a direct reflection of the strength of our brand portfolio and the talent of our teams. We entered the new year from a position of strength, and I'm optimistic about each brand's ability to continue capturing market share in FY '27. While there is always much prognostication regarding the macro environment and health of the consumer, we currently view both as positives for our business. We believe the macro economy is strong, and we see no shift in our customers' behavior, except for that due to extreme weather. .

Customers remain highly engaged and are responding enthusiastically to fashion newness and our creative experience. The future looks bright for URBN and our diversified model, spanning multiple brands, categories, channels and geographies gives us a solid foundation from which to grow, but the real magic of our brands is built by the outstanding talent and creativity of our teams. Their dedication and hard work allow us to remain relevant as preferences shift and ensure we consistently please our customers. This in turn builds brand equity and drives long-term value. The record-breaking results we celebrate today are a testament to that talent and the leadership that orchestrates it. I offer my sincere thanks to the entire URBN family, especially to Meg and Frank and all our brand leaders. I also want to thank our global partners and our shareholders for their continued support.

That concludes our prepared remarks. We now invite your questions.

[Operator Instructions] Our first question is from the line of Lorraine Hutchinson with Bank of America.

I wanted to focus on Anthropologie, which had a bit of a volatile fourth quarter, can you talk about how they ended in 4Q and began 1Q? And how you're positioned from an inventory perspective as we enter spring?

Tricia, do you want to handle that?

Yes, I'm happy to provide a little bit more color on that. We -- our sales accelerated coming out of the holiday period with receipt of new spring transitional product that was received in December. This contributed to a high single-digit comp in January, which resulted in a 4% comp increase for the quarter and was higher than our 3% forecasted comp. The change in our sales trends in January improved most significantly in our stores prior to the impact of the storm.

And that was mentioned at the beginning of the call, but it fallen behind our plan in the weeks of February in both apparel and home categories. Our DTC demand trend, however, in the January and February combined time frame is relatively in line with our plan in the mid-single-digit range in both apparel and home. Our teams have been hard at work at chasing into product categories that have outperformed and have a firm grasp on what the customer is telling us she wants. We believe that those receipts those receipts will flow into stores in mid-March, along with normalized spring weather trends and will positively impact our sales in the quarter. We're planning to deliver low single-digit comps in Q1 and low to mid-single-digit comps in FY '27. In response to the inventory question, our apparel inventory is in pretty good shape, [indiscernible].

And I mentioned our teams are reacting to the positive sales trends that they saw in January. Our overall home and furniture inventories were front-loaded earlier in the season and providing -- and proving to do really well, both from an overall performance perspective as well as benefiting from an earlier start to the season with intentionally higher in-stock rates. We have included a slight increase in our markdowns into our plan in reaction to a slower start to the quarter in stores. But as a reminder, our PD-1 has represented a historically low markdown rate for the last several years.

Our next question comes from the line of Paul Lejuez with Citi.

It seems like gross margin came in a bit better than what you had previously guided as of the third quarter call, even though Anthro I think during the holiday period did have some increased markdown pressure. So I was just curious came in better or worse than planned, it seems like mostly better. And then also, I just wanted to understand if you could just give a little bit more color on the first quarter to date across brands. what you're seeing and how that was impacted by weather.

Paul, I'll take your first question on gross profit margin. You are correct. It did come in better than we were signing for in the fourth quarter was largely due to lower markdown rates than what we were planning for at both Urban Outfitters and Free People. We also finished the top line a little stronger than what we were expecting as well, which drove some nicer than planned leverage in store occupancy. And then, Dick, I don't know if you wanted to go into the sales in the quarter.

Sure. We're planning on delivering mid-single-digit total Retail segment comps for Q1. Let me just break that down by brand, if I could. Anthropologie is planned at low single digits. Currently, the brand is slightly behind that plan due to soft store sales. .

Free People is planned to deliver mid-single-digit comps and is currently running ahead of that plan. And global urban outfits brand is planned to produce high single-digit comps and is currently meeting the plan. For total URBN weaker-than-planned store sales is the major issue negatively impacting planned comps. Digital sales were fine. We believe one major cause of softer store sales has been the extreme weather events in February. Now those extreme events are mostly located on the East Coast, but the West Coast also had their share with torrential rains. Stores are in nonimpacted regions are actually running ahead of plan. So we feel confident in our ability to achieve our total retail segment in Q1. In addition, both our wholesale and subscription segments are running slightly ahead of their Q1 plans. Therefore, we want to reiterate our confidence in producing high single-digit total company revenue gains in the first quarter.

Our next question comes from the line of Matthew Boss with JPMorgan.

It's Amanda Douglas on for Matt. So Dick, could you elaborate on product category or marketing opportunities that you're focused on this year for the Urban Outfitters brand to further improve sales productivity in North America and support your comp outlook for that brand this year?

Amanda, I sure could do that, but I want to pass it on to Shake [indiscernible] much closer to it. and much more knowledgeable about it, and I don't want to put my foot in my mouth.

And, it's Shea for the question. I think we continue to be focused on, let's say, to our customer from a product perspective and reacting right now. She is clearly voting for bottoms across the business, whether that's woven bottoms, denim or long bottoms, and certainly looking to outfit her back to those bottoms. Accessories continues to be a category that's resonating with our customers and then gifting and novelties, whether that's hydration or some of the novelties that customers love to come in and discover in our stores. So we continue to be looking to fuel those categories as well as support new and upcoming categories, one of that's our men's business or some of our footwear businesses that are emerging. From a marketing perspective, really proud of the team's efforts.

Last year, we acquired 1 million new customers to the brand, and those customers are regular price customers who are spending more with us and shopping more frequently. I think our mission in marketing is really to connect with customers and provide a great experience. Increasingly, that means finding them on a diverse range of social and digital platforms. And so in the past quarter, and I think looking ahead, that means really accelerating our efforts on platforms like credit. You heard Frank mention Tiktok, Pinterest, connected TV and even out in open AI platforms. In Q4, we're really proud of the partnership we had with Canva, we're the first retail partner they had -- if you happen to be a parent of a teenager, you know that, that is probably the most popular place that teams build gift list and wish list. And looking ahead, we're excited to continue that partnership to share our creative such customers to acquire new customers. And I think looking ahead, hopefully, to build a lot of new backfills well.

Our next question comes from the line of Dana Telsey with Telsey Advisory Group.

As you think about the real estate strategy for 2026, it seems like last year, you started out with a number and it came in higher. And given that this year's store openings and closings, the lease store openings seem a little bit lower than last year. Is that the same thing as things come up? And then lastly, with the new tariffs, any other thoughts on pricing? Does it -- will there be any additional changes on any of the brands?

I'll take the real estate strategy and then ask Frank to talk a little bit about his favorite topic, Tim. You're correct that when we give plans for the year, we only include those stores that have signed leases. Now we have a whole group of stores that we are interested in and we are negotiating with, but we don't include those until there is a signed lease, and we think we can get it in -- I'm sorry, open in the year that we're talking about. So yes, I think there's an opportunity, particularly in a brand like FP Movement to have a few more than 21 store openings. But I don't know if that's going to happen or not because we're still negotiating. Frank, do you want to talk about tariffs as if you haven't [indiscernible]

I could talk about your pricing question, Dana. I think as all of you know, as we've discussed on previous calls, we've really only taken price pretty sparingly and strategically where we felt like the specific style could support the price value equation for the customer. We were also really careful to make sure that we are protecting our opening price points and the overall penetration of opening price points to our business. I think given this approach over the past year with minimal increases, right now, we don't have any plans to change our pricing strategy in fiscal '27 as it relates to the change in the tariff. .

Our next question comes from the line of Mark Altschwager with Baird. .

I wanted to drill down on the margin outlook a bit. guiding to 25 basis points gross margin expansion as well as some SG&A margin pressure. I don't think you specifically quantified that, but it seems to point to flattish margins for the year. So with that in mind, can you just update us on how you're thinking about the medium-term opportunity relative to the 10% long-term target? And then relatedly for the year, I was hoping you could just drill down a little bit by brand to help us understand the puts and takes I think you said Anthro free people each plan mid-teens, which is, I think, close to where you were in '26 and then you will continue to improve. So just wondering why we wouldn't perhaps see more year-on-year improvement given that is making such quick progress.

Mark, thank you for your question. Certainly, multiple parts to the one question there. But see if I can hit it all. As it relates to the first quarter, as Melanie mentioned, we do think gross profit margin could be down approximately 25 to 50 basis points. And Keep in mind that's taking into account the onetime benefit we received in the prior year, which was roughly $5 million or 36 basis points. That decline is largely due to the lower IMU as a result of the higher tariffs from the prior year. As you mentioned, we are planning for gross profit margin to improve by approximately 25 basis points for the full year of fiscal '27.

I think this improvement could be driven by lower markdowns as well as occupancy leverage. I would just also note that, that plan does not contemplate the recent changes that have come about with the recent Section 122 tariffs. So if the Section 122 tariffs were to remain in for the full year or expire in July as it currently sits today. We certainly believe we could achieve greater than 25 basis points improvement in gross profit margin for the year. I think just -- certainly, there's a lot of opinions around what's going to happen with tariffs. Hopefully, it's positive for us. So we're cautious about committing to a bigger number. Yes, SG&A is planned slightly ahead of sales for the year as it relates to the technology investments that we're making. We're really excited about those investments and think that they're going to pay off for many years to come. The SG&A is a little different as it looks from a quarter to a year basis. We've got some marketing timing that hit in which evens out over the course of the year and marketing and creative is pretty flat on an annual basis. I do think if the tariff landscape remains consistent with where it is today, there is that upside opportunity to our original 25 basis point plan in gross profit margin, which would flow through to the bottom line and add op income.

Our next question comes from the line of Brook Roach with Goldman Sachs.

I was hoping to dive a little bit deeper into the Anthropologie product and marketing. Can you speak in more detail about the adjustments that you're making to product today and how you feel about the competitive positioning of the brand this year? What changes are you making in marketing to drive more consistent store traffic over time?

Can you, Tricia?

Yes. thanks for your question, Brooks. Our -- overall, I think we feel really good about the product assortment and the brand's performance in the quarter. Our strategic priorities have really been about modernizing our product assortment and our women's apparel business really led the brand's position and, as Frank mentioned, our particular owned brands, which grew additionally in penetration driven by the strength of Maze and [indiscernible] and particular in the bottoms business. So I think in the early signs, as I mentioned in January, we're getting some really good reads on the strength of bottoms overall. In particular, we pulled a campaign together that was focused on a pant at it. and got some really great productivity and early reads on the customers' response. So the trends are good. Our home business continues to perform well. We're on our third quarter of comp increases in the home business and driven by our home accessories and textiles and then really happy to say that our full price furniture business has rebounded with double-digit positive comps for the last consecutive quarters in full price.

So overall, I think the product categories are performing well. I think we like to have some better weather to be able to drive some better results in our stores that could offset the closures and the unseasonably cold weather. Our store marketing strategies have really been on the strategies. And we don't believe that traffic is the problem. We had some nice performance from a traffic perspective in stores in Q4. And aside from the form related closures and weather-related events, we're finding that our traffic is not the problem, and we feel pretty confident once we get through some of these other related issues, our ability to be able to continue to drive on these strategies will continue throughout the year.

Our next question comes from the line of Jay Sole with UBS.

My question is just on Urban Outfitters. It sounds like the profitability in the North America business got a lot better. Can you just talk about maybe what the EBIT dollars were, what the margins are at the end of the year with Urban Outfitters North America and where you think that can go? And then also, Frank, just on the opportunity for tariffs, some of the tariffs kind of are lessened to go away. What is the possible upside there? And can you also talk about like India, Bangladesh, some of these countries where the U.S. created some bilateral deals. What impact is that having on the business? Is that driving a little bit of improvement in IMU, that would be good to know .

Sure. Thanks for the question, Jay. First, I just want to say it again. It's just a huge congratulations to the entire team on the turn and overall results at Urban Outfitters. It's just -- it's really great to see the progress the teams have made in delivering such strong sales growth, and they did just marginally return to profit in fiscal '26, which was driven by exceptional profit growth in Europe. Europe is nicely profitable. And it was a healthy reduction in the loss in North America. There's still opportunity there for the North American business.

And I think given the continued momentum of the brand overall globally, on the top and bottom line. We are planning to build on what was achieved in fiscal '26. We believe the brand can give a low single-digit operating profit rate. in fiscal '27 and can continue to build on that number recovering the high single-digit operating profit rate in the coming years. So it's just -- it's been great progress, and we're looking to continue to build on that. As it relates to the tariff and some of the deals that were in place, which I think because they were deemed IEFA deals, they sort of go away.

But the India deal itself, that was baked into our plans as we talked about sort of the approximately 25 basis point gross profit margin improvement for the year. We felt like we would see that benefit more into the second half of the year as you clear through inventory that had the higher tariffs. And then you start to sell through inventory with the lower tariffs and benefit the second half of the year. I think as it relates to the current second 122 tariffs, if they remain in place for the entire year or expire in July, either scenario to that. It's incremental to the benefit and to the improvement that we're currently planning for the year. I think for us is right now, I think we're a little cautious because it seems like there's a lot of things moving before we get comfortable calculating that number. But it's a nice benefit for the full year. And again, you would start to realize that a bit in the second quarter, but much more meaningfully in the second half of the year.

Our next question comes from the line of Marni Shapiro with the Retail Tracker.

Congratulations on a great quarter and a nice start to spring, generally. Could we talk a little bit, just curious on newly, are you seeing your subscriptions people coming in? Are they staying longer in the subscriptions. And I'm curious if you're seeing any change to the people that are coming into the subscription older, young or anything like that? I know you had a big push on campuses at one point. And then just following along, are you seeing any change, especially during the holiday season. I'm presuming some people gifted newly subscriptions that these customers are coming into the other brands from newly.

Yes, Martin, thanks for the question. We did sell a fair amount of gift cards during the holiday season, and that's always a great way to activate new subscribers. It's something our subscribers love to get to their friends and families. So it's an excellent way to onboard new subscribers. I would say generally, we are seeing -- I think I mentioned this on the last call, we are seeing a very ever so slight lowering in the average age of our subscriber, but it's very, very small.

I think it is partially related to the kind of acceleration, I would say, that we're seeing from some of our college subscribers and university subscribers, particularly in the South. But it's a trend, but it's not a trend that's such magnitude that it's distorting anything significant. So I wouldn't put too much stock in that as a big trend. I would just generally say, though, that we are seeing through the holiday season, subscribers remaining strong, very positive year-over-year subscription growth and performance from the newly business. And we remain incredibly excited about what newly is and what the potential is with the business to just wrap up our first full year, delivering over $1 billion -- $0.5 billion in revenue. [indiscernible] slip there. $0.5 billion in revenue was a big goal of ours that we set out at the start of the year, and we are very proud and happy to accomplish it. as well as the bottom line improvement that we were able to show, and we remain very excited about what the overall TAM, the total addressable market is for this business. And what's really exciting about it is that we still see an incredible awareness gap in the market and everything that we do to continue to grow awareness and get more and more folks aware of even the concept of renting a clothing and fashion really just continues to contribute positively to the overall business growth.

So we think there's a big market here that we're continuing to go after. As we continue to grow awareness, we're seeing the fruits of that effort in the subscriber base growing. And we think the future is bright for where we can go. We're excited about pushing further upwards to that $1 billion number. That's our goal.

Our next question comes from the line of [indiscernible] with Wells Fargo.

Again congrats as well. Two for me. Just, Dick, on the UO quarter-to-date, I think you said it was in line with the high single. Can you just give some color U.S. versus Europe within that quarter-to-date? And then on Free People, I guess I want to ask the Free People brand comps only up on in the first quarter. Are you expecting the -- I assume you are, but are 3 people brand comps ex movement expected to remain positive. And then you're bucking the trend on athletic for sure. Is there anything you saw in the fourth quarter on movement that gives you any kind of just concern on the overall category weakness.

I mean, again, it seems like you're not -- you're going to say no because of the comp, but I just had to ask about the separation of brand versus movement and kind of what's in your expectation?

Thanks very much for that one question. Okay. I'll start with UO North America versus Europe, both geographies are on plan. Europe is a little bit higher planned than North America, but they're both very strong. And we're very happy to see that. In North America, I have to say we're seeing the same thing about weather. So store sales are a little bit softer than we would have planned than we did plan -- and we think it's the same thing that we're talking about with anthropology is that the consumer right now is a little reluctant to go out and shop. I'm not sure if she feels the necessity on the East Coast at least to go out and buy spring closed when the temperatures and 8 to 10 inches of snow are underground. Shea, do you want to talk about 3 people as I think you have a great story to tell.

Yes. So let me -- I'll start with 3 people and then I'll move to SP movement. So 3 people while only a single-digit comp in Q4, what we saw was an acceleration from Q3 into Q4 in our regular price. And we actually walked markdown business purposely. So we're in an extremely good health position. And I think our margin is near best in history for the Free People brand in Q4. So I think a lot to be proud of, lots of categories on fire and certainly a very, very strong store business. Now as we move into Q1 of this year, in February, we see even a further acceleration within the brand, and that's despite walking again a lot of markdowns. So non-anode feel very positive about the momentum that, that brand currently has. .

And then on FP Movement, we are thrilled with our Q4 results, I think, great acceleration from Q3 into Q4 across all channels of business, also direct and stores. I think we hit some strong gifting within the business that helped fuel it. Both our performance and our Q from our streetwear business was were both positive double-digit up though. So we saw the strength of acceptance of something unique in our brand positioning, really resonating with our consumer. And that's something that I know Andrea is extremely excited to build on as we sort of move the brand forward into the next generation thrilled with what the team has done, and I am more than excited about what is going to happen under new leadership.

Our next question comes from the line of Simeon Siegel with Guggenheim Securities.

Frank, to your point, the improvement at UO is really fantastic. But as you think about the domestic business at this point? What are the pressure points driving the loss. And then can you guys quantify the delivery expense leverage you got from that reduction in package broader? How are you thinking about the opportunity there going forward? And maybe just speak to that uptick in fulfillment CapEx this year. Is that related to that at all?

Yes. So the improvement in delivery per package is -- it's due to really 2 things. One is, we've gotten smarter about inventory positioning. And certainly, that's being driven by the use of AI and technology driving us being smarter about which distribution center we should be East-West Coast center of the country. in stores, and that's helping from a package for order perspective. I think we've also gotten smarter and slicker about consolidating some orders. So that's also driving some of those gains. I think there is some opportunity to see some of those incremental benefits into fiscal '27 as well. to hit on your logistics question from a capital perspective, it's really kind of broken into 2 buckets. One is for newly Dave and team continue to drive 50% year-over-year growth. We've got to expand capacity. So that's a great place to be. They hit really strong numbers and have eclipsed over $500 million. .

In addition to that, there's automation that's layered into the capital plans for the newly business, which we think will once live up and running and we're learning to drive that car, will provide for some nice leverage in logistics. There's also -- I think for those of you that visited the Kansas facility that supports the retail segment. If you remember there, I called it the [indiscernible] for that was wide open. We're building out the second phase of our automation on that facility to further support our digital business that is growing and then also should provide a benefit from a delivery and logistics perspective. As it relates to your urban question on where the opportunity lies, I think we talked about this as sort of almost like a 2-legged race and the first 1 being about product margins. And the team has really done a great job walking away from the promotions that the high level of promotions that they experienced over the last several years and recapturing their markdown rate. I think there's still a little meat left on the bone there, but nowhere near the opportunity that we saw a year and 2 years ago. But the next big opportunity now is just about driving positive sales and driving those comp sales to leverage off on things like store occupancy and other fixed costs. And you've heard about us leveraging for occupancy in the fourth quarter. And certainly, urban was a big driver of that and the improvement in their top line and driving the improvement off of those fixed expenses. So that's the next big leg of the rates for the mercantile the urban out for this brand here in North America backing on profitability.

Our last question comes from the line of Janet Kloppenburg with JJK Research Associates.

Congratulations. I wanted to ask Shea, Francis did a great job on the operational and logistics side. But I was wondering if she could talk a little bit about the merchandising opportunities that you own, what you got way? What do you need to get more right maybe what wasn't as good as you thought it would be just so we could understand it when looking at the assortment. And congratulations again. .

Yes. Thank you for the question. The first thing I just want to say is everything that we're doing is focused on our customer, and we're consistently and constantly reading and reacting, and really trying to leverage the speed of the URBN supply chain, which is a really fantastic asset. I think 1 thing that we heard very early on is that our customer really values our denim brand, BDG denim. And so we've been working over the past -- better part of the past 2 years to really fuel denim I think if you were to walk in our stores 2 years ago and come back in our stores today, that's an area that you would see a tremendous difference.

Based on the reaction of denim, our customers have also now extended into woven bottom, where you have a great doing business, you typically have a great pant business, and that business has now grown as well. The second area of our business that customers told us that they love is our lounge business. They love the applications. They love the comfort, and that's a business we've been working to grow really rooted in our own brand out from under. And that's now also expanded into what we call rancor or maybe athleisure. We have a proprietary collection that we've been building out and extending on based on one of our core fabrics. And then if you walk in our stores, you'd also see a notable difference in that area in the outcome under area. And a third sort of big difference that I think you'd see is our accessories department. We know that our customers love to style themselves, it's how they define their individuality, and we have really expanded the accessories business, whether that's a handbag, a car, a hair clip or what have you. And we're just thrilled with the business we're seeing there today. Really excited about what the team has done and overall, excited about the response of the customer.

Okay. That does. Thank you very much. I'd like you all the thanks for [indiscernible].

SP1 This concludes today's conference. Thank you for your participation. You may now disconnect.

Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. Third Quarter Fiscal '26 Earnings Call. [Operator Instructions]

I'd now like to turn the conference over to Oona McCullough, Executive Director, Investor Relations. Ma'am, you may begin.

Good afternoon, and welcome to the URBN third quarter fiscal 2026 conference call. Earlier this afternoon, the company issued a press release outlining the financial and operating results for the 3- and 9-month period ending October 31, 2025. 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. For more detailed commentary on our quarterly performance and the text of today's conference call, please refer to our Investor Relations website at www.urbn.com.

I will now turn the call over to Dick.

Thanks, Oona, and good afternoon, everyone. URBN team delivered another outstanding quarter. Total revenues grew by 12% and net income increased by 13%, both new third quarter records. We are especially pleased to report that all brands produced positive comps across all geographies this quarter. This includes the powerful double-digit comps the Urban brand generated in both North America and Europe and the exceptional growth in subscribers and revenue from the newly brand. The agenda for today's call includes comments from Frank Conforti, our Co-President and COO, who will elaborate on Q3 performance by brand and business segment. After Frank, Tricia Smith, CEO of the Anthropologie Group; will speak to the performance of that brand and their newly launched Maeve concept. Melanie Maran-Efron, our CFO, will then walk you through our outlook for the fourth quarter, and I'll wrap things up with a few closing thoughts before we open the call for your questions.

Frank, the floor is all yours.

Thank you, Dick, and good afternoon, everyone. Today, I'm excited to share our company's third quarter record results compared to last year, and then I will dive into some detailed notes by brand. Overall, our teams delivered another outstanding quarter. exceeding our plans and setting new sales and profit records. Total URBN sales grew by over 12%, reaching a Q3 record of $1.5 billion. All our retail segment brands delivered positive Retail segment comps, while 4 of our 5 brands posted record third quarter sales and newly continued its impressive double-digit revenue growth. Our total URBN sales growth was partly driven by an 8% increase in the Retail segment comp with digital comps slightly exceeding store comps. Newly delivered strong 49% revenue growth, driven primarily by an increase of 118,000 average active subscribers compared to the prior year. Additionally, the Wholesale segment delivered an 8% increase in revenue, driven by growth in the specialty store accounts, which was largely fueled by healthy increases in FP movement.

Next, I will turn your attention to gross profit. URBN saw a 13% increase in gross profit dollars, reaching a record $563 million. The gross profit rate improved nicely by 31 basis points, rising to 36.8%. Please note that this includes a $2 million impairment charge in the current quarter, which is worth 13 basis points. The improvement in gross margin was primarily driven by lower markdowns at the Urban Outfitters and Free People brands as well as occupancy leverage driven by strong sales growth across all our brands. These gains more than offset lower initial product margins at all our brands due to increased tariffs versus the prior year.

In the quarter, SG&A increased by 14%, deleveraging by 32 basis points. The growth in SG&A dollars was primarily driven by increased marketing spend, which fueled sales and customer growth for all brands. The marketing efforts drove increases in traffic and transactions both in stores and online for total URBN Retail segment, while new lease campaigns resulted in healthy double-digit growth in average active subscribers. Overall, total URBN operating income rose by over 12% compared to last year, reaching $144 million, while the operating profit rate was consistent with the prior year. Net income saw a 13% increase to a new Q3 record of $116 million or $1.28 per diluted share.

Now moving to brand performance, starting with the Free People brand. The team delivered a 9% increase in total revenue. Their sales growth was driven by a 9% increase in Retail segment sales including a 4% retail set comp, significant non-comp sales growth and an 8% increase in Wholesale segment revenues. The Retail segment comp was driven by positive comps in both the store and digital channels across all geographies with outperformance in accessory product sales. Non-comp sales grew by over 200%, driven by new Free People and the People Movement store openings over the past 12 months. The brand is planning to open 43 new stores for the year, including 18 Free People and 25 FP Movement stores. The brand is also encouraged by the strong results in Europe. While European operations are small relative to the total brand, new store openings continue to perform well, and the region drove a double-digit retail segment comp in the quarter. building on double-digit Retail segment comps last year. I know Sheila and team are excited to capture more of European market potential in the future. Within the Free People brand, the FP Movement business delivered strong total growth of 18%, driven by a 4% Retail segment comp, strong Wholesale segment sales growth of 29% and robust non-comp growth driven by new store openings. Continued strength in performance-related products is driving healthy new customer acquisition growth. The FP Movement brand saw increases in new reactivated and retained customers during the quarter. Based on our current plans, we believe the Free People Retail segment could deliver a low- to mid-single-digit positive comp in Q4.

Free People Wholesale revenues increased by 8% during the quarter, driven by sales gains in all geographies, while specialty store accounts led the way versus other accounts. As noted on our last call, as we move through the back half of the year, the Wholesale segment faces more difficult year-on-year comparisons versus the prior year. Based on our current plans, we believe the wholesale segment could deliver mid-single-digit comps in the fourth quarter.

Now let's move on to the Urban Outfitters brand. Urban Outfitters recorded a strong 13% global Retail segment comp for the third quarter. Congratulations to the team on delivering the first double-digit comp in some time. UO North America recorded a 10% Retail segment comp in UO Europe, an exceptional 17% Retail segment comp. The total global comp was driven by strong store and digital comps with positive traffic in both channels and positive conversion in stores. In North America, the UO team continued their focus on their customer and delivered a solid comp in both channels for the quarter, building on a strong start to the back-to-school season in Q2. In the third quarter, the business grew nicely across all major categories, anchored in strong regular price sales, new customer growth and continued success in focused growth categories.

Within Women's, the denim business continued to be strong, complemented by pants, lounge, sweaters and accessories. The brand is also encouraged by the progress in the Men's apparel category, which delivered double-digit regular price comps in the month of October. In North America, from a marketing perspective, the team is focused on meeting customers in the moments and places that matter most, whether that is across social channels, digitally, in our stores or by hosting culturally relevant events. In the third quarter, the brand celebrated back to campus by hosting gameday events at allege campuses across the country, introducing and welcoming more customers into the brand. The brand also celebrated partnerships with some of Gen Z's most loved brands through on rotation, a 360-degree brand spotlight, showcasing discovery, product engagement and curated assortment. These engaging brand marketing events have been successful, driving an increase in unaided awareness and new customer growth.

In Europe, the Urban Outfitters brand delivered an outstanding 17% retail segment comp driven by double-digit comp increases in both the store and digital channels. During the quarter, the business achieved positive double-digit comps across all major product categories. With these exceptional results, it is clear the European team is winning market share through amazing product execution and compelling marketing events and strategies.

Moving back to the Urban Outfitters brand globally. We are proud to note that the brand delivered low single-digit operating profit margin in the third quarter. This significant improvement was driven by a remarkable year-on-year profit increase in Europe, followed by a meaningful reduction in operating loss in North America. Based on our current plans, we believe the global Urban Outfitters brand could deliver a high single-digit positive Retail segment comp for the fourth quarter.

Now turning to the newly brand, which delivered another exceptional quarter. Total Q3 revenue grew by 49%. The impressive growth was primarily driven by an increase of over 40% in average active subscribers reaching just shy of 400,000 average active cells versus the prior comparable quarter. Nuuly's growth added 3.5 percentage points of revenue growth to total URBN sales.

Our primary focus remains on scaling the newly business and building brand awareness, which we are doing through investments in logistics and strategic marketing. We are pleased to report that our planned logistics expansion in Kansas City, Missouri, including increased storage capacity and the implementation of new sortation automation remains on track. Our latest marketing campaign was successful in driving new customers and continues the positive momentum of the brand. Overall, Nuuly's continued strong performance highlights the large growing opportunity for apparel rental in the U.S., and we believe we are making the appropriate investments to enable Nuuly to continue winning market share. Based on our current plans, we believe Nuuly could deliver healthy double-digit revenue growth in the fourth quarter.

Now moving on to tariffs. The macro landscape remains consistent with what we discussed on our last call. We estimate that tariffs negatively impacted our third quarter gross margin rate by approximately 60 basis points, and we currently believe they will have an impact of approximately 75 basis points in the fourth quarter. Despite these headwinds, we still believe we can achieve approximately 100 basis points of gross margin improvement for the full fiscal year 2026. Our teams continue to work diligently on tariff mitigation efforts, including negotiating vendor terms, modifying our countries of origin, adjusting transportation modes and strategically managing pricing. I want to emphasize that this plan reflects our current knowledge, and there is still a lot of uncertainty into this environment. This uncertainty in addition to our ongoing mitigation efforts, makes it challenging to predict the impact of tariffs beyond the fourth quarter.

In summary, it was an exceptional quarter. All brands delivered positive Retail segment sales comps, Wholesale produced healthy revenue gains and the subscription segment drove double-digit revenue growth. We believe we are on track to deliver record sales and operating profit for the year, including approximately 100 basis points of gross and operating profit margin improvement despite tariff headwinds. We could not be prouder of the teams and their amazing execution.

On that note, I will now turn the call over to Tricia Smith, Global CEO of the Anthropologie Group.

Thank you, Frank, and good afternoon, everyone. In the third quarter, the Anthropologie Group delivered an 8% Retail segment comparable sales increase, driving 8% growth in total brand revenue. This achievement marks the 19th consecutive quarter of positive comparable sales for the Anthropologie Group. Importantly, we were able to maintain strong double-digit profit rates through improved gross profit margins despite ongoing tariff headwinds. The Retail segment's comparable sales growth was robust, driven by strong comps in both digital and stores across all regions. Category strength remained consistent across apparel, accessories and weddings complemented by an acceleration in sales trends within the home category.

Turning specifically to apparel. Our strength continues to be driven by the brand's multiyear focus on modernizing the assortment and elevating our own brands. These offerings remain our customers' most coveted selections and continue to drive substantial growth. This success is tangible. Own brand penetration achieved a historical high, increasing by over 100 basis points versus last year. We're strategically investing in these unique brands, including Maeve, Celandine, LyreBird and Tocro, which are supported by a strong design team and a distinctive creative point of view. We believe this customer affinity for our own brands positions them for continued outsized growth opportunities.

Highlighting the power of our own brands, this quarter saw the launch of Maeve as a stand-alone brand, transitioning it from a beloved in-house label to a dedicated boutique concept. Our first Maeve boutique opened in Raleigh, North Carolina, and the results have exceeded our expectations with a high double-digit beat of our forecast. This launch has proven accretive to our business in the Raleigh-Durham area, driving increases in total store sales across the region, inclusive of existing Anthropologie stores. Furthermore, digital demand for both Maeve and Anthropologie in the trade area has outpaced brand-wide demand growth since the store opening. Building on this success, our next made boutique is scheduled to open at the end of fiscal Q4 in Atlanta's Buckhead Village district with an additional location to be announced in the first quarter of fiscal 2027.

Moving now to the Home business, where we saw an acceleration in sales trends during the quarter. Anthropologie Home achieved high single-digit comparable sales, which was in line with total brand comparable sales, driven largely by the strength of our full-price business. Growth was concentrated in home accessories and textiles and notably, regular price furniture sales turned positive during the quarter. Home accessories, a key point of entry for new customers delivered double-digit comps and double-digit new customer growth. We're excited about the current trajectory and growth potential of our home business. Our brand-wide growth continues to be fueled by strong positive comparable sales across both digital and retail channels. In our digital channel, we drove double-digit session growth while holding conversion flat. We are continuously investing in our customer digital experience to reduce friction in the online purchase process and drive conversion. In our stores, the focus on service and experience is yielding results. Our in-store styling services grew double digits this quarter and the high-touch appointment-driven Anthro weddings business significantly outpaced total brand comp. These strong channel performances validate our strategic investments in both our physical store footprint and our digital capabilities.

Building on the success in stores, we're executing a robust plan for new Anthropologie stores in addition to the Maeve boutique launches. Year-to-date, in FY '26, we have opened 8 new stores in North America and plan to open an additional 3 before the end of the fiscal year.

Internationally, we also have 3 new stores opening in the U.K. with Liverpool and Glasgow opening earlier this month and Manchester opening later this week. Importantly, our new Anthropologie stores are not only exceeding our expectations, but are also driving outsized digital demand in their local markets. By the end of fiscal '26, we will have 250 Anthropologie Group stores globally, underpinning our growth strategy is exceptional marketing that drives customer acquisition and retention. Our messaging this quarter was anchored by 2 high-impact campaigns. Our Maeve launch campaign, More You More Maeve, which generated over 1 billion impressions and our Anthro always fall campaign, a cinematic cross-category story. This approach successfully balances data-led discipline with emotionally resonant storytelling that speaks to new and existing customers. As a result, our total customer count grew high single digits this quarter, and over 30% of new customers have returned to make a purchase with our own brands driving the majority of this new customer growth.

Looking ahead, we're expecting mid-single-digit comps for Q4. We are committed to our strategy and focused on our North Star of product modernization customer growth and leveraging creative as we enhance our selling environments with exceptional experiences for our customers.

I would like to take this moment to thank our incredible teams and global partners. The thoughtful customer assessed way in which he work continues to delight our customers and supports the growth of our business.

With that, I will now hand the call over to Mel.

Thanks, Tricia, and good afternoon, everyone. Let me walk you through how we're thinking about our fourth quarter financial performance. Based in part on our start of the quarter, we are planning for total company sales to grow in the high single digits for the quarter. In our Retail segment, comp sales could grow mid-single-digit positive with high single-digit positive retail segment costs at the Urban Outfitter brand. Mid-single-digit positive Retail segment confidence Anthropologie and low to mid-single-digit positive Retail segment comp at Free People. And Nuuly, the brand could deliver mid-double-digit revenue growth driven by continued subscriber momentum. Finally, our Wholesale segment could produce mid-single-digit growth.

Based on our current sales performance and plan, we believe URBN's full year gross profit margins could increase by approximately 100 basis points with the second half growing by approximately 50 basis points versus last year. Within the remaining second half, fourth quarter gross profit margins could increase by approximately 25 to 50 basis points as lower product markdowns particularly the Urban Outfitters brand are partly offset by lower initial merchandise margins due to increased tariffs. Our current assumptions on tariffs are based on the announced tariff rates as of November 24, which includes 50% tariff rate on goods from India.

Turning to SG&A. We expect expenses to grow roughly in line with sales for the full year and fourth quarter based on current sales performance and plans. The planned growth in fourth quarter SG&A is mainly driven by higher marketing spend to support customer and sales growth, along with increased store labor costs related to new store locations. As always, if sales performance fluctuates, we maintain a certain level of variable SG&A spending that we can adjust up and down depending on how our business is performing. We are currently planning for an effective tax rate of about 23.5% for the fourth quarter and 22.5% for the full year.

Now on to inventory. In Q4, we expect inventory could grow at a rate similar to fourth quarter sales as our teams continue to focus on increasing our product turns. For FY '26, capital expenditures are planned at approximately $300 million. The FY '26 capital project spend is broken down the fall. Approximately 45% is related to retail store expansion and support approximately 35% is related to supporting technology and logistics investments, and the remaining 20% is for home office expansion to support our growing business. Lastly, we're planning to open approximately [ 60 ] new stores and close approximately 17 this year. Most of our net new store growth will come from the FP Movement, Free People and Anthropologie. Specifically, we're planning 25 new FP Movement stores, 18 new Free People stores and 60 new Anthropologie stores. As a reminder, the foregoing does not constitute a forecast but is simply a reflection of our current views. The company disclaims any obligation to update forward-looking statements.

With that, I'll hand it back over to Dick.

Thanks, Melanie. As you've heard, our teams produced another great performance with every brand contributing meaningfully to our outstanding results. robust comparable sales across our brand portfolio demonstrated their power and the rigor of our execution. The Anthropologie, Free People and FP Movement brands achieved record sales while successfully maintaining double-digit operating profitability. The Urban Outfitters brand posted strong double-digit comparable sales in both geographies, driven by better product improved marketing and more full-price customers. As a result, the Urban brand delivered significant profit improvement versus last year. Complementing the Retail results, Nuuly, our subscription rental concept continued its impressive trajectory of strong subscriber and revenue growth while delivering healthy operating profits. During the quarter, customer engagement was lively with both store traffic and online session growth up sharply. Our customers responded enthusiastically to our compelling product offerings and distinct brand experiences and drove record third quarter results. This sustained performance is a direct testament to the strength and resilience of our diversified business model. We have built a strategic model that is sturdy across multiple dimensions. Our diversification by channel, spanning stores, digital, wholesale and subscription services and by brand, with a portfolio catering to different customer segments provides inherent stability. Furthermore, our broad category offering, including apparel, accessories, shoes, home and beauty, ensures that its customer preferences shift, we will remain relevant. This powerful multifaceted approach to diversification gives us high confidence that with smart execution, we can concise you to grow our market share regardless of the operating environment.

Looking ahead, November traffic and sales remain robust. Our Retail segment comp sales are currently running slightly ahead of our stated Q4 plan to deliver mid-single-digit comp growth. We anticipate the holiday season will, as always, be highly competitive and promotional. We have observed a slight shift in consumers' behavior. We believe customers were waiting a bit longer this year to make their purchases until seasonal promotions began, and we successfully met this shift with strong results in our early holiday events. As Frank noted earlier, despite the expected promotional landscape, we believe the power of our model allows us to achieve improved operating margins in Q4 versus the prior year. For now, we are focused on closing the year successfully by delivering another quarter and year of record-setting results and continuing to deliver shareholder value.

Finally, my thanks to our entire URBN family, brands and shared services. for producing another superior quarter. I want to acknowledge the phenomenal job each of our brand leaders, their teams and our co-presidents, Meghan Frank, have done. I understand the hard work and long hours you all devote to making our brands amongst the best in retail today, and I'm deeply appreciative. Our results are a testament to your effort and your talent. I also thank our partners around the globe for your cooperation as we work together to solve the problems imposed by tariffs. And finally, I thank our shareholders for your ongoing support.

That concludes our prepared remarks. I now invite your questions.

[Operator Instructions] Our first question comes from the line of Lorraine Hutchinson with Bank of America.

I wanted to follow up on the commentary around pricing. I think the words you used last quarter were gently and sparingly. And I wanted to see, a, how much of a customer reaction you've been able to realized from these price increases; and b, if the expectation was that you would continue to protect opening price points, especially at the Urban brand.

Hi, Lorraine, I'm going to ask Tricia to take that call -- that question.

Hi, Lorraine, we're being highly strategic and thoughtful about taking price because they're definitely not across-the-board price increases. We've taken small price increases where we felt the price value equation was appropriate and have seen really little to no price resistance where we did so. We also want to stress that we remain committed to maintaining our opening price points and our pricing architecture and protecting those items that our customers count on to have great price value. Next, we're really planning very little incremental price increases over and above what we've already implemented this fall and holiday. We really don't anticipate price resistance. Our focus remains on protecting the integrity and the value of our product while we managed our cost structure appropriately.

Yes. And Lorraine, I want to emphasize that all the brands are protecting their opening price points, and furthermore, as we think ahead, we think that most of the price increases are behind us and that we'll have little need to raise prices next year.

Our next question comes from the line of Adrienne Yih with Barclays.

And I have to say, I mean, congratulations, every aspect, every geo, every brand, it's pretty amazing. So congrats to everybody.

Thanks, Adrienne.

You're very welcome. So Trish, just on kind of -- you talked about the own brand penetration. Can you talk about kind of where you are in the journey of own brand, where it could go and what the global footprint for Anthropologie may look like Europe versus North America? And then for Frank and or Melanie, just on UO, so we have a, I think you said, a positive low single-digit segment margin in the quarter. Where does that bring us year-to-date -- and I think earlier, you had said that you didn't think that this year you could break that profit barrier, right, to become positive. So I mean there's so much opportunity after this. So just a little color on kind of how you think about that for the year.

Hi, Adrienne, our own brand growth, as I mentioned in our opening remarks, has really been a source of strength for us as the brand, and we're really leveraging the talent and strength of our design teams, our buying teams. As I've mentioned, the penetration grew by almost 100 basis points versus last year, and we continue to plan and execute against our own brand growth outpacing that of just our total. We have successfully launched Celandine, LyreBird, leveraging daily practice and then really proud of the results the team has delivered with our Maze expansion as a stand-alone brand and in our concept store. So continued growth, we believe it will continue to outpace the total of our brand and expecting that to continue. I would say from a global footprint for our brand, really proud of the team successfully opening 2 stores in the U.K. in the past several weeks and excited about the Manchester opening that will be opening at the end of this week. So we're in a place where I think we'll continue, as we mentioned, to open stores in North America. We'll continue to gauge the results of the stores that we're opening abroad in the U.K. and see an opportunity for us to continue to do so.

As I think that Frank mentioning Tocro.

And Tocro, yes, definitely.

You have really good season at Tocro.

Yes. Tocro has been a brand that has expanded significantly, and I would say several several years ago from a penetration standpoint in denim, and that's grown significantly. Now is our #1 performing Denim lifestyle brand for Anthropologie has been significant.

And this is Frank, Adrienne, thanks for your question. I just want to give an update on Urban. So first and foremost, I just want to say it again. honestly, a huge congratulations to the entire team on the turn and the overall results. It's just -- it's really great to see the progress the teams are making delivering such strong sales growth and great profit improvement. As you noted, the brand was profitable on a global basis in the third quarter. This was driven by exceptional profit growth in Europe and a healthy reduction in the Lawson, North America. We're not ready to give a forecast for exactly what next year could look like. Our business in Europe is already profitable and certainly was boosted by the extraordinary comp results so far this year. And while North America has delivered a meaningful reduction to their losses, they still have a healthy opportunity to continue progress into next year. And I would say, given the size of the opportunity in North America, it is possible that the brand turns globally to be profitable next year on an annual basis. But we'd like to see exactly where this year lands before we commit to exactly what next year will look like.

Our next question comes from the line of Matthew Boss with JPMorgan.

Congrats on another nice quarter.

Thanks, Matthew.

So Dick, could you speak to drivers of the further acceleration in business that you saw during the third quarter, notably at the Urban brand. Maybe elaborate on early holiday selling trends that you mentioned. Just how you see the setup for your brands through holiday. And Frank, I think so with 100 basis points of operating margin expansion anticipated this year for the company, how best to think about margin drivers or levers beyond this year if we think multiyear?

Okay. Matthew, the drivers of the business across all the brands was the traffic. And traffic in stores and traffic online. And sales was almost exactly congruent with the increase in traffic. So I think that, that's what did it. As we look into holiday, we think that the same thing is occurring and we believe that the holiday season is likely to be very nice from a sales perspective, but we do expect it to be a slightly more promotional than we saw last year. So let's say our customers aren't responding well to the new fashion. They are and they are particularly responding to their gift-giving favorites, but we're waiting -- they're waiting more patiently for anticipated promotions. And the events we've run so far have been very successful. So judging by the strength of those promotional events and the strong back-to-school season and the surge in customer spending on holiday decorations, I anticipate a very good holiday season.

And Matt, I can touch on operating profit. So obviously, we're extremely proud of what we produced last year, delivering 100 basis points of improvement, getting to 8.6%. And based on our current plans, believe we can deliver approximately 100 basis points of improvement in fiscal '26, which would certainly put us very close to our 10% goal. As it relates to next year, I would just say it's a little early for us to commit to a rate. Obviously, as Melanie said, or as we target as a company, we're certainly going to target to keep SG&A at to below sales. But -- so then that leaves gross profit margins. And I just think there's a ton of uncertainty as to where tariffs are going to shake out given potential deals, supreme court rulings our tariff mitigation efforts are ongoing. And we'll have a better picture of this at the close of the year. But the one thing I do want to say is with all that said around tariff impacts, if you were to ignore that for a minute, where our opportunities could land in gross profit would be driven by continued markdown improvement largely from the Urban Outfitters brand. We still think there's opportunity to leverage store occupancy. It's not on will the brands continue to drive healthy comp sales. And when you're excluding tariffs, we actually still think there's IMU opportunity, which is great to see at all brands.

Our next question comes from the line of Paul Lejuez with Citi.

You mentioned pressure on IMU a couple times, but also lower markdowns. So just curious, maybe you could talk a little bit about how the door merch margins, and what you saw by brand. And then second, on newly, I'm curious if you've seen any change in the demographics in terms of age, income, regional of the new customers that you're attracting into that business versus what you've seen maybe several quarters ago.

Paul, this is Frank. I can take the sort of out the door and you -- which was favorable given the markdown reduction for URBN. As we noted, sort of all brands were impacted by the tariffs. And the lion's share of the markdown improvement was driven by Urban Outfitters, but 3 people also had a favorable markdown rate in the quarter. And Anthropologie was just slightly up. but also did a really good job at offsetting their -- excuse me, their IMU and had gross profit gains overall as a brand for the quarter. So all three brands contributed to within the Retail segment to the gross profit gains for the quarter. And then Dave, I don't know if you want to touch on Nuuly.

Yes. Paul, thanks for the question on newly. I would say that largely, we are seeing our customer base remain relatively stable in terms of the curve across age subscribers, demographic, geography. If anything, I would say, we have seen a slight shift, ever so slight towards a slightly younger subscriber in terms of our new customer acquisition. And we've seen penetration from a subscriber standpoint a slightly heavier penetration into the southern region of the country, more so than other geographies, mainly from a new customer standpoint. But those are just slight changes. There has not been a big transition or a big change in our -- the composition of our subscribers.

Our next question comes from the line of Mark Altschwager with Baird.

Congrats on the strong results. I wanted to follow up on gross margins. First, I guess, where was the upside versus your plan for the third quarter? Any surprises there by brand or on the markdown front. And then just for Q4, you're commenting on expectations for higher promotions over holiday, given the shift in behavior. But you are maintaining your guidance for the full year. So just curious what the offsets are there that are allowing you to hold that plan?

Sure, Mark, this is Frank. I can take that. I think the outperformance in the third quarter was largely just -- top line came in really healthy. So you got some better leverage as it related to store occupancy, which was great to see with all brands contributing to that. As it relates to the fourth quarter, you hit the nail on the head. We are maintaining our annual plan and expectation to a hope of delivering 100 -- approximately 100 points of gross profit margin improvement. I would like to say I hope we're being conservative, but we do expect as Dick noted, the holiday to be promotional. And if those promotional events are bigger than last year, that could have an impact on margins, and we're hoping that we're being conservative there. This does not mean, and I just want to be clear about this, that we're planning on more or deeper promotions because we're not. It just means over the past several years, we've seen this concept of hires being high and the is being higher and the lows being lower is it raises the sales impact -- sales events, I should say. So again, I hope we're being conservative with the level of improvement we're planning, and we're really excited and pleased to hopefully be able to deliver that 100 basis points on an annual basis.

Our next question comes from the line of Alex Straton with Morgan Stanley.

Congrats on a great quarter. Maybe Frank or Melanie to start, I think you've put a 10% long-term EBIT margin target out there, but you'll be very close, if not there this year. So just curious how you think about that longer term and maybe what pushes you beyond it. And then while we have Tricia on the call, I just wanted to take a step back on Anthro, feels like there's just been a structural change in the growth that, that business delivers versus where it was at pre-pandemic. So I'm just curious, like what's changed? And how do you think about the durable growth rate for that business over time?

And thank you for the congratulations, this is Frank. So as I said, we are still targeting 10% and knock on wood, we're hopeful we get very, very close to that this year. Honestly, before we set a new goal, I'd like to hit the first call. And as you know, and I think everyone knows, there's still plenty of opportunity for us to drive improvement you've got things like the UO turnaround, which is certainly in play right now that brand, as we said, will still have healthy opportunity to drive operating dollars and profit rate gains into next year. You've got newly growing at a really healthy rate and that gives us opportunity from a profit rate perspective as well. As I mentioned, I think with all the brands delivering positive comp [indiscernible] occupancy leverage and excluding what's going on with tariffs, which hopefully, some of that changes in the future. I think all brands have IMU opportunity as well. So there's several levers out there that I think we can pull and hopefully deliver to exceed. But for right now, we're not setting a new target. I'd like to hit the first target first and hit that 10% and operate at it and then we'll reset the goal.

Hi, Alex, I'll speak to Anthropolgie, thank you for the question. Our team set out a little over 4.5 years ago with really three strategic priorities. But really, I would say, first and foremost, it was getting or delivering on our ability to drive full price sales, which was really focused on newness A lot of that came from really focusing and investing in our own brands, as I had mentioned. But I would say, as we've worked on modernizing our product assortment, diversifying the categories that we're able to deliver and ensuring that we have a broad-based appeal for the multigenerational customer base that we serve has really been the bigger driver of that. Our customer base as we focused on growth and acquisition, but also retaining our existing customers has delivered over 50% increase in the last 4 years in our total customer count. And I think as we leverage that and think about how we execute and we deliver experiences both in stores and our teams have been very, very focused on ensuring that those experiences in the service delivers and exceed our customer expectations, but also investing, I would say, in our digital capabilities, multiple factors contributing to our ability to be able to deliver improved conversion. And then I would say just lastly, making sure that we really deliver on those exceptional experiences and leverage our team's capabilities of design and creative and buying we believe that we've really built a sustainable model for growth coming out of, I'd say, pre-pandemic that we've been able to deliver on and are proud of our team's ability to execute on those.

Our next question comes from the line of Dana Telsey with Telsey Advisory Group.

Congratulations on the product -- on the progress. As you know about the product -- that's all I'm thinking about. As you think about the consumer, and Dick you mentioned it, some of them waiting closer for deals. Any framework for that? Is that across all brands, all demos, all regions or anything you're seeing in terms of the promotions that you need to drive. And then it was interesting on Nuuly with the continuing average active subscriber growth over 42% or whatever, it sounded like on the gross margin commentary, some of them are buying more of the rental product now. Are you seeing that shift? Is it from all ages, all income levels? And how does that impact the margin?

Thanks, Dana. The consumer pausing to wait for promotions. I guess I would chalk it up to intellect. I mean they know the promotions are coming, as I said to you, we saw a very rapid process in mid to late October in people putting items in their carts. And that signaled to us that this was the beginning of, okay, we know what we want. We know there are promotions coming. So why not wait? And if you think back maybe 2 or 3 years ago, when everybody was so worried about, oh, there's not -- I guess, it's because the transportation was difficult out of the Far East with COVID. And everybody thought, oh, there's not going to be enough to go around and people started buying earlier and earlier. I think what we're really seeing is just a reversion to what we saw before COVID when people did wait and they did protect more in promotions. So I don't think there's any particular magic to it. I don't think it says much about the consumer other than they're smart. Dave, do you want to take the newly.

Frank? Yes, sure, I'm happy to touch on it. Dana, you're absolutely correct. We did see a higher rate sales to the customer in this quarter, and that has a lower gross profit and the subscription sales to the customer. There's been a lot of ways in that we can sell product to the customers sort of in the box through a marketplace through their threat website. We're not really seeing anything different from demographic from age or a geography perspective as to where those things are coming from. And I think it will just be variable from one quarter to the next.

Our next question comes from the line of Marni Shapiro with The Retail Tracker.

Congrats to everybody...

Thank you.

But she -- say, oh, my god. And that cardigan with the flowers that is like rich thrift store vibes, so good. So my questions are for you. I hate baseball metaphors. And I understand Europe is on solid ground. But I guess where do you feel like UO is in this recovery process. And could we also just touch on Men's. I feel like we guided by past, you had sounds like some stabilization and slight improvement in men's. I'm curious if the Men's business is a smaller part of Urban's business at this point, given it's been a little tougher even than women's. And is it still putting pressure on margins, or is it neutral at this point?

Hi, Marni, thank you for the nice comments. You're talking about the Rachel Cardigan, one of our biggest and most beloved items. So I'm glad that you love it and lots of customers do too. I'm really, really proud of that item. So I think your first question, where do we sit in the recovery? First, we recognize that this is a journey. We're incredibly proud of the team and I think the team is executing really well on our plan. They are saying acutely focused on the customer. In Q3, really, that was about occasions of getting back to campus. Same day was a big occasion and reentering campus life. From a product perspective, I think we continue to be excited about the categories that customers see us as a destination for that would be Denim and Lounge and really anchored in our own brands, PDG and out from under in marketing. The team continues to really delight customers, meeting them in places and moments that matter, some exciting partnerships and activations in the third quarter, whether that was celebrating on Rotation with -- which is our newest partnership and on rotation experience or the partnership with Canada, which was a really exciting proud moment, our team through insights with customers, heard that 54% of young customers make wish lists for their holiday -- when their holiday gets list. And so we partnered with Canva and had 3 unique formats that our creative team developed with 100 products and drop-down menus just from Urban Outfitters. That experience is live today with lots of customers participating in it and something that we're really excited about. And from a channel or touch point perspective, feeling excited about the progress that teams are making there, seeing our creative really showing up in our stores, on our digital channels, across social really evolved to be much more upbeat, really inclusive and I think representing our product in a really, really delighting way. And we're excited to have opened 2 new stores, representing our new store environment. I think we're hearing great things from our customers. Certainly, the environment is bright. I think more modern and flexible from our perspective, allowing us to add an flow with categorical performance. and we're really excited about the early reads we're seeing from a productivity perspective in those 2 stores as well. Your next question on Men's, we are real excited about what we're seeing in Men's. You heard us mention that perhaps from the last call. Real proud of the Men's team and the progress that they're making. This started with their focus on the customer as well. And they identified an opportunity to really broaden the assortment as they broaden the range of customers that they were serving to for them, that really meant being reversible and focusing on young college side. These are simple people. We have an opportunity to really be more virtual and focus on more outfitting and more driven for this customer. So the team had prioritized really redesigning and rebuilding our core items and anchoring in core categories. That bottom pants, jeans and sweat, go figure and some of their top of fleet programs and woven tops. And that is resonating really well. And so with some new customers in the business. Really proud to see that we are now a destination where they have more to buy from us than ever. Men's is an important part of our business, and I think that we really have an opportunity to differentiate in the marketplace and be a destination, not just for our own branded products, but be a place where we can have some of the best national and discoverable brands for men. And that's something the team is working on as well.

Marnie, if I may, I'd like to say a word about Urban as an ex simple college guy, who hasn't gotten much more complex as the year has gone by. I want to give Sheila a big shot out and also the boat team leader, Shae, in North America and Europe. They both delivered an outstanding quarter quarter. And Shae and her team produced the double-digit comp sales that you've heard about and strong -- very strong double-digit full-price sales. It shows that the turnaround strategy is working very well. In Europe, Emma and her team accomplished something I've really never seen in my many years in this business. They delivered a 17% comp sales gain with single-digit less comp inventory and very strong positive double-digit full price sales. So clearly, the momentum for both geographies is strong going into the holidays, and I just want to give my congratulations to all global Urban brand employees.

Our next question comes from the line of Janet Joseph Kloppenberg with JJK Research Associates.

Can you hear me?

Yes.

Yes, we can.

I don't have to tell you how excited I am about such a strong quarter. But I wanted to talk to Shae about Urban. When I look at it, Shae, and I followed the company a long time, it looks like you are working to broaden the assortment and the customer that you're targeting. And I'm wondering if you could talk a little bit about that. And if your pricing strategy has changed and if what they're doing in Europe is similar to what you're doing here?

Hi, I'll take that for Shae. Yes, one of the first things that we did was a lot of customer research. And I think that we had identified that we had become unintentionally niche or narrow as it related to our product assortment. We had been focused on a bit of range, a bit of a narrow assortment. And I think we recognized an opportunity to be a bit more broad in welcoming in terms of our assortment and listening to our customers. They told us very clearly. You love your Denim, and we love your Lounge, and we love those 2 brands, PDG and Out From Under. But we weren't giving our customers enough of those brands and enough of those categories. So that is what we've been focusing on and the customer has been responding in -- like a lot.

In sales.

Yes, in sales. And we're going to keep giving it to them as long as they keep responding.

And Janet, I'm going to ask Sheila to talk about similarities with Europe.

So I think the similarities of the consumer focus is very strong between Shae and Emma. Obviously, the customer is slightly different on what they want at any given time, knowing the Emma and firm touching on Europe, Germany, Netherlands, Spain, et cetera, in the countries that she's touching and just like similarities in North America here in New York and the South refund differently to products, I think both leaderships are concentrating on their consumer, and that feels really, really good. It's a great collaboration, hearing a product between both countries to find the best results for the consumer. I'm proud of Emma growth because it's not only just coming from the U.K. now, there's double-digit growth coming from multiple countries that she's continuing to build on and will, in the foreseeable future as our continued store growth happens in Europe.

Our next question comes from the line of Jay Sole with UBS.

I have two questions. First, just curious about your wholesale business. As you look into next year, I'm curious about the kind of orders that you're getting from your wholesale partners, given it's possible they might have a different view of what 2026 might look like. And then there's some speculation today that Red Sea shipping lines might open up. If that does happen, what might that -- how might that impact your margins next year if shipping rates go back down to where they were.

Jay, I could take the Red Sea shipping range. I would just say, obviously, if that happens, the more lays and more opportunities, the better the opportunity is for us. But it's a little early for us to speculate exactly what rates are going to look like and what the impact could be. But yes, that would be a positive. Supply and demand are good things and a greater supply of transportation opportunities is a good thing for us.

And Sheila to take the Wholesale question.

So I'm going to answer, Wholesale, it's exciting time for Wholesale because we're seeing the brand, both free people and FP [indiscernible] well we've seen our Wholesale account base. So we do believe that as we continue to react and learn from our customer, from our C2C perspective, we have the only opportunity to continue to fuel our wholesale channel with the partners that we've built I think FP Movement had a spectacular quarter at wholesale this year. And we don't necessarily see that slowing down. We see our specialty store business thriving as we specialize our product into the outdoor space, our studio space and the international opportunity we have with both brands. So we're really excited.

I believe that finishes the call. I thank you all very much. I wish you a very, very happy Thanksgiving. I know we've got a lot of work to do. There was a backlog of companies reporting today. So I appreciate it, and we will talk to you soon.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.