Good morning. The music went down, so I think that's our cue to start. Thank you so much for joining me today for the Fireside Chat with Urban Outfitters management. My name is Kimberly Greenberger, I'm at Morgan Stanley, and I'm really excited to be able to host this event this morning with Frank and Melanie. Thank you so much both for joining us. We're going to do this morning's session in a fireside chat format, and before I begin, I need to remind you that Morgan Stanley research disclosures can be found on the Morgan Stanley website at www.morganstanley.com/researchdisclosures. With that, let's go ahead and kick off the fireside chat. Good morning to both of you. Good morning. Thank you, thank you for hosting us, and, thank you everyone for joining today. Last night, just after the close, Urban put out a press release with your November, December holiday sales numbers. I think revenue for the two-month period, holiday revenue up 2.3% year-over-year. I'm wondering if you can talk a little bit more about that, results by brand. There was no mention or commentary on margins, so can we assume that the commentary you gave about margins and expenses on the November earnings call stand? The answer is yes, you can assume, but let me elaborate a little bit. The answer is, right now the quarter is performing largely how we expected it to. Sales coming in as Kimberly said, up 2% for the quarter to date through the holiday season. That's a 2% retail segment comp, which is offset by about one point of currency headwinds. In addition, contributing to top line growth was the Nuuly brand. Nuuly contributed about two points to top line growth with within the brand. It was 150% growth year-over-year, all driven by increased subscribers. As part of that growth was offset by negative wholesale growth. Wholesale came in approximately down 22% for the quarter. That was largely driven by the Free People brand and lower department store sales. We do think that that number will come in better once we get to quarter end. We have an increase in deliveries in January, so that number will be cut probably about in half from -22% to probably about a -10% or so for the quarter. The net of all of those is what got us to the 2% growth for quarter to date. By brand, I'll start with Free People. Currently at a +15% quarter to date. A really exceptional performance, you know, just continuing to build momentum on top of momentum there. Anthropologie also continuing with their exceptional performance, a +7% quarter to date. I know there was a little bit of conversation I read here and there about Anthropologie being more promotional, and honestly it's just not the case at all. Their markdown rate is down on a year-over-year basis. Driving their 7% retail segment comp is reg price sales. They're actually less promotional on a year-over-year basis. The strength of that brand and the strong momentum that they had coming into the quarter is continuing throughout the quarter. Obviously, leaves Urban Outfitters where that brand remains challenged. We anticipated it to remain challenged through the quarter and that's exactly where it is, posting a down 10% for the quarter with North America down 15% and the European business being positive. We didn't change our margin guidance for the quarter 'cause we still believe that gross profit margin will be down approximately 50 basis points for the quarter. That will largely be driven by increased markdown rates and that's largely driven by the Urban Outfitters brand. We remain committed to getting inventory in line by the end of the quarter. It has taken increased markdowns to move through that product that we knew was not performing well for that brand. We are still continuing to see favorable IMU in the quarter and anticipate IMU being favorable in the quarter and heading into next year. The offset of that is increased markdown rates at Urban Outfitters brand, which will leave gross profit margin down approximately 50 basis points for the quarter. Okay. Excellent recap. inventory has been the hot topic all year. Yep. this year. I know that you had envisioned a quite a bit of progress on inventory cleanup here during the fourth quarter. How is that going? Where do you think you'll still have some work to do by the time we get to the end of the quarter? Any targets for inventory that you've got out there? Yeah. We believe inventory will probably end in the mid-single digit range by the end of the quarter, and we feel very good about where that is. You know, obviously it's very different by brand. We would anticipate Urban Outfitters being negative. Not quite, you know, the down 10, but pretty close to that from a comp perspective. I would anticipate Free People being south of their sales number. Their sales number is a +15, but, you know, inventory, we don't anticipate being up quite that high. The one brand where there might be a little disconnect between sales is Anthropologie. Anthropologie's inventory could potentially be slightly over their sales number. That is not something that we're concerned about. It is literally home, within home, it is decor-driven. If you were to look under the covers, women's apparel, women's accessories, Genie, as we call it, gift and entertain, are all at, if not below, their sales trend. Home is a category, and specifically decor is a category that just doesn't carry the same amount of fashion risk as apparel does. We didn't wanna rush to heavy markdowns to move through product that we felt like we could continue to sell at regular price. That will have their number be slightly elevated versus where the other brands are versus sales. All in all, we think it'll be about up mid-single digits, which is pretty close to in line with sales and honestly leaving us feeling pretty good heading into spring. I think also important relative to inventory is just to talk about the supply chain. Not only are costs coming down, which is really important, as I said, we think IMU will be favorable in the fourth quarter, and we think that favorability and those gains in IMU will continue into next year. Also of importance is our speed and our reliability have recovered to where we were pre-COVID. That has now enabled us to fully institute our lead times back to where we were. All brands, their design calendars, their buy calendars, their open-to-buy cadence is back to where it was. And that really has a nice impact as far as us trying to be able to predict and buy the fashion closer into where the consumer demand is. This is actually even more important for the Urban Outfitters brand, 'cause if you think about that brand and their price points, they're not able to utilize air as a mode of transportation into country as much as Free People and an Anthropologie. They have to make their call on fashion a little bit further out because they're utilize a heavier penetration of ocean. Now being able to get back to historical lead times gives them the ability to make the call closer into the consumer demand and gives that brand the opportunity to, you know, change to change their current performance. Okay, great. That, that in-season, read-and-react on, product and through your supply chain is, like, one of the, kind of key pillars that made the business, you know, really when in those great years pre-COVID, it was sort of not only identifying fashion, but having the supply chain behind it to be able to chase the winners. As it sounds like that's an opportunity for 2023, but which season in 2023 will we have that supply chain capability fully in play for in-season reorder? Yeah. It's a good point, so, and a good question. The answer is now it's in play, but it doesn't impact, right, the month of February. For Urban Outfitters, they were the last brand to be able to pull that into place from an ocean perspective because air recovered a little bit from reliability faster than ocean did. That's in play now, so you should think about that more towards end of spring, early summer. Spring was still bought, you know, earlier, and obviously, we knew we need to make changes in the assortment. That's in play now, and you'll start to see the impacts of that sort of late spring, early summer. You know, I think as it relates to Urban Outfitters and the opportunity for them to show improvement next year, you've got, as you just talked about, the supply chain improvement opportunity. You've also got the fact that just inventory is going to be more aligned with sales. You know, I'm not the fashion guy, so I can't comment on whether or not fashion's going to be better or not yet in the spring, but I can comment on the fact that inventory is going to be more in line with sales, which should reduce the burden of the markdown rate that they need to clear through product that's not performing well and the depth of markdowns that they have to move in order to clear through a product that's not performing well. Additionally, Urban, the same as, you know, all of the, all of the brands underneath the Urban umbrella, will benefit from the improved transportation costs and IMU initiatives that we have moving into next year, and we, you know, we believe we'll have positive gross profit margin impacts next year. Okay, great. There's a lot of opportunity at the Urban division because it's been a little bit of a tough year, both on revenue and margins, so you've got some opportunity to turn that business around in 2023. You know, as your holiday update indicates, Anthropologie and Free People have both had pretty extraordinary years. Can you talk about the degree of difficulty or not in sort of comping the comp- Sure in the upcoming year? Sure. Always difficult, but right now I think, you know, we're feeling pretty good. you know, we've started to move into spring trends. you know, the buyers, they attribute their product and, you know, so far January has started out well for both of those brands, if not actually even slightly accelerated from their numbers quarter to date. Both brands are feeling really good about where their spring product is positioned and the reactions that we've seen from the consumer. I think, you know, we obviously, and a lot of brands have comped some of their numbers based off of AUR over the past year or so as they've been passing on some of those inflation costs on to the consumer. You know, obviously, we don't anticipate that same type of tailwind next year, how are we gonna drive the comp? I think the good news is that both of the brands, they're growing their customer base. If you think about, you know, in Anthropologie, heading into COVID, Anthropologie's women's apparel wasn't performing exceptionally well. You know, they had been off the mark for a bit of time there, and they were also starting to age out. What's really important is, you know, now that they're hitting the fashion execution, now that the brand is operating again really well from a women's apparel perspective, they're starting to bring in a younger consumer again. When I say younger, I'm talking about what was historically the core Anthropologie customer, 35- to 45-year-old customer. Their net customer growth is up. Their new customer growth is up 8%, so we feel good about the pool and the momentum that we have about acquiring new customers heading into the new year. Free People, which, you know, has been probably one of the most consistent performers in the industry, you know, putting up a 15 comp right now on top of positive comps, just continues to have momentum as they build out their assortment. You know, that brand historically was a brand that was a little narrower from an aesthetic and a little narrower from a product offering. They've now expanded into accessories, into shoes, into different sort of apparel categories that are performing really well. You know, their trend, and I'm gonna get a little bit fashion here, you know, is, you know, obviously very bohemian, very long and flowy, and that's not the most prominent trend that's out there right now. It's a much cleaner look, much more solids. They've, you know, they've worked on a line that they call FP Beach and Endless Summer, which has performed exceptionally well this year and has captured, you know, their consumer as well as incremental consumers. We still think it's early days for them and sort of the scope of what they're able to do underneath their brand umbrella, and we're seeing it in their performance right now, and we're seeing it in the early spring transition as well. Fantastic. This year has been full of some margin headwinds to say the least. Yeah. Especially on inbound freight, among others. Can you talk about as you think about the upcoming year, what are the various margin tailwinds that you could benefit from, and are there any headwinds that we should keep in mind on the horizon as well? Yeah. Thank you. We think, you know, at the peak of it, which was probably Q4 of last year, inbound freight probably impacted us by a little more than 200 basis points. Mel's nodding her head, so I got it right. A little bit more than 200 basis points. We think we're gonna capture a little more than 100 of that or so next year. We think some of the initiatives that we have put in place, like shrinking our tail a little bit, so the tail of SKUs that we have where they're very small buys and adding some depth into our assortment is also gonna benefit. We think our tailwind from IMU perspective next year could be about 150 basis points or so. That's a number that we feel pretty confident about because a lot of that stuff is on order, a lot of that stuff we have visibility to, and I just don't see the cost of transportation or our initiatives taking a U-turn on us right now. We feel pretty comfortable with that. In addition to that, we think there's probably about 50 basis points and reasonably 50 basis points of markdown rate improvement next year, and that's just solely due to inventory being better aligned with sales, right? As you said, ourselves, as well as a large portion of the industry, was over-inventoried last year. We think we're gonna benefit from having inventory in a good position coming into spring. I also think we're gonna benefit from the industry largely having inventory in a better position as well, so you're not forced to compete from a promotional perspective. We think about 200 basis points is the gross profit margin opportunity heading into our fiscal 2024, calendar 2023. A little bit of offset there is we do think our SG&A could be one point or so higher than our sales growth next year. That's not normal for us. A large portion of that just has to do with wages. You know, we ran at a pretty healthy, or unhealthy I should say, vacancy rate this year, stores as well as well as home office, so we've had to take some wages, and we're now anniversarying those wages into next year, which will creep up SG&A just a bit as we're headed into next year. I see that as a one-time thing. I don't see that continuing, the rate of wages that we've had to increase. We have held off on new headcount, we have cut hours in stores, and we are working on initiatives to offset as much as we possibly can. There will be that, you know, cost headwind heading into next year. Okay. Great. Let's see if in the last two and a half minutes we can hit two topics. Europe, Urban Outfitters Europe has been actually a bright spot this year. Can you just talk about, are there any learnings from that division that can help inform and help improve the product in the UO North America business? Any thoughts or comments generally on the health, like, what's happening in European consumer behavior right now that you're seeing? Yeah. I mean, the European consumer, right? I mean, we think we're all worried about the level of inflation over there and the impact that it's, that it's had and it's gonna continue to have over over the winter. I think the most important thing for Europe as well as North America to do is to, just to remain lean as it relates to inventory, so you can read and react to any, you know, any sort of macro consumer trends that would, that would change. I think, you know, the that brand has performed exceptionally well. You've got a team over there that's had some stability in it and has been there together for a long period of time. I would also say the supply chain, and just to emphasize the importance of it, they do a lot of their sourcing in Eastern Europe, so they were not nearly as negatively impacted as the North America team was because they were closer to their supply chain, and they weren't, they weren't having to make so many calls so deep and so far out the way the North American business was. They, they, you know, were still able to utilize, not completely, but more so their sort read and react model versus versus North America. I think that's one of the things, in addition to just the strong team's execution, that has helped them to perform over this past year. Okay. We've got exactly one minute left. Nuuly. Nuuly has actually had a really great year from a top-line perspective. Can you talk about the path to profitability there and your expectations for the upcoming year? Yeah. I think the biggest thing from a path to profitability there is them leveraging off a lot of the investments that we made initially to support the brand and to support the growth. We are not backing off on the fact that we think we'll be able to drive a profitable quarter next year, as well as meaningfully reduce our rate of loss, as well as our dollars of loss of what we experienced this year. We experienced a nice improvement on a year-over-year basis this year. We feel we're very excited about Nuuly and very excited about the top line and I think the bottom line progress that the brand can make. I think a big portion, you know, an opportunity for them is to leverage those investments that we've made in technology and in home office, continue to benefit from the relationship that they get from their sister brands of selling URBN-related product. It's, you know, all of that is helping to contribute to their path to profitability for next year. That is exactly time. Yeah. You've got breakout sessions today. We do. The first one is when? 9:30. 9:30 A.M. We'll see you there. Thank you both so much, and thanks everyone for sticking with us. Thank you, everyone.