Urban Outfitters filed its 10Q report (for the second quarter) before his presentation on Thursday morning and Conforti confirmed the flat number, but also said it was misleading because it excluded one full weekend. By the end of the quarter, he said it will all smooth out.
“The Urban Outfitters brand as of right now is still performing exceptionally well,” said Conforti. “Right-price sales are continuing to lead the way within that brand. It may actually have accelerated just slightly as we started off the third quarter here.” He noted that all categories were strong except for men’s, which was just starting to show some turnaround. Urban Outfitters is benefiting from a fashion shift that its early adopter customers are quick to jump on. Conforti said that they were seeing strength in certain lines and there was no resistance to price. Private brands now command 60 percent of the inventory and that could go even higher.
Anthropologie’s business has slowed from the second quarter, but Conforti said that the brand also started slowly during the past quarter, only to pick up toward the end and he thinks this will be repeated. Unfortunately, this customer is slower to shift to a changing fashion silhouette and that is why the women’s apparel is the weakest category. Home, beauty, accessories and even intimate apparel are all doing better. He said they are canceling orders of what isn’t working and chasing others that are, while maintaining margins.
Free People is running negative comps and he expects they will “land the quarter” in a negative position. “What I would say is different right now, though, for the Free People brand is they have some product that is absolutely on fire,” said Conforti. “They really have some items that if you go to the store and if you go to the web site and take some of the best stuff, you’ll probably find that you’re not able to get it because it’s out of stock.”
Investors were very interested in Conforti’s explanation of how the company’s inventory software locates orphan items in stores for online order fulfillment. This keeps the items from being written off and still addresses customer’s desires to return online orders back to stores. Sales associates are compensated for locating the “singles” and then fulfilling the order in the store. Conforti said the e-commerce algorithms were designed to look for store singles when online orders are received.
Conforti was also very pleased to speak about the changes with inventory management. More inventory is kept at the distribution center than in the past and is shipped to the store as needed. This has cut down on markdowns and gets the right product to the right stores.
He also spoke about speed initiatives and reminded the audience that last year, the company’s goal was to be a week faster in its processes. He said they are actually two weeks faster. They have consolidated factories and begun using more factories that are known for speed. The design calendar was moved from quarterly to monthly. Fabric strategies have also improved as the company works to get better pricing.
Looking ahead, Urban Outfitters will continue to maintain a disciplined approach to adding food service in larger stores. Conforti also said he expects the consumer spending patterns for the rest of the year will stay the same.